Melvin Hade: Global Founders Capital Investment Trends, Landscape and Plans in Asia 2022

DailySocial had the opportunity to speak directly with Melvin Hade, Partner Global Founders Capital (GFC) for Southeast Asia, Pakistan and Australia about trends, landscapes and investment plans this year.

Melvin, as he is called, is known as a young Indonesian who made his name in the prestigious Forbes "30 Under 30" class 2020. first hire GFC from Indonesia which has closed investment deals in Indonesia, Singapore, Hong Kong, and the Philippines with a total of $22,15 million as of January 2020, according to Forbes data. Previously, he worked at the consulting management firm McKinsey & Company.

Global Founders Capital is a company affiliated with Rocket Internet, an internet company from Germany that has a significant role in popularizing internet/technology-based business models, including in Indonesia. Rocket Internet is the founder of Lazada and Zalora, e-commerce platforms that are also the driving force of Southeast Asia's digital industry.

GFC was founded as an investment vehicle that has a different model. Based on the latest data, GFC has managed more than $1 billion of investment funds in tranche seed and growth in the world, including among others Traveloka, Meta, LinkedIn, and Eventbrite.

The following is a summary of our conversation with Melvin.

Career change from consulting ke venture capital

Answer: I chose to pursue a career path as venture capitalist because of two things. First, I noticed there were a lot of people working in transition consulting or investment banking, then moved to a technology company. We are in the shifting period where technology and digitalization are happening across different sectors.

"Second, I think legacy is something that I'm striving for because being able to spot great companies in the early days is definitely a luxury. Before it becomes mainstream, I want to be part of their journey, until it becomes unicorn going forward. Similar to Patrick Walujo, the early investors of Gojek."

In addition, [job model] in consulting quite similar to VC. We work with a wide variety of clients, industries and countries. In venture capital space also the same where we help many partners, companies, and founder.

What's different is consulting do not invest in the company. In VC, stakes higher because we're basically voting with our dollars. From the decision-making point of view, there's a need to be more convincing.

I felt like the VC role was more of an interesting role. So, I took a leap of faith and joined GFC in 2019 to start in Indonesia. I was the first hired in Indonesia back then. Initially, indeed for the Indonesian [market] only.

In 2020, we started to see SEA as a region and then added Pakistan and Australia into the scope in 2021. This is the evolution of our market.

How Melvin finds interesting business opportunities

Answer: We are slowly building the team in Indonesia, then in SEA. When we enlarge the new market, we also have a local team that helps spot these opportunities. In Southeast Asia, we have teams in Vietnam, the Philippines and Pakistan. In Australia, we are hiring. I think the team expansion is one of the things that helps me in covering these different markets. In total there are currently 11 people in Southeast Asia and Pakistan, including seven people in Indonesia. The additions are quite a lot because there were only two people in 2019.

These markets are actually quite similar, especially Pakistan and SEA. What happened in Indonesia two years ago is now happening in Pakistan. For example, the edtech and healthtech verticals. So to understand what model would work there, it's not that difficult, because we see similar patterns in Indonesia and India.

At the model level, should be relevant for early stage startups in SEA. For example, ride hailing and quick commerce exists in almost all countries. In Indonesia there is Gojek, in Singapore there is Grab.

The difference lies at the operational level, target market and scheme pricing. We see so many local champions, 90% similar, be it regulations, demographics, or culture. There may be significant differences if we compare developed and developing countries. Indonesia vs Singapore for example.

I think metrics The most relevant way to measure this similarity is GDP per capita, how developed is the economy. That's how we look at the different markets.

Models that change when they are scale up

Answer: When the company enters phase growth, the first step is to look for new opportunities in the market. We see Traveloka expanding to food and lifestyle, from previously only focusing on transportation and hospitality. As companies get bigger, they have to increase their share. If you just stay there, without expansion, valuation will stagnate. That's the reason larger companies expand to other verticals.

If we talk about fintech, everyone wants to become a bank because it opens up new opportunities and increases profitability. Xendit wants to become a bank. Then, in the realm of e-commerce, Astro has already introduced their own product aside from groceries and are also thinking of entering food delivery. Those are the expansion opportunities in the growth stages. But this is natural because they have to develop and increase valuations. There are a lot of expectations to continue to grow.

