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A VC team disbanded

author:The investment community
A VC team disbanded

The primary market undercurrent.

The latest news comes from a VC team in Southeast Asia - Reuters quoted people familiar with the matter as saying that Sea, Southeast Asia's largest Internet company, is shutting down its independent investment unit, Sea Capital, because the macroeconomy has cooled global investment conditions and market uncertainty has put pressure on valuations. Sea Capital, founded in 2017, has now been revealed that the entire team has been disbanded in May, which is embarrassing.

Jianghu is no stranger to Sea. In 2009, the founder of the post-70s generation from Tianjin, Forrest Li went to Southeast Asia to start in the game field, and successfully built a business empire including e-commerce Shopee, game Garena, financial SeaMoney and other business empires - Sea Donghai Group, with a market value of more than 200 billion US dollars. But after a turbulent 2022, Sea fell into a bad moment, laying off 7,000 employees in half a year, and the market value was only 33 billion US dollars (about 230 billion yuan).

This may be one of the core reasons why Sea cut its investment division. Such a scene is a true portrayal of this year's global venture capital market.

230 billion factories, disbanded the investment department

Where did Sea Capital come from?

Through the website, we see more aspects of this mysterious investment institution, especially in an article updated in April this year, which introduced Sea Capital, a venture capital firm headquartered in Kuala Lumpur, Malaysia, and a subsidiary of Sea Group, Southeast Asia's most famous and fastest-growing technology company.

Founded in 2009 as an online gaming company, Sea Group has since expanded its portfolio to include e-commerce, digital payments and other technology-related businesses, making it the most ferocious internet company in Southeast Asia. In 2017, Sea Group funded Sea Capital to invest in startups in Southeast Asia, including Malaysia, with a strong focus on e-commerce, fintech and gaming.

In terms of operation, Sea Capital is not like the big factory war investment department we remember, but more like an independent venture capital investment institution. On its website, Sea Capital also highlighted the strengths of the team: the investment committee is composed of experienced serial entrepreneurs and investors who are familiar with the opportunities and risks of the Southeast Asian market, so as to create excellent value and provide maximum support to the invested companies.

However, since its inception, the investment department did not make a splash in the venture capital market, and it was not until March 2021, when Sea Group announced the completion of the acquisition of Composite Capital Management, that it began to enter everyone's field of vision. That's because Composite Capital has been active in the venture capital community for years, led by former Hillhouse partner David Ma, who has played a key role in many of Hillhouse's past investments.

With Composite Capital in his pocket, David Ma became Chief Investment Officer of Sea Capital and received an initial $1 billion in funding from parent company Sea Group, reporting directly to Sea's big boss, Li Xiaodong. In this way, Sea's determination to invest heavily is self-evident.

"Through Sea Capital, we intend to invest in and support the growth of our broader ecosystem to create value for our users, business partners and communities. We believe the addition of the Composite team and the formation of Sea Capital will further enhance our investment and capital allocation capabilities to support Sea's long-term growth strategy," Sea's statement said in a statement.

Since its establishment, Sea Capital has not made many investments, and its official website shows that it has accumulated more than 20 investments and a portfolio worth $7.5 billion. However, the website only disclosed a few projects, including financial technology companies, blockchain game companies and so on. It is worth mentioning that Sea Capital also invested in cryptocurrency exchange FTX in 2021. Now FTX has declared bankruptcy, and all the money of the luxurious investors behind it has been lost, including Sea Capital.

A VC team disbanded

For a whole year in 2022, Sea Capital did not see new investment dynamics, and then heard rumors that it was about to be dissolved. Reuters reported that Sea's decision to close its own investment division due to reduced investment opportunities due to "reduced trading activity". According to other people familiar with the matter, Sea Capital's entire team was disbanded in May and transferred to other positions — given the current market conditions, Sea's investment business has not shown much emphasis.

However, because the projects invested in the early stage are still developing and not exiting, Sea Capital is equivalent to "on paper". In response to the above rumors, Sea has not responded at present.

Behind Sea Capital:

Originally from Tianjin, he became the largest factory in Southeast Asia

The investment was not satisfactory, but Sea's main business ushered in a turnaround.

It still starts with Sea's history. At the beginning of the 21st century, Li Xiaodong, who was born in Tianjin, China, graduated from Shanghai Jiao Tong University with his wife, moved to Singapore with his wife and began to prepare for entrepreneurship. At the time, he had just finished his MBA from Stanford University, had little savings, owed a large amount of student loans, and had to rent a room with his wife in a three-bedroom HDB flat on Bled Road in Singapore.

A VC team disbanded

In 2009, after parting ways with Chen Ou, the founder of Jumei, Li Xiaodong liquidated GGgame, the game battle platform business that the two co-founded, and renamed it Garena, focusing on online game publishing.

From game development to platform game operation, Garena quickly obtained the agency rights of the phenomenal game "League of Legends" in Southeast Asia, and then quickly achieved profitability with the popularity of a number of games, becoming the largest game platform in Southeast Asia in one fell swoop. In 2014, Li Xiaodong's project officially entered the list of unicorns, becoming Singapore's first Internet company valued at $1 billion.

