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Have you heard of the addiction craze of Southeast Asian founders? Not parties, sports cars, cryptocurrencies or illegal events, but angel investment. They spend a lot of time and money.
More and more founders are participating in angel investing. For example, accounting firm BukuKas and payments company unicorn Nimbian have come in large portions of their financing from angel investors. Wise co-founder Taavet Hinrikus invested in BukuKas, and Silicon Valley's Gokul Rajaram invested in Nim.
Krishnan Menon, CEO and co-founder of BukuKas, also an angel investor, told the media, "Investment from founders and participatory angel funds has exploded over the past two years.
Menon has invested in more than 20 startups, and his own company has received investment from more than 40 angel investors. Six founders, including Menon, told the media that they became prolific angel investors at an unexpected pace.
Why are they all investing? Because the structure of Southeast Asian entrepreneurs has changed, and the investment funds from founders are also growing.
Vidit Agrawal, CEO and co-founder of GajiGesa, an Indonesian wage lending app, has completed more than two dozen investments worldwide, with a focus on Southeast Asia. He has observed a growing number of older startup founders, often working at large companies like Grab, and having enough money to make small investments.
In fact, Agrawal says, experienced founders who, if they have a successful career and raise a lot of money, may soon earn a six-figure annual salary, which is very different from the traditional "ramen profit" (meaning that the salary paid by a startup to its founders is only enough for basic living expenses).
"Four or five years ago, founders didn't have any invested capital. They earn only about $3,000 a month and barely make ends meet. You can't expect them to invest," he said.
Some people invest to learn. Agrawal began investing in 2014, when he was still working at Uber and worried that his knowledge would be limited to ride-hailing services. Unlike traditional VCs, making money is not their whole and ultimate goal. JJ Chai, CEO and co-founder of e-commerce aggregator Rainforest, said, "I learned a lot from other founders, including lessons learned in messaging and communication." He is a former executive at e-commerce app Carousell and U.S. travel giant Airbnb.
Where does all this make professional VCs go?
Some venture capital firms have plans to leverage the angel investor network, while others plan to introduce new deals from outside the firm. Others go further.
Singapore-based Saison Capital, owned by Japanese financial firm Credit Saison, launched its own network of fintech angel operators this year to lay out its nascent community. Partner Chris Sirisereepaph told The Ken that Saison encouraged and helped founders find relevant angel investors.
"If you want to be a part of it, you need to work with angel investors." Sirisereepaph said.
Obviously, no one wants to miss out on key early-stage investment deals, which can lead to huge profits once the company grows.
But this is not always the case.
Angel investing
"Investing is not necessarily to make money, but to build a better entrepreneurial ecosystem, for friends, and to expand their own investor network." Menon of BukuKas said he had worked for Indian payments startup Freecharge and Alibaba-owned Lazada.
For startups that get angel investment, they have a purpose beyond money — to listen to the unique insights of those in the industry and to explore new opportunities.
"We have a lot of experience and we've seen a lot of these things." Rajaram said he is a Silicon Valley executive at logistics company DoorDash.
Rajaram has been investing in angels for 15 years and in recent years he has focused on emerging markets such as Southeast Asia and Latin America. Although he is far from the company he invests in, he can provide specialized assistance in the field of operations, such as recruiting specific talents, developing organizational structures, etc.
Meanwhile, the co-founder of Indonesian coffee startup Kopi Kenangan has written the script for angel investing in Southeast Asia.
In March 2021, Edward Tirtanata, James Prananto and Cynthia Chaerunnisa co-launched the Kenangan Fund, a professional investment vehicle used to store their growing angel investments.
Unlike traditional venture capital funds, the money is not provided by limited partners (LPs), but from three co-founders and some nameless friends. Tirtanata says it's a win-win. On the one hand, the transaction process will be easier, including paperwork and registration. On the other hand, by raising capital, the Kenangan Fund is able to make some bigger investments or invest in more companies.
"Usually we invest $10,000 to $30,000, but for companies that we really believe in, like portfolio companies BukuKas or GudangAda, we might invest $100,000." He added. Currently, the fund has completed 15 to 20 transactions.
