Warburg Pincus announces new $4.25 billion fund for China and Southeast Asia

Warburg Pincus, the private equity fund with over $60 billion under management, is doubling down on Asia after it announced a $4.25 billion fund dedicated to China and Southeast Asia.

The firm has been present in China for 25 years, and it has invested over $11 billion in a portfolio of over 120 startups that includes the likes of Alibaba’s Ant Financial and listed companies NIO (a Tesla rival), ZTO Express (a courier firm)among others. The new fund will work in tandem with the firm’s $14.8 billion global growth fund which was finalized at the end of last year.

What’s particularly interesting about the new fund is that it has expanded to include Southeast Asia, where internet adoption is rapidly expanding among 600 million consumers, for the first time. It is the successor to Warburg Pincus’ previous $2.2 billion ‘China’ fund and, with the addition of Southeast Asia, it’ll aim to build on initial investments in the region that have included Go-Jek in Indonesia (although it is going regional) and Vietnamese digital payment startup Momo from its Singapore office.

Indeed, the firm’s head of Southeast Asia — Jeff Perlman — said in a statement that Southeast Asia is “exhibiting many of the strong investment themes and trends which have driven our China business over the last 25 years.”

While there is plenty of uncertainty around China, and more widely Asia, due to the ongoing trade battle with the U.S. — which has ensnared Huawei and other tech firms — Warburg Pincus said it had received strong demand for LPs whilst out raising this new fund.

Though it declined to provide details of its backers — and you’d wager that few, if any, are U.S-based — it said it surpassed its initial target of $3.5 billion for the China-Southeast Asia fund. That’s despite evidence suggesting that China’s investment space is experiencing a slowdown in total funding raised despite more deals.

In terms of target investments, the firm said it intends to focus on areas including consumer and services, healthcare, real estate, financial services and TMT — technology, media and telecommunications.

Warburg Pincus is already one of the largest investors in Southeast Asia in terms of potential check size, although it has been fairly selective on deals at this point. The fund’s move to include the region alongside will be a boon for companies looking for growth-stage deals that are hard to find in the current venture capital ecosystem.

More broadly, it is also a major endorsement for Southeast Asia as a startup destination. The region has long been seen as having immense growth potential, but it often sits in the shadows of more mature regions like India and China.

Warburg isn’t alone in grouping Southeast Asia with another region. Sequoia’s India fund reaches into Southeast Asia — alongside its recently-launched accelerate program — as does the most recent fund from Vertex Ventures.

On the other side, a number of Chinese funds are increasingly doing deals in the region and setting up shop in Singapore. Those include GGV which has backed startups like fintech company Thunes, Ant Financial-backed fund BAce Capital and ATM Capital, which helps Chinese companies expand into and localize in Southeast Asia.

Meanwhile, other funds are also stepping up to address the gap in later stage capital. B Capital, a firm led by former Facebook co-founder Eduardo Saverin, recently made a first close of over $400 million for a fund that’s targeted at Southeast Asia and other regions. Asia Partners is a maiden venture spearheaded by Nick Nash, the former president of Sea, that aims to tap into the post-Series B gap using a PE style approach that may be much like that of Warburg Pincus.

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VCs double down on data-driven investment models

Social Capital co-founder Chamath Palihapitiya is spinning out a company from his venture capital fund-turned-family-office, TechCrunch has learned. The new entity, temporarily dubbed CaaS (short for capital-as-a-service) Technologies, will focus on providing data-driven insights to VC firms.

Data informs investment decisions at VC funds more than ever, as new technologies make way for increasingly quantitative approaches to deal-making. But when it comes to third-party data analysis tools, there are few options tailored to VCs.

Palihapitiya’s latest effort will operate as a standalone business, automating the time-sucking process of evaluating a company’s health prior to investing. Zafer Younis, former partner at San Francisco accelerator 500 Startups, has been named CEO of the business, which is expected to launch this fall.

Palihapitiya did not respond to a request for comment. Younis could not be reached for comment.

According to Younis’ LinkedIn profile, which indicates he spent nine months at Social Capital in 2018, CaaS Technologies is “a collection of quantitative diligence tools developed to help VCs evaluate investment opportunities and make better data-driven decisions. CaaS reduces diligence time and offers investors insights that are otherwise a burden to the founder and investment team to process and prepare. Founders are using CaaS to improve their pitches and drive investor conviction using transparent and defendable data.”