The game became popular, and Li Xiaodong began to think about a business story with more imagination. At that time, China's e-commerce was developing rapidly, so according to this model, he launched a new business segment - Shopee in 2015. According to Li Xiaodong, the original intention of making Shopee was because her daughter missed China's Taobao very much.

Relying on the low price and free shipping policy, Shopee attracted a group of users, and with the foundation that has been laid in the Southeast Asian market and the awareness of local multiculturalism, different markets adopt different marketing strategies, Li Xiaodong killed in this emerging market, and soon led Shopee to the forefront of competition, gaining more than 200 million users in just four years, and GMV is also growing at an amazing rate.

Two years after the establishment of Shopee, Li Xiaodong changed the company's name to SeaDonghai Group, plus SeaMoney established in 2014, so far, Donghai Group's game (Garena), e-commerce (Shopee) and finance (SeaMoney) three-pronged business pattern formed. This year, Li Xiaodong took Sea to the IPO bell ring stage of the New York Stock Exchange.

It can be said that Sea is at the BAT level in Southeast Asia, and Li Xiaodong himself has introduced that the founding of Garena was a benchmark for Tencent, and the name "Southeast Asia Little Tencent" came from this.

After more than ten years of hard work, in 2021, the market value of Sea Donghai Group soared to $200 billion, becoming the largest company in Singapore by market capitalization and the third largest Internet company in Asia. In the same year, the 43-year-old became Singapore's richest man with a net worth of US$19.8 billion.

Even so, the money-burning e-commerce business has made Sea's losses not endless. In the third quarter of 2021, Donghai Group's loss widened to US$571 million, an increase of 21% year-on-year and 31% sequentially. In the second quarter of 2022, Donghai Group still lost money, with a net loss of US$931 million, almost double the same period of the previous year. At the same time, Sea's market value has also fallen sharply, plummeting from a high of more than $200 billion in the early days of the epidemic to $33 billion (about 230 billion yuan).

With losses growing wider, Sea embarked on a contraction strategy in 2022 and implemented massive layoffs — at the time it was reported that Southeast Asia's largest internet company had laid off more than 7,000 people, or 10 percent of its workforce, in six months.

The move appeared to be paying off, with Sea posting its first-ever quarterly net profit. Turning losses into profits, Sea announced earlier last month that it would give most employees a 5% raise, starting in July this year, and employees who joined before March 31 will be eligible for a raise. Li Xiaodong, the head of the company, said the company has achieved "self-sufficiency", and its cash balance has increased rather than shrunk every quarter, meeting the target set last year.

Looking back on those worst times, Sea's lack of interest in investing seems reasonable. And this year's downturn in the global venture capital market may once again affect the confidence of the giant.

The global primary market is cold

Survival of the fittest

This may be a microcosm of the global VC winter.

Under the influence of multiple factors, the global venture capital market experienced a stormy year in 2022, and this scene seems to have not recovered in 2023. Here's a glaring data –

According to the latest report from the National Venture Capital Association and Pitchbook, the outlook for the venture capital and startup industry in the first quarter of 2023 was bleak, showing a sharp decline in size, with US startups raising about $37 billion in the same period, the lowest quarterly level in 13 quarters, and late-stage deal value falling to just $11.6 billion for the seventh consecutive quarter.

The exit level is a collapse. Last year, VC fund returns were negative for three consecutive quarters, the lowest level since 2009. It marks the fifth consecutive quarter of annualized returns for VC funds to deteriorate, the first in a decade.

In this situation, a number of top VC institutions around the world began to write down the equity value of their start-ups, and a wave of "apologetic LP waves" was rare. This also led to difficulties in raising new funds, some had to reduce the target size of the fund, and some simply stopped raising funds.

The global capital market is turbulent, and industry rules and investment logic have undergone unprecedented changes. On the other side of the ocean, China is also playing a similar scene, the primary market is in a state of braking, everyone's risk aversion is intensifying, under the rule of cautious shot, the overall investment volume of China's equity investment market in the first quarter is still in a state of slashing.

"This year's primary market is not good" - recently, many investors have invariably issued such a sigh. These days, there is also a joke circulating on social platforms, which can be called the true portrayal of the hearts of the vast majority of investors:

Projects floating on the water can't be seen, and good underwater projects can't be dug;

Cheap projects in the early stage cannot be understood, and expensive projects in the later stage cannot be invested;

Pure market-oriented money cannot be raised, and the money returned from various places cannot be used;

Investment managers are keeping their jobs, and big bosses have to socialize.

Staying up has become the main goal of many people's work this year. Under the sluggish mood, some people began to believe in metaphysics and went to the temple to count a trigram to seek career luck; Some became bloggers in their spare time, relying on real and heartfelt ridicule to laugh at themselves and circle a wave of fans.

In this situation, I can't help but think of a point that Dachen Xiaobing has expressed to the investment community many times: survival of the fittest. Last week, the local venture capital announced that it had completed the first pass of the 8 billion new fund.

Looking back at history, this is the immutable truth of the venture capital industry, especially when the general environment changes, the importance of survival of the fittest is even more prominent.

The test of survival has only just begun. To Be or Not To Be, everyone has a different answer.