E531 | Bhavik Vashi, Carta: Southeast Asia, the Myth of the Region, and Why Carta Is Betting on Complexity

0:00Welcome to our brand new podcast series where we immerse ourselves in the South and Southeast Asia venture landscapes. Featuring as co-host, we have Ambika from Circle Capital. And to kickstart this series, we have Bavic, Managing Director at CARTA for the APAC and MENA regions, who reveals... What I will say about Southeast Asia, which most people don't fully understand, how fragmented and how heterogeneous of a region it is. But fragmentation is just the beginning. The numbers tell a darker story. There's a steady degradation in VC IRRs. The median IRR of 2017 vintage is roughly 10 to 11 percent.

0:38And then in 21, you get to zero. And 22 and 23, you're negative. As returns collapsed, investors quietly abandoned the Silicon Valley playbook. You often see VCs here eventually evolving to becoming something closer to a subscale private equity firm trying to make five to eight positive outcomes on 20 to 25 versus saying, I'm swinging for the fences. The cost? An entire generation of fund managers. That era of first-time fund managers that we saw in 21 and 22, they basically all failed their first fund. They're not able to raise a second fund, and it just killed this whole wave of new GPs. On the EUVC podcast, we will find out why the investors making money in South and Southeast Asia are doing the exact opposite of what worked in Silicon Valley.

1:46This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Welcome back to the UVC podcast, where we try to champion and connect European VC, Whether you're investing, fundraising, or building the next breakout firm, this is your home. And this is the home for the conversations that move Europe's venture scene forward. Today, we're taking a rare, but in my opinion, important detour. Because if you're serious about building in Europe, you can't just ignore the rest of the world. And today, we're talking specifically about APEC in Southeast Asia, where new capital flows, regulatory shifts, and evolving VC behaviors are really shaping the landscape.

2:24To unpack it all, we're joined by Bavik Vashi, Managing Director for APAC and the Middle East at Carta. But also for this one, we have a special host or co-host, Ambika from Circle Capital to join us. And so, Ambika, maybe let's start with you as our special host today, and then we'll move it over to Bavik. Well, thanks for having me on, David. I'm really excited to be here. Not least because we finally get to showcase a little of what we've got going on in Southeast Asia, but also because we get to start bridging that gap, which I've been so keen on doing for so long. So thank you very much to Babik for joining us as well.

2:59I mean, he's got that red combination of operational depth and regional breadth. And so there's a lot to talk about. Babik is helping CARTA scale across Asia and the Middle East, supporting a significant number of funds in the region. So he gives them a really good bird's eye view of what's going on here. So how are GPs building? How are LPs behaving? You know, where are the opportunities in this region? So this conversation isn't just about comparing ecosystems. It's also about cross-pollination. So we're really excited to start talking about what Europe can learn from Southeast Asia and vice versa.

3:36You know, when European GPs start thinking about partnerships or even just benchmarking in this very connected world, what do they start thinking about? So can't wait to dive into this conversation with you both. Awesome. Vavik, let's hear a bit about yourself before we dive into all of these nuances. Welcome to the show. Tell us a bit about yourself. Yeah, no, thank you both for having me. It's great to be here. As you both said, my name is Vavik, Managing Director for CARTA across Asia Pacific as well as MENA, so a pretty large geographical region with lots of interesting things that we can get into.

4:12I've been with Carta for two and a half years now, been in Singapore for almost a decade. So prior to Carta, I was with a company called Anaplan, B2B SaaS company, was with them for 10 years, saw that company from Kiris B all the way through to ITRO. And then eventually, we did a take to a private equity firm called Tomo Bravo, which probably listeners are familiar with. And then after exiting from Anaplan, joined Carta, as I mentioned, two and a half years ago to build out this region. working closely with Henry, our founder. What's your relationship with the region, right? Why did Carta think of Bavic for this region?

4:50I'm sure there's history and background there. Yeah, I mean, I would say Carta probably didn't think of me. I thought about Carta. So I was an inbound from a Carta perspective. So I'm of Indian ethnicity origin, although I was born and raised in the US. And actually in 2016, my previous company, Anaplan, asked me to come out to Singapore, one of the founders. He framed it pretty funny. He was like, look, this company is going to be successful in the US with or without you at this point. And I think what he was trying to say is that we had hit product market fit, things were accelerating. I don't think it was meant to be a diss.