Form support GFC to his portfolio

Answer: We cannot function as VC by just providing investment. This industry is very competitive. If there are great company, great founder, we will try to do our best. How to convince them to work with GFC? We do not embed mindset,"I'm a shareholder, you should work for me", but quite the opposite. We work for them.

We help pitch deck, setting strategy, and how to do it pitching. We have portfolio support team where we act as consultant for founder. Apart from that, we also help, for example, to do benchmarking with our global portfolio regarding what is good UI/UX. Then, we compiles research and experience in the field, whether it can be applied in Indonesia.

Given that we back companies globally and we can back the same models across the market, we can extract learning some of the best practices. For example, we backed eight players in quick commerce and e-grocery, from the UK, Canada, Australia, India, and Egypt. We can take their learning and experience and share it in a portfolio early stage we.

We want to ensure that each of our portfolios can provide a good testimony to GFC, because that can make us win in this game is how their experience working with us is. What's the use of it? tech unicorns but they said bad things about the GFC.

Digital industry projections and trends in 2022

Answer: I see development in this industry is slowing down. Therefore, I think this year will be a difficult year for startups fundraising compared to 2021. This year the trend will return to fundamentals. Companies that will thrive are companies with strong fundamentals and unit economics. It's not as if it just 'increases' company valuation.

Last year selling dreams was still possible, but now it will be difficult because public markets is slowing down. Several global news reports growth-staged investors are pulling back their term sheets, global valuations were corrected even though the term sheets are already issued. I think we'll see more of that, [investors] will be more cautiously to valuation.

In terms of sector, I think a mix of new retail in Indonesia will continue to grow. It's always an exciting story, thanks to Memories Coffee becoming the first new retail unicorn company in SEA, this vertical could have the opportunity to produce unicorn Also. In our portfolio, we backed a new retail company called Fithub in Indonesia. The model is similar to Kopi Kenangan, both for use mass market, but this Fithub wants to be fitness chain. Fithub wants to be fitness center with more affordable costs from the provider fitness existing leading ones.

The next vertical is e-grocery. We look at the players e-grocery continues to grow, such as Astro and Eden Farm in Indonesia. With Indonesia's current situation facing the third wave of the pandemic, I think this vertical will continue to grow.

And then neobanks. Banking is always the end game for many fintechs, and the first hurdle is to buy a bank or get a license. For example, our portfolio, HonestBank will be operational this year. There is also BukuWarung which wants to become one neobanks by giving lending for MSMEs. That's because their products are used by MSMEs or stalls. Then, there's wannabe RocketPocket neobanks for the youth segment this year. This model follows FamPay, neobanks from India which is also one of our portfolio.

GFC investment plans for Southeast Asia, Pakistan and Australia in 2022

Answer: Today we have more than 60 companies across the region. In terms of investment, we see ourselves as an early-stage YOU (pre-seed, seed, and pre-series A). We very rarely enter series C and D for first investment because entry point we're always on pre-seed to series A.

Although we are enough sector-agnostic, we are open to various industries. We see three main sectors in Southeast Asia, Pakistan and Australia, namely (1) consumertech; for example Traveloka and Astro when talking about the Indonesian market, (2) fintech as one big pillar, and (3) B2B enterprise software solutions. But actually we are quite agnostic too.

We never set a specific target because we cannot predict how many good quality startups there will be. This usually depends on market conditions. By historical, we generally invest between 10-20 new startups each year. There is also a follow-on investment for our existing portfolio companies about 10-15. So total new investment and Existing is 35.

Ticket sizes for early stage ranges from $250.000 to $5 million, while for growth stages can be up to $25 million. Indonesia has a dominant role in the majority the deployment, Indonesia is a key market for GFC, we can see around 40%-50% of the investment pipeline originates from Indonesia. For now, we still have a lot of capital to deploy because we are closed fund second in December 2019.

How the GFC drove portfolio acceleration in early stage during a pandemic

Answer: There are two things. First, we help with the process fundraising in a manner end to end, starting from timing, material creation fundraising, to introduction to top investors. Second, we collect insight about global trends for our portfolio. With regards to specific models, for example, we look at how market sentiment is towards e-grocery. 

"Fundraising in the early stages become an occasion for 'land grabbing' investors to the cap table, because when investors have invested in one startup, they cannot invest in other competing [startups]."

So this makes three forte we are for startups early stage in the GFC, that is global insight and network, involvement in the process fundraising, and portfolio consulting projects.