What to expect from Sequoia’s $850m 1st dedicated Southeast Asia fund

Last week, Sequoia Capital announced two new funds – US$850 million for Southeast Asia and US$2 billion for India. Sequoia India has been investing in Southeast Asia for a decade, and it is the first time that Sequoia has a dedicated Southeast Asia fund.

In its blog post entitled “Doubling Down on Southeast Asia”, Sequoia India said that “What started as a small experiment has now expanded into Sequoia Southeast Asia – an office of over 40 people across 12 nationalities, a large portfolio of seed, venture and growth investments, and a hub for programs like Surge and Spark, all driven by a growing conviction in the potential of our markets.”

Despite the current market sentiments, we had indicated that VCs in Southeast Asia had a lot of ‘dry powder’ in reserve (money raised but not yet deployed). 

Sequoia’s new fund adds to the pile raised, following Jungle Ventures’ $600m, East Ventures’ $550m, Alpha JWC’s >$400m, Vertex’s $350m, and so on. 

We also know of a number of other funds which are in the process of closing. At the same time, a large number of Chinese US$-denominated funds are re-focusing on Southeast Asia – this time driven by necessity, not opportunism. 

Even if the market goes completely kaput, it is hard to imagine any of this money NOT being deployed in the next couple of years. Ultimately, compared to hedge funds, VC investing is a long-term game – and everyone is probably expecting to scoop out good opportunities in the downturn. 

As capital is not as cheaply available as in the past two years, VC investors will need to be very picky in which companies they invest in. They will need more stringent assessments of startups, with a keen eye on their business models, ROI and of course, path to profitability. 

It simply gives room to breathe for good founders who are committed to building long-lasting tech businesses, as opposed to opportunists who found companies just because capital is cheap (and throw in the towel when times are bad). 

It is also a tough albeit good test for VC investors’ judgment – so much fund has been raised, ‘no brainer’ opportunities have already been depleted, and the competition amongst major VC firms for return is intensifying. Founders in ‘not hot’ sectors but are nonetheless building solid businesses should also receive the attention they deserve. 

Warren Buffett said, “Only when the tide goes out do you discover who’s been swimming naked.” By the same notion, you also discover who are real aquatic champions. 

Overall, very, very good signals for the system, and good reasons for optimism.