5:26But nonetheless, I chose to take it as a compliment because his point was, if you go out to Singapore and you start building Asia Pacific for us, it could really be the next growth factor, which is currently not happening, but you can make it happen. And I think at that point, I had been with the company for three years. So, you know, he knew me pretty well and knew I liked to build stuff. He knew I would say yes. And so I did. And I came over to Singapore and spread from 2016 to 2022 with Anaplan building and scaling our APAC business from about 7 million AR up to probably 70, 80 by the time I left.

6:05As I was thinking about my next adventure, as I mentioned, and a plan got acquired by Tom O 'Bravo in a take private. So we were public and then they took us private for about, I think it was 11.4 billion. I was looking out in the market, thinking about what the next opportunity would be. And I found Carta. It was pretty fledgling as a company out in this region, but I did notice that they had a few roles posted. And so I reached out to somebody who knew somebody and eventually kind of got myself connected to the chief strategy officer and then eventually to Henry himself. And it was perfect timing.

6:39They were figuring out what they wanted to do with this region, looking for a senior leader to help make it happen and look like it had a lot of growth potential. Should we talk a bit about the Southeast Asian markets? From your perspective, you've been here 15 years. What makes this region actually different from Europe. And I know you've got a bit of experience jumping around as well. And what's everyone missing? Because I know that's one thing that comes up in conversations a lot. Europe versus Southeast Asia. What is it? What's that? Yeah, I will. So about 10 years. So I came in 2016. I'll just kind of caveat that.

7:15But yeah, no, Southeast Asia, I've gotten to know pretty well in that decade. And it's an interesting question. I don't have the best pulse on the European perspectives, right? I have not spent any real time in Europe other than last week in London, but I won't count that. But what I will say about Southeast Asia, which most people don't fully understand, or maybe don't fully appreciate, I think they understand it, they don't appreciate it, is how fragmented and how heterogeneous of our region it is. I think the grouping of the region is not based on our common cultural identity, nor is it based on a common language or a common regulatory framework or anything of the normal characteristics or attributes of a region.

8:05I think the grouping is one of convenience in that when you add these Southeast Asian countries together with Singapore often being referred to as the hub, you get a market which has some common characteristics and in some gives you an addressable market which is comparable to other regions that you might go to market in. And so it's almost a region of convenience from a grouping perspective more so than it is a region which normally has a homogenous set of attributes which make things like building and growing the market and delivering in those regions somewhat easier, which I would say the US certainly represents as a single country.

8:49And I think, and you guys can correct me if I'm wrong, but the EU represents in some ways, certainly pre-Brexit in many ways, that I just think Southeast Asia doesn't, or even more so than Europe, is even more heterogeneous and different than the EU. As an operator, Vavik, helping scale companies and a plan, how does this fragmentation inform you? The reason I'm asking is because Europe is also somewhat fragmented. Okay, we do have the European Union, which is trying to kind of, I don't know, kind of thread everything together in a way with sometimes some success, sometimes not really. So I think some insights also from, because you have that US perspective as well.

9:37So I do think it's quite interesting to hear how that informs you, but also how that informs you now in a company that is active in private markets, specifically venture. I think I empathize quite a bit with all the founders that we support. So those kind of familiar with Carta, we have two primary kind of audiences that we support, founders and then fund managers as well. So we kind of see both sides of the ecosystem, which is very cool. But I empathize quite a bit with the founders because as an operator myself who's been responsible for building and scaling businesses in Asia-Pac for the last decade, again, I just think people underestimate, frankly, how difficult it is and how thoughtful you need to be and how multidimensional it is.

10:22So there's just an endless series of it depends answers, which is frustrating probably from a soundbite perspective, but it's true. It really depends on your industry. It depends on the segment that you're targeting. It depends on the nature of the product or service or just let's broadly call it value proposition that you're bringing to market. you know, I think these types of multidimensional problems can often be glossed over, right, with some blanket analysis. Hey, there's a huge, you know, things you hear all the time, huge famine, Southeast Asia, young population with increasing digital adoption, you know, there's great macro trends that you can point to and say, oh, no, like slam dunk, what a great opportunity.

