Venture capital firm B Capital Group announced last week that it completed the closing of its first fund, raising US$360 million. The firm, co-founded by investor and Facebook co-founder Eduardo Saverin and investor Raj Ganguly, initially targeted a fund size of US$250 million.
(Disclosure: Eduardo Saverin is an investor in Tech in Asia. See our ethics page for details.)
B Capital is addressing the growth stage of tech companies related to financial services, healthcare, transportation and industrial goods, and consumer enablement.
The firm has long talked about bridging the “series B gap,” one of the major hurdles to growth for local startups. After 11 investments, and with three or four more about to be announced in the coming weeks, the VC feels it’s gained more clarity in terms of the companies it wants to back.
Platforms of the future
The VC is intrigued by business models like the advent of nation-wide platforms that can be the bedrock for additional services and new companies to build on. “This opportunity expands the market if you’re able to engage the right way,” partner Gavin Teo tells Tech in Asia.
He brings up Chinese telemedicine service Haodaifu as an example – the company uses Tencent’s WeChat app for functions like user acquisitions and payment. Tencent led the company’s US$200 million series D round last year.
As a counterpart in Southeast Asia, Teo mentions Indonesia-based startup HelloDoc, which leverages Go-Jek’s growing services platform as a means of distribution.
The best way to play in ecommerce is through logistics and payments.
“That’s one lens through which we look at interesting opportunities: How do you play within the various national champions who have created their own sandboxes for attracting users at scale?” Teo muses.
At the same time, the firm is careful about how it approaches sectors of interest. For example, when it backed Singapore-based logistics provider Ninja Van, it was a way of tapping into Southeast Asia’s rich ecommerce opportunity in a low-risk manner. It made more sense than backing an inventory-heavy ecommerce startup with high capital requirements in the series B and C stage, partner Kabir Narang explains.
“We think ecommerce is a 30-year story and beyond in Asia, and the best way to play in it is through logistics and payments,” he adds.
In Asia, B Capital has also invested in companies like India-based MSwipe that focuses on payments, Singapore-based healthcare products marketplace CXA, and SME-focused loan and invoice financing startup Capital Match. While the fund has a global outlook, Teo and Kabir foresee that the region will continue to be a strong focus for them.
See: Southeast Asia sees record startup funding in 2017
Filling the vacuum
The so-called series B gap, where funding is sparse for local and regional startup ecosystems that are maturing out of the early stage, has been a concern for investors for the past couple of years. However, data shows that 2017 was an improvement on that front, along with an overall increase in VC funding.
B Capital feels this bodes well for the ecosystem even as 2017’s mega-rounds like Grab’s over US$2 billion round and high-profile IPOs like Sea and Razer fade on the horizon.
“You see a lot of companies open to connecting to corporates for business or even strategic acquirers,” Narang says. “And discussions happen much earlier on than they would have a few years back. So it’s a great sign of maturing of an ecosystem, one we both want to be participating in but also evangelizing.”
CXA, for example, has been working with corporates like Philips whose healthcare venture fund invested in its latest round together with B Capital.
Meanwhile, merger and acquisition activity in the region in the past year has remained strong. In Singapore, M&A deals were worth US$75.4 billion in 2017, with the technology sector being the second largest after real estate according to valuation and advisory firm Duff & Phelps.
After the surge of early-stage funding in recent years, investors coming into the series B stage and beyond have a chance to see how business models have grown and identify the most promising ones.
“Now we have enough data and information to say which players perform the best, which ones hit certain targets, and so on,” Narang explains. “You have the ability to pick some of the best teams, both based on your view of the founder but also on some historical data and traction.”
In a world where companies like SoftBank, Tencent, and Alibaba dominate these later-stage rounds, B Capital thinks a VC’s role is growing more specialized and focused on adding value. The fund has relationships with some of these larger corporates, co-investing with them or bringing them in touch with startups – the VC is about to announce an investment where it’s collaborated with Tencent and another one with SoftBank, although it doesn’t offer more details.
Narang thinks this is where venture capital can be more relevant and valuable in the near future: supporting portfolio companies on their next round of fundraising, hiring, and growing their revenue and customers. The VC feels that its connections, such as its relationship to global management firm Boston Consulting Group, allow it to offer this added value.
By way of example, Ninja Van CEO Chang Wen Lai tells Tech in Asia that B Capital helped the startup by advising on how to scale its employee count while maintaining its culture. It also gained useful insights to shape its strategy.
“You often see great companies and entrepreneurs who don’t know how to access corporates the right way or industry leaders in corporates that don’t have the ability to properly access new technologies,” Narang says. “So a big part of our mission is becoming this translation engine that can connect these two worlds.”
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