Venture Capital in Asia-Pacific: Value Beyond Capital

With a healthy and vibrant start-up ecosystem, high-profile mega deals, and robust capital supply, Asia-Pacific venture capital holds much promise – Vertex Holdings explains how the industry has evolved and where it is headed

In the early years of VC in Asia, few investors had either the capital or the risk appetite to back disruptively transformational start-ups with the potential to be global champions. Key infrastructure and supporting industries were missing, while foreign investors mostly stayed on the side lines, bar a few that ventured into China.  

The tide turned in the late 2000s, and focus turned to the emerging Asia-Pacific region, particularly Southeast Asia and India. We saw the potential for emerging innovation hubs and started allocating capital to opportunities in China, Southeast Asia, and India in 2008, backed by initial capital of $200mn from Temasek.  

Asia-Pacific Enters an Entrepreneurial Age
At this time, these regions were on the same trajectory, although China was by far the largest market. Since then, Vertex’s investments in Asia-Pacific have strengthened due to the spirit of entrepreneurship sweeping across the region. We have made over 110 investments in Greater China and beyond 60 in Southeast Asia alone.  

In China, we backed winners like mobile application marketplace 91.com and biotech innovator Chipscreen. In Southeast Asia, super app Grab and intellectual property intelligence platform PatSnap each welcomed Vertex as their first institutional investor. In India, we supported online baby product retailer FirstCry and e-commerce logistics company XpressBees from their early rounds. Today, Vertex manages north of $5bn with over 200 active portfolio companies and a global investment team of more than 100 professionals.

The VC investment pace in Southeast Asia passed $10bn in 2020, a milestone China reached in 2011, according to Preqin Pro. To get to that point, Southeast Asia has faced challenges similar to those experienced by China’s domestic VC industry at the turn of the decade, including talent recruitment, a dearth of growth-stage funding, and a modest number of notable exits or unicorns. But this is changing rapidly as seen with successes like Grab and PatSnap.  

Vertex has ventured into Northeast Asia in recent years. We started with Japan, given the market prowess and financial heft of leading organizations with a keen interest in open innovation and digital transformation. Beyond our strategic institutional investors – Japan Bank for International Cooperation, Development Bank of Japan, Marubeni Corporation, Sumitomo Mitsui Banking Corporation, RISA Partners, ABeam Consulting, and Aozora Bank – Vertex has built meaningful partnerships with other globally oriented Japanese organizations, giving them access to innovations that address their technology needs. We are now following this successful model in Korea.  

Full-Lifecycle Capital Support for Start-ups
Start-up and VC ecosystems take decades to build. Silicon Valley dates back to the 1940s, while China’s ecosystem traces back to the early 2000s and the BAT internet. The rise of start-up ecosystems in Southeast Asia came a decade later, in the 2010s; now the ecosystem is enjoying a strong base of early-stage start-ups and investors, but gaps still exist at the growth and later stages.  

We established the Vertex Growth Fund in 2019 to support the most compelling growth-stage opportunities emerging from our five early-stage fund portfolios, with a primary focus in Asia. To date, Vertex Growth has invested in a diversified portfolio of leading companies across various technology themes, including enterprise automation, consumer, cybersecurity, fintech, and healthcare, with two-thirds of the fund deployed in Asia.

With six leading VC funds under its banner, Vertex has the capital and capability to support portfolio companies from seed to IPO. Company founders know they have patient capital and global network support from institutional investors who are start-up savvy, with the willingness and ability to provide guidance, support, and resources through the business cycle.

The Big Role of Government
Governments play an outsized role in the economic development of Asia-Pacific. The development of the VC industry has been closely tied to shifts in government policies, especially regulations relating to private businesses, foreign direct investment, and technology innovation. 

The ability to help start-ups navigate regulatory processes is essential. As the first institutional investor in Grab (then known as MyTeksi), we persuaded co-founder and CEO Anthony Tan to relocate to Singapore, leveraging its economic advantage as a gateway into regional markets. Vertex played a pivotal role in guiding its redomiciling and rebranding, facilitating interactions with regulators and other major incumbents, and advising key early talent hires. Grab even used co-working space in our offices at Raffles City Tower. Today, Grab is Southeast Asia’s first and most valuable decacorn, providing a wide range of services through its super app across more than 300 cities in the region.

Another example is global e-payment platform Nium (formerly known as Instarem), which moved to Singapore from Australia alongside Vertex’s Series A lead investment. We helped Nium relocate and attain its Singapore remittance license, which paved the way for Nium to secure eight other operating licenses globally. “The state plays a key role in influencing technology innovation, especially in the highly regulated financial services industry. We were glad we made the decision to relocate to Singapore and appreciate the operational support we’ve received from Vertex, including its guidance on overseas expansion and provisioning of growth capital,” said Prajit Nanu, Co-founder and CEO of Nium.