11:12And then you get into the weeds of it, right? You're trying to build, I don't know, payment rails in the Philippines and their banking landscape becomes a hindrance or in this case, probably an enabler versus trying to do the same thing in Malaysia. And all of a sudden you run into Islamic finance and other things that maybe you didn't think about, right? Or you think about talent and how it's spread across various different countries. I can give a million examples of how this actually manifests in real life, but that's what makes it really challenging as an operator. And so to find really strong operators who understand that industry, understand the region and regions that you think you want to start in, understand the segment that you want to target.

12:03And then if your value proposition has any direct relation to the legal tax, cloud security, other frameworks of a specific jurisdiction that doesn't really extend pan-southeast Asia or even pan-regional, that can be very, very challenging. And then flipping just to answer the second part of your question, but private market lens, that's fundamentally what you're trying to underwrite as an investor. When you're trying to underwrite investments in this region, a lot of people think, okay, it's venture capital. I've heard about this thing called power law. So I'm going to try to make 20 to 25 investments, hoping that I have one or two kind of investments that return the fund.

12:44And candidly, that's just not generally how it works out in Southeast Asia. Because of the way that you think about portfolio construction is fundamentally different. The way that you underwrite any single investment is very different in terms of the ultimate outcome or markup or whatever you want to think of. And then it kind of leads you down a completely different path from an investment perspective. And so you often see VCs here either initially or eventually evolving to becoming something closer to, you know, subscale private equity firms almost, where, you know, they're actually trying to make five to eight positive outcomes on 20 to 25 versus saying, you know, I'm swinging for defenses, hope one or two home runs and the rest could go to zero.

13:31So that's just totally different than the American, at least the VC world. Yeah. Vika, I need to ask you to comment as well. I cannot not hear your comment. No, I'm in total agreement with everything Pupik is saying at the moment. And I actually just wanted to ask before I throw in a comment, you know, what I know Carla has a really unique view on, you know, the data trends and insights. And I know you've just touched on some of that. But do you think there's anything in particular that really stands out with hard truths that you're seeing in, you know, very specific sectors that you think is like, really interesting, compared to anywhere else you've seen before?

14:09I know that's kind of putting you on the spot there. But, you know, Yeah, no, no, it's okay. Yeah, so look, I will again caveat and say, since I've arrived in the region, everybody from my first day has been asking, hey, when is Carta going to publish data on APAC and MENA specifically? It's a bit chicken in the egg, right? Because our ability to publish data is based on our ability to gain market share and to have the data to be able to publish in the first place. And so we have not formally gotten to a position where we publish on performance data. in this region. We work with about rounding, we work with about 80 unique GPs in the region.

14:49So we have some meaningful, I'd say, insights, but we hold a pretty high bar for before we start publishing things that trends. Our US report, for example, makes up over 2 ,000 GPs just as a frame of reference. So we feel pretty confident that those are the trends. All those disclaimers being said, we are soon putting out our first ever ESOP and hiring reports for APAC and Mina, which is much more on the startup side, because there we have over a thousand customers that we support in the region. But I can share with you things I know, and compare those to things that are absolutely fact from the US.

15:25So the main one that stands out is, if you look at the performance by different vintage years, I think we published this in the US, you know, we kind of published the 25th or 50th, the 75th or 90th percentiles for different vintage years. And we can look at a bunch of key metrics around that, right? I think IRR is one, it's not perfect, there's many, but IRR is one that people like to look at. And you'll notice like this steady, especially because you can discount for times there, but there's this steady degradation in VC IRRs, right? So if you start back in 2017, and this is globally, the median IRR of 2017 vintage is roughly 10 % to 11%.

16:07And that slowly comes down year after year from 8 % to 7%, 3%. And then in 21, you get to zero. And 22 and 23, you're negative. That's a really interesting slope of returns. And when I look at, I'll call it anecdotally, our observational RGPs in the region, the IRs were not even that high to begin with, but the degradation slope has been the same. And so in many ways, the thesis for VC in this region, specifically in Southeast Asia, where a majority of our ADGPs are today, is fundamentally challenged, if I can be as provocative to say that. I do think that there is a real trade-off that you have to think about now in obviously liquidity versus returns and alpha specifically, which are probably thinking as a venture and private equity as a piece of your overall portfolio, that needs to be justified differently.