CaaS Technologies’ approach resembles that of Social Capital’s “magic 8-ball,” a quantitative tool for due diligence built by former Social Capital partner Jonathan Hsu several years ago. The goal of 8-ball was to develop a standardized method of determining product-market fit in early-stage startups. In 2016, Social Capital decided to open-source 8-ball, granting startups access to its basic features.

Palihapitiya is choosing to monetize Social Capital’s IP shortly after Tribe Capital, a relatively new fund managed by a trio of former Social Capital data wizards including Hsu, began investing in startups using 8-ball’s methodology.

Hsu declined to comment for this story.

In addition to hiring Younis, CaaS Technologies has formed a small team complete with engineers, raised capital and formed relationships with more than a dozen institutional venture funds, sources tell TechCrunch. We have not yet identified any of the venture funds working with CaaS Technologies.

Co-founder Social Capital, Chamath Palihapitiya, speaks onstage during “The State of the Valley: Where’s the Juice?” at the Vanity Fair New Establishment Summit at Yerba Buena Center for the Arts on October 19, 2016 in San Francisco, California. (Photo by Michael Kovac/Getty Images for Vanity Fair)

‘Craftsman-at-scale’

Lightspeed Venture Partners’ Brad Twohig said he wasn’t aware of CaaS Technologies efforts to team with VCs, rather, LSVP has opted to develop a data science team in-house.

Twohig declined to disclose the size of LSVP’s data-focused team; a representative for LSVP said the size and scale of the team is part of the firm’s “secret sauce.”

“You have to strike a balance between being well-informed people with a data advantage by using all the tools and software while avoiding the temptation to go too far,” Twohig tells TechCrunch. “At the end of the day, this is still something where we are looking to take a craftsman-at-scale approach to our investing as opposed to just ‘hey, we’ve got an algorithm and it’s gonna spit out whether we fund you or not.’”

“When people are building stealth-fighter jets, they are handcrafted, they are highly informed by data and architectural drawings but they are still hand built with a lot of precision,” he added.

As data insights become an integral part of the diligence process for startup investing, firms like LSVP are tapping new talent, developing data-first investment theses or establishing funds reliant on algorithms. Tribe Capital recently launched with a data-supported strategy, for example. Spotify-backer EQT Ventures touts the success of its machine learning system Motherbrain, claiming the algorithm can identify future unicorns.

‘Augmentation of an analyst’

TruValue Labs, a startup headquartered in San Francisco, offers a third-party data analysis platform to Wall Street investors. The company sells a subscription-based AI product to investment managers at hedge and private equity funds, helping them lower the risk profile of a given investment by better understanding the health of a business using thousands of unstructured data sources.

“There’s a huge spur from large asset managers trying to build tools themselves using ML tech and AI but can all asset managers attract engineering talent to do this themselves? Absolutely not.” TruValue co-founder and CEO Hendrik Bartel tells TechCrunch. “I don’t think all asset managers have it in them to become a software company. I’ve seen more and more third party platforms come out of nowhere.”

TruValue focuses on evaluating public market investment opportunities on the basis of environmental, social and corporate governance (ESG) issues. Recently, it’s seen a greater demand for transparency in the private markets.

“Private equity investors want to have greater transparency into their investments, and from a due diligence perspective, they want to know more about these companies before they invest in them,” Bartel said.

Bartel refers to his approach — and that of CaaS Technologies — as “an augmentation of an analyst.” At venture capital firms, analysts are often charged with researching businesses and perusing available business and financial records to help a firm decide whether to move forward with a startup.

“It’s virtually impossible for an analyst or an asset manager to cover all the companies in its portfolio,” Bartel said. “To read all the information about a publicly held company, it would take an analyst six years.”

Ultimately, leveraging a thoughtful tool and the expertise of an experienced team may make a lot more sense for a VC firm than building out their own data science teams. Not only are data scientists costly and competitive, but data scientists well-versed in the venture capital asset class are fewer and farther between.

As for CaaS Technologies specifically, an attempt to monetize the features that made Social Capital one of the top venture capital funds, albeit for a short time period, is a logical path forward for the team.

