Conviction & Momentum

Managing Partner Paul Santos reflects on hitting a new milestone at 3rd early-stage fund.
In building a great company or social sector enterprise, there is no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.” – Jim Collins

Jim Collins describes The Flywheel Effect in his book, Good to Great. The idea is that good-to-great transformations do not happen in a singular moment.

Our giant flywheel

We often make fun of ourselves by sharing that we made it infinitely more challenging to raise our second SEA fund. Attempting to grow from $6.5M to $50M was hard enough. Proposing an uncommon investment strategy added another degree of difficulty.

Institutional fund investors tend to be quite disciplined. They will usually have defined themes, geographies, strategies, managers, etc that they will invest in. If your fund is not within their scope, they will usually pass or “track you” (i.e. get to know you over many years to see what you’re about).

Given this, you can imagine that it would be very unlikely that a combination of SEA + VC + seed stage + large portfolio + enterprise and deep tech would be one of their defined strategies. Needless to say, we got more than our fair share of no’s and “track you’s”.

Of course, it didn’t help that most VCs in Southeast Asia were investing mainly in consumer-focused startups in areas like e-commerce, marketplaces, digital media, and fintech.

Who can blame them? When you talk up SEA, you can’t help but lead with the young, growing, and upwardly mobile population of 600M adopting technology like never before. It’s where most of the region’s unicorns play. We get it and we do it once in a while too.

It just felt that the market was already quite well-covered. Would it be better for us to try to serve the underserved?

Relentlessly pushing our flywheel, turn upon turn

So why do we believe in enterprise and deep tech? That would probably be another blog post altogether but one short answer is the founders.

Enterprise and deep tech founders would tend to be a little older. They would usually start their companies based on an industry or technology insight that not too many people would have. They would invest their own money and bootstrap. They usually have friends whose trust they’ve earned through the years who would give them money and/or pilot projects. We also didn’t mind that they often generated revenues with solid gross margins and promising unit economics.

Getting any startup off the ground is tough, but we (maybe naively) assumed that if we could achieve our milestones, generating follow-on investor interest would be straightforward enough.

Well, it wasn’t. As one regional VC put it, our portfolio was “too quirky”. Imagine a typical VC firm where the partners have little to no interest nor experience in enterprise and deep tech, with a portfolio size of only 15-20 companies. It won’t be easy for them to approve an investment into a quirky enterprise or deep tech company, especially when they have so many other promising consumer companies to choose from.

Hearing the no’s from prospective fund investors and portfolio co-investors wasn’t fun and did take its toll. We questioned ourselves many times.

Was the market telling us we were wrong? The successes from China and India were largely in the consumer space.

Should we continue to stick our necks out and go all-in enterprise and deep tech or should we change course?

I often like to quote this equation: Value – Perception = Opportunity. There is no question that the perception that we can build truly valuable enterprise and deep tech startups in SEA is low.

It seems most would believe that the actual value is low, and so, the opportunity is low too.

After some research, a few conversations and enough reflection, we were able to convince ourselves that the actual value is high.

So we did it. We went all in: seed stage + large portfolio + enterprise and deep tech.

We’ve never looked back.

Wavemaker Partners SEA history 2019

Building momentum until a point of breakthrough, and beyond

It took us 2 years, but thankfully Fund 2 was oversubscribed and we hit $66M. This gave us the largest seed-stage fund focused on enterprise and deep tech in all of SEA.

Since 2012, we’ve made 109 investments. 88 of them (81%) are in enterprise and deep tech. It’s safe to say that our conviction and momentum have only grown.

Now, we’re seeing sizeable funding rounds for some of our companies like: Zilingo (yes, more than 75% of their revenues are B2B), ThinCI (our biggest single check yet), Moka (our first investment in Indonesia), and CashShield (who are competing globally).

We have several others that are perhaps less known but have generated significant traction like Lynk, Wavecell, Red Dot Payment, Structo, Growsari, Igloohome, and Silent Eight.

We went all in: seed stage + large portfolio + enterprise and deep tech.

We believe the number and variety of investments we’ve made have contributed to our learning. As an entrepreneur and angel, I’ve been involved in things like business process outsourcing, marketing communications, pest control, spirits distribution, air cargo, and education.

As a VC, I’ve had the opportunity to learn about e-commerce, software, additive manufacturing, laser communications, AI, and cybersecurity. I’ve also learned about financial services, food and agriculture, healthcare, property, and more.

Our network in the space has grown as well. Today, we have multi-year Midas List members as advisors. We have large, credible financial institutions and family offices as LPs. We have expert mentors who are among the best in their fields. We’ve co-invested with over 300 entities ranging from angels to institutions, regionally and globally.

To date, we’ve connected our startups to over a hundred global and regional corporates, some of whom have become their customers and/or investors. Each new member of our growing family helps us get smarter, increases our odds for serendipity, and helps us meet the next new member.

Our deal flow has never been better and the caliber of enterprise and deep tech founders we get to work with has been rising. And to borrow a phrase from many founders we meet, “we got here with very little marketing”. 😎

We’re quite aware that it’s still early days. Ultimately, time will tell how good we really are (or aren’t).

But from the bottom of my heart, I am truly enjoying this journey and grateful for many of the people who’ve come along for the ride. You know who you are and I mean it when I say we couldn’t have gotten here without you.

That’s it for now. Have to start working on my close. 😅

Paul Santos
Managing Partner
Wavemaker Partners SEA

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