SINGAPORE (May 22): Venture capital firm Quest Ventures’ first fund has helped back new digital economy start-ups like Carousell, ShopBack, Carro, StyleTheory and even the popular family of meme creator SGAG and its Malaysian and Philippines versions, MGAG and PGAG. Citing publicly available rankings, Quest Ventures says that this fund’s performance has put it in the top decile. The first fund has also returned more than 40% in internal rate of return so far.
Now, Quest Ventures has enticed two sovereign wealth funds to chip in into another fund, the Asia Fund II, and to seek out and help grow more of such ventures. They are QazTech Ventures, a development institution under Kazakhstan sovereign fund Baiterek National Managing Holding; and Pavilion Capital, under Temasek Holdings.
The Asia Fund II on April 16 announced its first close completion for its US$50 million ($70.85 million) venture capital fund, representing more than half of its fund target.
“We believe that opportunities in Southeast Asia are growing, and we aim to play an important role in the venture capital ecosystem here (working with Quest Ventures),” says Tow Heng Tan, CEO of Pavilion Capital.
Quest Ventures’ new fund has a strong regional remit. It is looking to invest in start-ups across Southeast Asia and emerging Asia at the postseed and Series A stages. Already present in fast-growing economies such as Vietnam, it will strengthen and expand its footprint to other Southeast Asian countries such as Indonesia, Myanmar and the Philippines. It will also launch an accelerator in Kazakhstan to jumpstart the region’s digital economy.
“We look for business models that capture the big growing middle class in Southeast Asia, and [where] people are willing to spend their disposable money on the services,” explains Quest Ventures partner Jeffrey Seah. “We look for people who have their feet on the ground. They can have great engineering, thinking or a good and creative idea, but [their] product has to be something that the market can accept.”
The character of the start-up founders is also what Seah looks for. “To me, business models are one thing, and trends are another, but the people behind [the start-ups] are important as well. You can find an intelligent company founder with great academic qualifications, but I will not invest in a company with a founder that thinks he or she walks on water.”
Typically, Quest Ventures will put in up to US$1 million for a start, followed by another US$1 million. Besides that, Seah says, Quest Ventures helps to guide the start-ups in making sound business decisions and open doors to six different markets.
Instead of quickly cashing out when the first opportunity arises, Quest Ventures will stay associated with the companies for 10 years — the whole of the fund’s lifespan.
Seah is confident that the startups Quest Ventures invest in will be able to stand on their own after the 10 years, and be acquired by large corporations or even publicly listed.
Essentially, Seah hopes for local SMEs to partner with these startups. This will help both parties future-proof their businesses. “Many SMEs are very hesitant [to partner start-ups] because they think that all these tech and digital companies will destroy them and make them jobless, which is not the case,” says Seah.
One example Seah gives is Oddle, an online food ordering system that Quest Ventures has invested in. Oddle is a subscription-based service that allows customers to place online orders with restaurants.
Now, with local F&B outlets opened only for takeaway and delivery, many are partnering Oddle to enable online ordering. What differentiates Oddle from other food order and delivery apps is its comprehensive order management system that lets restaurants customise their own ordering pages.
More importantly, it is Oddle’s pricing model, Seah says, which holds a better appeal to restaurant operators. Most online ordering apps charge commission according to the number of transactions, which is in theory a more flexible arrangement.
In contrast, Oddle charges a flat fee for every restaurant outlet, with subsequent outlets costing extra, and the cost of using Oddle scales as a restaurant’s business grows. The restaurant operators keep a bigger percentage of their earnings if their volume grows. This pricing model appeals to those that have a certain base already in place but stand to gain a boost using Oddle’s system.
“The Covid-19 pandemic has shown that many companies are desperate for digital transformation,” says Seah. “So, now in this context, we want to make sure that the ecosystem of start-ups can connect better with the business world that needs help, especially the SMEs.”