17:14Let me put it that way. And we've seen that compounded with longer kind of average fund lengths, right? So you normally have like the 10 plus two. In reality, it looks more like 12 plus three, especially when you start factoring in continuation vehicles and other means because the time between fundraising rounds at the startup level are taking longer at the company level. And then the opportunity and the path to exit in any form, even M &A, is taking much longer than I think, again, people may have originally underwritten, especially when they were entering venture in Southeast Asia around 2015, right?

17:52When you had the first wave of Insignia and Open Space and Monks Hill and some of these early players in the region. And now they've been able to return, candidly, because they've gotten the first rate of investments and they all had some exposure to some of the successes here in the region. But bigger funds, more fund managers, more LP exposure, I don't think the market has been able to support that in recent vintages. And so actually right now, I think is an extremely interesting time, 24 now into 25, where we see virtually no new fund managers successfully raising. We see a lot of existing funds that are able to actually raise on a new fund.

18:36And we see certain fund managers who are affiliated with another fund or another brand spin off and be able to do their own thing. But that era of first-time fund managers that we saw 21 and 22, they basically all failed their first fund. They failed to return their first fund. They're not able to raise the second fund. And it just killed this whole wave of new GPs. And I think one of their open questions is where are they all going to go? What are they all going to do now? How are they going to bounce back? And yeah, that's an interesting dynamic because that was basically the first big wave for Southeast Asia.

19:12In the US, we've gone through cycles and people can survive and come out the other end and reinvent themselves. But in Southeast Asia, or this was the first big wave we were seeing of these new GPs. So yeah, I don't know exactly how that's going to play out, to be honest with you. On the back of that, one of the most interesting things I've observed in relation to that is a lot of trend-based investing. People will focus on a particular trend that is the in thing of the moment. That's where they believe all the money is going to. And if that doesn't necessarily take off or something happens to blow it up, they move on to the next thing.

19:44and so there's a constant cycle of just moving on to you know the next most interesting thing and not really pushing through on what you believe should return you a yield and the interesting thing is that one of the big questions I know I've been asked a lot here is you know about unicorns most people are interested that if you're investing are you going to give me you know how many unicorns are you going to give me and I think that's not necessarily you know the way to go but But I think it's an interesting change in differentiation between other parts of the world. Yeah, 100%. I mean, you start to tap into a different problem or reality of this market, which is generally, let's call it liquidity and exits.

20:27This is what I was saying earlier. It's really hard to underwrite a VC check as an LP to underwrite the check into a VC fund manager or even a private equity fund manager because ultimately, how do you realize is the gains. And everyone talks about the gap and growth capital. And obviously, there have been some recent measures. Tomasik announced a debt fund that would maybe support that. There have been other people that have been trying to come in and fill that gap. But ultimately, M &A has still been the path to exit here, statistically speaking. And a lot of that is led by a strategic corporate M &A, which is not a bad thing.

21:06I don't think that's objectively a bad thing. It's just different than what you underwrote when you made the initial investment. And the public markets, one, we have this fragmentation of exchanges. It's like you can't really list in Singapore given its current construct. So you look at Hong Kong. Obviously, Middle East is trying to compete with its own exchange. Australia, you can look at ASX as well. Or you can try for a cross-listing. We saw the wave of ASPACs grab, obviously tried it. So it's like kind of where do you list? what is that exchange's ability to hold up that offering in a healthy way?

21:46And if you can't risk, then what do you do? And how do you exit? We have some pretty right-stage companies that are all kind of stuck in that position right now. And so that makes it really hard. That breaks all kind of VC portfolios, to be honest with you. I was doing some checking here, but it's not all bad news because if I have my data correct, there's one unicorn already this year from Singapore, right? Superbase or whatever they're called. I don't know the company very well, so I'll keep from commenting. But I guess what I want to ask you, Bavik, is you're coming across as a bit negative about the region.

