Paul Santos (R) with Wavemaker’s Operating Partner Sui Ling Cheah

Wavemaker Partners is probably the most active early-stage VC fund in Southeast Asia. Originally founded in 2003 by Eric Manlunas, the VC firm expanded operations into Southeast Asia in 2012. Paul Santos, a serial entrepreneur who has built half a dozen startups in the past, is heading the regional operations for the VC from its Singapore office.

Wavemaker, which primarily invests in B2B and deep-tech startups, has just announced the first close of its third fund at US$60 million from several prominent names, such Pavilion Capital, the International Finance Corporation (IFC), Temasek, family offices of the Co-founders of Microsoft (Vulcan) and Facebook (EE Capital). Wavemaker is in talks with more investors to close the fund at US$100 million.

In this interview, Santos shares more details about the fund and the Southeast Asian market.

Below are edited excerpts:

Most of your backers are well-known institutions and family offices from around the world. How did you win their trust to invest in your fund?

We are grateful for their trust. It’s something we don’t take for granted and do our best to keep. If I were to guess, it might be a combination of a few factors.

From a macro level, it helps that Southeast Asia’s tech ecosystem has continued to mature. As compared to a few years ago, we don’t have to answer ‘why SEA?’ as much. That helps because then investors can spend more time getting to know us.

Also Read: He dropped out of school to travel around the world and is now founder of a startup with presence in 26 countries

At the firm level, it seems we’ve built a bit of momentum (as I shared in my blog post). We’ve been actively investing in Southeast Asia for more than seven years now. We’ve been consistent with our strategy. Who else in the region has 88 (out of 108) investments in enterprise and deep-tech? We’ve been able to show up rounds and exits.

We’ve assembled a solid portfolio of founders complemented by a strong network of LPs, advisors, and co-investors who help us support them. Our team has also grown and now our deal flow has never been better.

By when are you looking to make the final close of this fund? Do you expect the fund to be oversubscribed?

We have quite a few interesting ongoing conversations. Let’s see how it goes.

How is the third fund going to be different from your previous funds? Do you expect to cut bigger cheques moving forward?

Good question. When we had a smaller fund, we would end up leading US$1 million seed rounds with a US$250K-US$300K check because nobody else was as interested in enterprise and deep-tech. With the new fund, we can now write US$500K checks to start and add another US$1-2M in succeeding rounds. This will hopefully make fundraising easier for our startups.

Since launch in 2012, Wavemaker has invested in 108 companies, but very few are consumer internet companies. Was it a deliberate decision to not go after consumer internet and why?

Yes, it was. We felt that the consumer companies were well-covered by the market, so we could do that more opportunistically. The enterprise and deep-tech companies were underserved and we happened to find these companies interesting and potentially valuable. We continue to be committed.

You were an entrepreneur and founded six companies before turning investor in 2012. Which is more difficult — building a company or building a VC firm? Can you share your experience with our readers?

I actually see Wavemaker as an entrepreneurial endeavour too. I’ve survived enough mistakes in the past, so hopefully I can do a better job this time.

I think that if you strip away all the jargon and the hype, all businesses — whether they’re tech businesses or non-tech businesses or even VCs — are quite similar. I will always try to answer the same questions. Is the market opportunity attractive? Can we assemble the right organisation to pursue it? Can we build the right plan and get it financed? Can we define the key risks and manage them? Is the upside for doing all of these worthwhile?

If I’m happy with the answers, I go for it. Once I’m in, it’s all about execution and adapting to market conditions. This is where we’re at with Wavemaker right now. I think, so far so good.

How do you look at the evolution of the Southeast Asian market as a whole over the past seven years?

It’s certainly become more vibrant. The caliber of the founders we’re meeting and the quality of the companies they’re building have gone up. There are more successes emerging.

There’s also more capital being invested in the region coming from more places like Japan, South Korea, China, and India. Even large local families are participating now. People used to talk about a Series A gap. Now they’re talking about a Series B gap. VC fund sizes are growing as well.

In 2017, you launched a US$66M fund. How is this fund performing? How many investments did you make in Indonesia from this fund?

It’s doing well. We made 75 investments. In early-stage VC, it’s about finding a few big hits to carry your portfolio. As mentioned in our release, we have a few companies that have raised sizeable funding rounds already like Zilingo, ThinCI, Moka, and CashShield. Other companies that are probably less known but showing promising traction include Lynk, Wavecell, Red Dot Payment, Structo, Growsari, Igloohome, Zuzu and Silent Eight. We also saw recent funding rounds for companies like Saleswhale and Musiio.

Myanmar is “the new kid on the block”, given its huge internet penetration. Do you have aggressive plans to tap into this market going forward? Do you expect to launch an exclusive fund for this market?

No aggressive plans, and no intention to raise an exclusive fund.

You are also operating a healthcare fund called Wavemaker360. I am just curious to know why a separate fund is required exclusively for healthcare? Do you plan to take this fund to SEA? Or have you already invested in the region from this fund?

That is primarily a US-focused fund. The team has deep experience in the space and excited by the opportunities in front of them. That said, they have co-invested with us in Savonix. We have 12 other healthcare-related investments from our SEA funds.

India has been a fast-growing market, not just for B2C but B2B as well, and almost all global VCs have operations in this country. Don’t you think you are missing out on a massive opportunity by not turning your focus here?

We currently have nine portcos with operations in India. They are: Zilingo, Konigle, Exborders, Hardskills, Hospals, Lynk, MyDoc, SourceSage and Yulu. We potentially have three more in the pipeline.

That said, India is a huge opportunity just like San Francisco, New York, or China are huge. We aren’t directly in any of those markets either. The first question we ask is if the market is underserved. The next question we ask is what kind of deal flow can we get? Quality deal flow is the lifeblood of a VC. What right do you have to compete for the best deals in a market? Can you spot them? Can you get in them? If you can’t, then you’re just wasting time and money.

The primary way we get access to high-quality opportunities from India now is through credible partners. We are grateful to firms like Blume, Spiral, and Leo who’ve shared exciting deals with us. The reasons they seem to be inviting us would be our enterprise and deep-tech experience and expertise, as well as the networks we’ve built through offices in Singapore and Los Angeles.

Image Credit: Wavemaker Partners.