Twin brothers Arya Setiadharma and Ardi Setiadharma have amassed wealth from telecommunications infrastructure company Prasetia Dwidharma, and over the past six years, they have poured more than $10 million into their own angel fund, Prasetia Investment, typically making checks for $50,000 to $75,000, with a minimum of $25,000 and a maximum of $200,000.
Angel networks are closely linked, and funds like Kenangan and Prasetia, with other smaller angels, can join forces to pitch a round. However, founders want founders and experienced angels to get involved more than money, because they can bring more potential business opportunities.
"There are angel investors who have the expertise or skills to really help." Tirtanata noted.
Increasing the number of angel investors can broaden the breadth of their reach. Each angel investor may only offer $10,000 to $30,000, which is much smaller than the minimum investment amount for venture capital firms, so more angel investors may be needed. But not all angel investors are needed all the time.
"My company has a lot of angel investors," Agrawal said. "But they've always underestimated the potential value they can bring."
Even if angel investors can't contribute their expertise, Menon, co-founder of BukuKas, sees the value of these carefully selected angel investors. "Fundamentally, you're building brand ambassadors for you and your company." He said. "It's like having key people on your team, so in the next round, VCs will give a higher valuation."
Pictured: Founder of a business during the day, angel investor at night. Source: The Ken
Coordination
It takes a lot of work to get a hit deal. Venture capital firms need to do a lot of research and build extensive networks to find the next Facebook, Alibaba or Grab.
Angel investors, on the other hand, are very different. In Southeast Asia, many of the trading leads come online, and most of them are group chats on WhatsApp. For example, Tirtanata gets potential investors from the likes of XA and WhatsApp.
Good angels will receive some requests from abroad. They not only take clues from the group, but also provide clues. "If I find something interesting from Singapore that might be more effective for Indonesia, I always make sure other angel investors have access to it." Agrawal said.
This informality is compatible with the lives of busy founders or executives who can pull out of trading when they are tired of their day-to-day work. For Agrawal, this could mean that a month or two is just evaluating occasionally popping up deals, rather than going all out and bringing the opportunity to the table.
This "either accept or leave" approach also applies to post-casting.
Menon doesn't like dealing with his own portfolio companies, preferring to have a phone call with the founders, "My goal is to be the most helpful angel investor." "The more investors are friendly to founders, the more value they can add." "
When it comes to investment flexibility, similar. Tirtanata says it's common to sell some or all of a Kenangan Fund position in two or three rounds of funding, especially when founders want to make room for core investors. This can clash with venture capitalists, but angel investors are generally friendly to founders and mostly do as they ask.
"As an angel investor, it makes more sense to withdraw funds early to invest in other people, or to put them back into our fund. We can be flexible. He added.
Mix and match the future
"Honestly, I think small venture capital firms are losing their appeal," one angel investor told The Ken. "A small company typically invests $200,000 to $500,000, and even up to $1 million, the money can be quickly obtained from angel investors."
For venture capitalists, trading volumes are also tightening. In early rounds or two, some startups preferred angel investors' money over larger venture capital.
Rajaram, a prolific Silicon Valley angel investor, argues that the more sought after entrepreneurs are globally, the quality of founders grows along with their ambitions.
"Five years ago, entrepreneurs' ambition was to start a company and sell it to a big company. But now, they're not content with that. They want to be inspired," he said. More entrepreneurs, more large-scale retirements, mean more angel investors, and more experienced entrepreneurs become investors.
But even now, outside of Silicon Valley, the need for early-stage financing is not being met. Y Combinator, a prominent U.S. startup accelerator, began absorbing more foreign companies, which helped raise more money for Southeast Asian companies. The rise of giants such as Sea and Grab is gaining traction, even compared to silicon valley, the startup capital.
"Every time I invest, I bring a lot of people with me," Rajaram said. "I know fifty or sixty great experienced investors in the U.S., including Microsoft, Airbnb, and Square, and they all want to invest in great companies with me."
He predicts that Southeast Asia will also find a balance like Silicon Valley, allowing angel investors and full-time venture capitalists to coexist.
"Venture capital firms take a board seat and they provide value in terms of management and so on. In some cases, VCs play an important role. But there will be early-stage investments that are entirely led by angel investors in the future. Rajaram said.