Value Creation through Innovation Partnerships
Businesses in Asia-Pacific do not operate in isolation, and our global network brings value creation capabilities beyond capital. One example is Cymulate, a leading cybersecurity start-up from Israel. The company, which provides next-generation automated penetration testing to enterprises for the identification of system vulnerabilities, quickly recognized the value and importance of tapping into Asia-Pacific markets. Given its ambition to be a global leader, Cymulate focused its resources on US markets and entrusted the initial market exploration in Asia-Pacific to Vertex’s Partnership and Growth teams.  

With boots on the ground in Southeast Asia, India, Japan, and Taiwan, we opened the doors for Cymulate to over 100 customer conversations, which led to multiple contracts. “Vertex greatly facilitates our business development efforts in the Asia-Pacific region, opening doors to key partners and potential clients which would have taken us years to cultivate in-house,” said Eyal Wachsman, Co-founder and CEO of Cymulate.  

We also helped Geekplus, a leading global warehouse and logistics automation company from China, establish its regional presence by landing its first Southeast Asian customer in YCH, a leading regional supply chain solutions provider. “Vertex believed our vision and their strong belief is illustrated in their unwavering active support in our expansion efforts to automate warehouses all over the world,” said Zheng Yong, Founder and CEO of Geekplus.  

Brand, Connectivity, and Relationships  
Investor credentials, network breadth, depth, and relationship strength with key local players can have an asymmetrically important role for VC investment in all markets. However, this is especially true in Asia-Pacific. The credibility, capability, and durable financial strength of a tier-one name in the cap table can be a force multiplier for many leading start-ups.  

Support from Vertex and close engagement with various government agencies enabled Validus, the leading SME financing marketplace in Southeast Asia, to become the first non-bank fintech to qualify as a participating financial institution in 2020. This allowed them to disburse low-cost, government-backed, working capital loans to support Singapore’s SMEs for survival, and even growth, during the pandemic.  

We helped Smarter Micro, a rapidly growing Chinese start-up in the 5G communications chip sector, circumvent the industry-wide problem of wafer capacity shortage by tapping our relationships with semi-conductor foundries. When Vertex Growth was contemplating investment in Licious, a Bangalore-based fresh meat and seafood brand, it tapped the expertise and insights of the team, who have an in-depth understanding of the local psyche surrounding meat consumption, as well as the challenges faced by traditional vendors.  

Vertex has taken these experiences in its stride and turned them into a source of enduring strength that provides differentiated value creation across various functions, including talent recruitment, regulatory compliance, and business development.  

Asia-Pacific Will Be the Engine of Global Growth
Asia-Pacific is home to a wealth of outstanding start-up opportunities. The region is poised to be the focal point for growth and innovation in the next few decades. The World Economic Forum (WEF) expects the region to contribute roughly 60% of global growth by 2030, with the bulk coming from China, India, and Southeast Asia.  

China’s focus on technology self-sufficiency and addressing domestic demand will create tailwinds for technology growth opportunities, thus shifting consumer attitudes. Southeast Asia and India’s innovation ecosystems are maturing well; they will continue to leverage their large, technology-savvy populace and talent base as sources for growth. Japan and Korea are gaining global prominence as they open up their innovation ecosystems to global capital and talent, and encourage domestic start-ups to go global.

Sector opportunities are constantly evolving. The pandemic and aging populations have put healthcare and wellness top of mind. Teleconsulting and telemedicine will grow significantly as people seek alternative healthcare solutions, which will include remote monitoring and wearable medtech. The rise of e-commerce, P2P marketplaces, and demand for exchange rather than selling (social marketplaces), is expected to pave the way for sectors such as digital payments and lending. Digital transformation has become a priority for many businesses, especially SMEs, while greater digital adoption has also led to an increase in potential vulnerabilities and is driving demand for cybersecurity services and solutions.

Vertex Growth and the Asian Advantage  
We remain cautiously bullish on the prospects of VC investment in the region. There is a buoyant outlook around exit opportunities and growing optimism around alternative options, including SPACs. The outperformance of Vertex Growth’s inaugural fund to date is validation of our unique approach to identifying and nurturing tomorrow’s global champions, and the leverage provided by our global network.  

As an all-weather global VC network, backing some of the finest founders and funders, the Vertex family of funds will continue as an active VC investor in the region. Through working with some of the world’s most visionary founders and other stakeholders in the Fourth Industrial Revolution, we will create significant and lasting value for portfolio companies.  

About Vertex Holdings
Vertex Holdings is a Singapore-based venture capital investment holding company with AUM over $5bn. We provide anchor funding and operational support to a global network of six funds in key innovation hubs around the world, each operating independently with local investment teams. Vertex Growth is part of the global network investing primarily in Asia with a focus on backing promising technology and healthcare companies at their growth inflection.