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Gender & compensation at VC-backed startups – Where are we today?

Female founders are paid 24% less, but own 15% more equity

Compensation is the most intimate way a company can interact with its employees. For far too long, compensation managers and committees have operated behind closed doors, keeping pay guidelines shrouded in mystery. Developers with equal experience, performing at the same level, and huddled around the same table while trying to perfect autonomous ocean to table omakase experiences could receive drastically different pay packages. Those times are over.

Employment sits at historic lows, investors are pouring in money through massive rounds, and companies are stepping on, over, and around each other to attract the best talent. Silicon Valley sits at the epicenter of competitive labor markets, but we’ve heard the same story over and over: Big Company X is coming to town, and we can’t pay like them.

Heads up Seattle, Austin, Boulder, Boston, New York, Chicago, and most recently, Virginia! Recruiters must be aggressive, and it’s only a matter of time before an all-star employee mentions a 25% pay bump available at Company X. A team member hears the news and they’re suddenly browsing job boards as well. The dreaded churn switch is pushed a notch higher.

Today’s workforce is more connected than ever, having grown with technology since the days of Tetris, Shufflepuck, and Oregon Trail. What was once taboo to share with anyone beyond your significant other, is now being posted freely for the masses.

We won’t even start on the impacts of social media! Reviews and ratings began popping up for schools, restaurants, and workplaces. Glassdoor, Salary, and others provide deep insights to pay, work-life balance, and executive leadership approval ratings.

Then, things went a step further by detailing gender alongside compensation, most notably in the employee-led survey at Google in 2017. It was the shot heard round the world. How could a well-known organization which prides itself on diversity, and that some think is the entire internet, find itself with gender pay disparity?

Over the past year, I’ve visited and revisited the gender pay gap with various talent partners at prominent venture firms. Kelly Kinnard of Battery Ventures and Bethany Crystal of USV authored pieces on the topic. One theme was common when discussing pay disparity – What if we had real data? What if we had corporate-sourced data that wasn’t subject to disgruntled employees or selective reporting? Well, we do.

Advanced-HR hosts the world’s largest compensation database specific to venture-backed companies. For the first time, we took a deep dive into compensation and gender at privately held, VC-backed companies and we’re sharing the findings.

Thousands of companies and 10,000+ corporate-sourced employee data points. Nothing inferred. Though we analyzed the entire data set, this article only considers US Company data.

We do not display gender-based compensation data but VC-backed companies can access our database of 2800+ participants for free by completing a quick survey. Venture firms and all others interested in our data, contact us here.

About the data

Each year, we have the privilege of running the industry standard VC Executive Compensation Survey alongside 160+ top venture firms. All sponsoring firms and their participating portfolio companies receive the final report of detailed, aggregate, and anonymous compensation data. Before we review compensation, let’s visit gender representation at VC-backed companies.

The following slide is part of a more comprehensive 11-slide deck viewable at the end of this article, highlighting takeaways and key findings from our data.

6 Seed Stage CEO Compensation 1

It’s the hot topic and hiring managers are on red alert. Pay fairly or risk a PR nightmare. Here are some steps you may want to consider.

1. Founders need to hire. Owning the hiring process allows founders to gain valuable experience and exposure. By creating job descriptions, founders can be thoughtful and sensitive to the fact that connotations and tone can unintentionally isolate a specific segment of eligible talent.

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The changing nature of venture capital

SoftBank and Andreesen Horowitz (a16z) recently announced new funds that reinforce the increasing scale of the venture industry. SoftBank announced its intent to raise a second Vision Fund through a public offering, a first for any venture firm. A16z announced two new funds, an early-stage $750 million fund and a growth-stage $2 billion fund.

A16z is the latest firm to launch a family of funds, four in the past 18 months totaling $3.5 billion, including the earlier announced Bio and Crypto funds. A16z joins GGV, Lightspeed and Sequoia as firms that have raised families of funds that cover specific sectors, stages or countries. In the last 18 months, Sequoia has raised nine funds, with nearly $9 billion committed; Lightspeed four funds for nearly $3 billion; and GGV four funds with $1.8 billion.