22:25However, you are focused on the region, so I'm sure there's nuance to what you're saying. So I just wanted you to comment also, like, what are you seeing that's actually encouraging? Let's put it like that. Yeah, yeah, yeah. No, it's a good point. I'm in the region, so I'm very realistic, I think, is the way I like to think about it. I think broadly this has happened within the region, especially given the audience here that might be from outside the region. I wanted to make sure that I'm doing my part to inform anybody who's interested in participating in this ecosystem about the reality. And I think it was Lightspeed, I think, that put out a recent report about what it was called.

23:08But basically, it was like revisiting Southeast Asia or a reality check Southeast Asia was the vibe of the report, which is, hey, in 2015, we said all these things. We said Southeast Asia was going to be a new frontier. We said this, we said that. And it hasn't panned out to the extent that we originally thought. And here are all the things we've learned as to why. But it's still a good market. It's just different than what we originally thought. And I think that's really important. That's the way we think about it, to your point. We're expanding in the region. We landed in Singapore. I've opened new offices in Australia, in Abu Dhabi.

23:46We're looking at Hong Kong as well. So we're still fundamentally bullish on the opportunity in the region. We're just very realistic that, hey, you might have thought, at least from Carta perspective, our TAM is a direct representation of the venture and PE ecosystem because the only companies that we can sell to are startups and fund managers. And so our TAM and our moves are generally a good lead indicator on what we think about it. And if our TAM we thought was three or four billion, maybe now it's only one billion. But it's still a$1 billion TAM for us as a software provider to the industry.

24:25And so that's where I think there's plenty of opportunity. You just need to be a little bit more intentional about how you pursue it. And so when you look at the different regions within this, so you have Southeast Asia, you have Australia, New Zealand, you have kind of MENA and specifically Reducency, and then And then you have Hong Kong as a gateway to China. This is how we, and then there's India. There's a big India question hanging out or representing the South Asia. You have these like five pretty distinct opportunities and then I've not really included Japan and Korea that have a lot of like buyout opportunities, but not immediately, but the focus for us.

25:02So we focus more on venture and kind of growth equity and then some private equity as well. But each of these individually has its own things. And then you can really focus in on that. Australia, for example, you look at it structurally and it has certain R &B grants that make it extremely beneficial for biotech and healthcare and pharma, where they're having basically their costs subsidized for a long time. And so a lot of research is happening down in Australia. And then you see talent, you know, recycling kind of into that. Plus, they've had a few exits, obviously, like Canva, Xero, Atlassian that have motivated employees to actually want to work at startups and to participate from an ESOP and equity perspective.

25:47So these are things that are pretty unique and specific to Australia that are encouraging. And as a result, you have more B2B founders down there than you do in Southeast Asia. In Southeast Asia, of course, the success has been companies like Grab or Lozada or Shopee and so on and so forth. So very consumer, your e-commerce, your fintech, your mobility. You could say some copycat models from the West, if you're being very honest, but that worked in the first cycle. And it established like a foundational layer of capabilities that are now available to the consumer market. And so you can see the consumer now graduating in their preferences and expectations.

26:28And so Southeast Asia, most of the innovation is still consumer. And that makes sense if you look at the dynamics. But the consumers are across very different countries. So localization is extremely important. And then anytime you're touching consumers, you tend to run into the legislator environments a little bit more because they protect consumers and retail investors, et cetera. So that's very interesting. You go over to the GCC and there's like a whole different set of opportunities. I don't want to go one by one, but I think this is the piece to understand is that if you're coming in from the outside and you're looking at APAC, Miener, Southeast Asia as opportunities, you do have to double, triple quit and understand then where do you want to focus and how does that fit into your overall portfolio, right?

27:13I think of it as like a portfolio composition thing. I've always said this as well, you know, just to jump in with, you know, to back off another one of Babik's thoughts. But Asia, I mean, Southeast Asia in particular, I've spent 15 years across Asia myself. So between Asia Pacific, Singapore, you know, Hong Kong and India as well. You know, one of the things I've learned is I think Southeast Asia feels a bit more insulated. And whilst we have been doing a lot of copycats here, we're also in this trend of now starting to build for the region. And I think that's where the river opportunity lies.