These funds and others like them will change the nature of venture capital. Venture is no longer a cottage industry where partners sit around a conference table on Mondays meeting companies and discussing which to support. Venture no longer operates as a collection of individual practitioners like a dental clinic. Venture firms are moving from job shops to scaled organizations with an armada of specialists in human resources, marketing, finance, engineering, legal and investor relations to support their investment and fundraising activity. Once firms with just a few partners, SoftBank, Sequoia and GGV now have teams of hundreds of people working to support continual fund raising, origination and portfolio development in the United States and abroad.

Funding startups is an inherently local business.

Investment banking and private equity firms provide a road map for how the venture capital may develop. The leading investment banks and private equity firms were closely held partnerships for many decades, before increasing capital intensity required a change of corporate structure. Founded in 1914, Merrill Lynch, a securities brokerage firm, was considered an interloper in the cloistered investment banking world. But as more capital entered public securities markets, securities trading houses such as Merrill Lynch encroached on Goldman Sachs, Morgan Stanley, Lehman and Kuhn Loeb, which then dominated highly profitable investment banking.

A wave of consolidation followed as partnerships gave way to full-service investment banks armed with capital to backstop their lucrative mergers and acquisition and financing practices. Founded in 1854, Lehman acquired Kuhn Loeb in 1977, which was then acquired by American Express in 1984, combining Lehman’s banking practice with Shearson’s brokerage business. The last bulge bracket investment banking partnerships Morgan Stanley and Goldman Sachs went public in 1993 and 1999, respectively.

Private equity firms soon followed. Like investment banks, partnerships prevailed in private equity. But as their appetite for capital grew to finance ever-larger acquisitions, private equity tapped the public markets for larger, more stable capital. Today, the five largest private equity firms are all public. Apollo Global Management, a PE firm now with $250 billion under management, went public in 2004. Blackstone, the largest PE firm, with $470 billion under management, followed with an IPO in 2007. Carlyle, KKR and Ares soon followed with public offerings.

Venture capital has been insulated from the capital intensity that fueled consolidation of the investment banking and private equity industries. Funding startups is an inherently local business. Technology innovation has historically been capital-efficient as early technology leaders such as Microsoft and Oracle went public after raising less than $20 million in private funding. And venture is a risky, volatile business, where profits vary substantially, failure rate is high and returns are highly cyclical.

Innovation is costlier as entrepreneurs and investors seek to disrupt rather than enable industries.

But like the investment banking and private equity industries, venture capital is becoming more capital-intensive. Innovation is costlier as entrepreneurs and investors seek to disrupt rather than enable industries.  Startups require more capital to achieve escape velocity with the ever-present, growing threat from technology incumbents. Startups are moving into new industries competing with larger incumbents. And “lean startups” that rely more on company-building services offered by their investors are not “lean” for venture firms that must build out service capacity in talent acquisition, sales, product marketing and finance to accelerate venture growth. Today, staff devoted to supporting startup development often exceeds investment professionals in large venture firms.

The venture industry is highly fragmented, with more than 200 venture firms in Silicon Valley alone. Hundreds of venture firms are starting in cities and countries that were previously considered deserts for technology innovation. The venture industry is likely to consolidate significantly in the next decade as funding confers greater advantage to large venture investors.

A few boutique investment banks and private equity firms have withstood the scale and capital advantages of bulge bracket firms. Similarly, seed and early-stage venture firms will resist SoftBank-style institutionalization. Venture firms with expertise in specific technologies, industry sectors or geographic markets will still produce superior returns. However, capital intensity is rising. The venture industry will ultimately be dominated by a few global venture firms supported by independent seed and early-stage funds with proprietary access to high-potential startups.

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With a portfolio including Acorns, Sweetgreen and Ro Health, Torch Capital raises $60M for its first fund

Jonathan Keidan, the founder of Torch Capital, had already built a portfolio that included Acorns, Compass, Digital Ocean and Sweetgreen, before he raised single dollar for his inaugural venture capital fund, which just closed with $60 million.

Keidan, a consummate networker who began his professional career as a manager working with acts like The Nappy Roots, The Getaway People and a young John Legend, just managed to be in the right place at the right time, he says (thanks, in part, to his gift for gab).

The final close for Torch Capital’s first fund is just the beginning for Torch, which is angling to be one of the premiere firms for early stage consumer internet and consumer facing enterprise software.

The firm began raising its first fund in October 2017 and held a $40 million first close just about one year ago. Keidan and his partners had targeted $50 million for his first investment vehicle, but wound up hitting the hard cap of $60 million, in part due to high demand from the New York-based entrepreneurs that Keidan considers his peers.

In addition to backers like the George Kaiser Family Foundation and billionaire Hong Kong fashion mogul Silas Chou, Keidan was able to tap startup founders like Jennifer Fleiss, the co-founder of Rent the Runway; Casper co-founders Philip Krim and Neil Parikh; and Bryan Goldberg, the founder of Bleacher Report and owner of Bustle Media Group (which includes Gawker, Bustle, Elite Daily, Mic, The Outline, and The Zoe Report, which collectively form Bustle Digital Group).

“Because I’ve taken a more startup approach i was recruiting raising money and doing deals at the same time,” says Keidan. 

Screen Shot 2019 06 24 at 7.08.10 AM

A sampling of Torch Capital’s portfolio investments

Along with partners Sam Jones, a former London-based investment banker; Katie Reiner, an investor at the data-driven growth fund, Lead Edge Capital; Curtis Chang, a technology-focused investment banker from HSBC’ and Chantal Haldorsen, a serial startup executive; Keidan has certainly done deals.

He started investing as an angel while still working at his own media company InsideHook, and began forming special purpose vehicles for larger investments as soon as he departed, about three years ago.

For the first year-and-a-half, Jones and Keidan worked on the SPVS, which allowed them to put together a portfolio that included Acorns, Compass, Digital Ocean and Sweetgreen — as well as startups like ZocDoc and the ketchup brand, Sir Kensington’s.

Since launching the fund, Keidan and his partners did 15 investments in the first year — including investments into . the consumer-focused Ro Health, which sells erectile dysfunction medication, supplements for hair growth, and more recently menopausal products for women.

Torch Capital has also backed the fintech company, Harness Wealth, sustainable cashmere manufacturer and retailer, Naadam; and Splendid Spoon, a vegan breakfast and lunch prepared food provider akin to Daily Harvest.

Keidan’s interest in investment stems from his experience in the music industry. It was a time when Spotify was just beginning to emerge and Napster had already shaken up the market. The creation of digital platforms enabled artists to connect more directly with the consumer in a way that traditional companies couldn’t understand.

Instead of embracing the technology labels and artists fought it, and the writing on the wall (that the labels and artists would lose) became clear… at least for Keidan. 

Following some advice from mentors including the super-producer and music mogul, Quincy Jones, Keidan went to business school. He graduated from Columbia in 2007 with an MBA and then did what all former music managers do after their MBA training — he joined McKinsey as a consultant. The stint at McKinsey led Keidan to Jack Welch’s online education venture and from there, Keidan started InsideHook.

Keidan grew the company to over 2 million subscribers in the five years since he helped launch the business in 2012. From that perch he saw the rise of direct to consumer startups and began making angel investments. His first was ZocDoc, his second, Sir Kensingtons (which sold to Unilever) and his third was the real estate investment platform, Compass.

That track record was enough to convince Chou, the Hong Kong billionaire that turned around Tommy Hilfiger and built Michael Kors into a multi-billion dollar powerhouse in the world of ready to wear fashion.

Like the rest of the venture industry, Keidan sees the technology tools that have transformed much of business are now remaking the ease and reach of building direct to consumer brands. Unlike most, Keidan has spent time working on the ground up to develop brands (artists and songwriting talent in the music business).

Everything that Torch Capital invests in has at least one eye on an end consumer, whether that’s direct consumer investments like Ro, Sweetgreen or the business surveying startup, Perksy.

Torch invests between $500,000 and $1 million in seed deals and will invest anywhere between $1 million to $3 million in Series A deals, according to Keidan.

“What makes a consumer company successful at scale is very different than enterprise software or consumer internet deals,” said Keidan. “VCs were having trouble getting their heads around this… [their companies] were overvalued too early… and when they couldn’t meet those goals they were doing things that were detrimental to the brand.”

Keidan thinks he has a better approach.

“Between InsideHook and watching companies grow and my own investments i’d seen the nuances of what it takes to get to scale,” he said.

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