East Ventures’ way of investing

Over the past decade, we have seen the immense development of the digital ecosystem and tech startups in Indonesia. Often this accelerated growth can not be separated from the support of venture capitalists. 

If you are curious about how venture capital (VC) firms function and how startup founders can secure funding from them, Melisa Irene, Partner at East Ventures, and Yinwei Liang, Principal at East Ventures, have provided some guidelines for you to better understand East Ventures’ way of investing.

Generally, venture capital is a private equity investor that funds startups or small businesses that are believed to have high growth potential. Many early-stage startups face capital constraints and difficulty accessing debt financing from banks, making venture capital an attractive funding option.

As an early believer in Indonesia’s digital ecosystem since 2009, East Ventures has supported over 250+ startup companies from the early stage of their businesses, and some of them have grown exponentially and become champions in the Indonesian tech scene. 

Since our early investments, East Ventures has been sector-agnostic, meaning we do not only focus on specific sectors. “Total addressable market (TAM) is one of key factors to our investment thesis. The perfect combination is a great founder who operates in a large market that still has room for growth,” said Melisa Irene, Partner at East Ventures.  

Our investment thesis is underlined by combining the pattern of:

1. Trends that already happened in a more mature market, and 
2. Its adaptation to the local market

Assessing potential investments

Every venture capital firm has its own strategy and formula for assessing potential investments and startup valuation. East Ventures has a range of strategies for evaluating potential investments and startup valuations. As a holistic platform, we not only consider early-stage startups, but also provide funding for growth-stage startups. Therefore, we have a set of criteria that we look for and evaluate before making an investment.

The application process

Startup founders typically attempt to secure venture financing by reaching out to venture capitalists through cold emails or introducing themselves at events. However, it is often more effective to have a warm introduction from a trusted colleague, entrepreneur, or someone who is familiar with the VC. In addition, venture capitalists frequently search for new startups through their connections and events.

Our investment team members regularly reach out to founders. If founders want to pitch their ideas to us, they can connect with our team members via LinkedIn or the East Ventures website. After a series of meetings, either online or in-person, we will provide a decision. The length of the process may vary from a few days to several weeks.

Typically growth stage deals would take longer time due to the more extensive due diligence required. 

“On the growth fund, we are looking to back the best-in-class founders and companies who can be number one in their chosen sector. With the current growth fund, our average check size is US$ 10 M, and our sweet spot is to come in during a Series B round. That said, we love to meet founders, and having an existing relationship is always helpful during fundraising. Feel free to reach out to us,” said Yinwei Liang, Principal at East Ventures.

Deal structure

Investments can take place in many forms, the most common involves an exchange of cash from the VC and equity from the startup. For example, if a VC invests US$ 100,000 for 10%, the VC will now own 10% of the company’s shares (equity), and the startup receives US$ 100,000 to grow the company. The pre-money valuation of the startup in this example will be US$ 900,000, with a post-money valuation of US$ 1,000,000. The equity ownership of the VC can be calculated by dividing the investment amount with the post-money valuation (US$ 100,000 / US$ 1,000,000).

Convertible notes are also a popular funding option for early-stage startups. These notes are converted into equity at a predetermined date or when certain conditions are met, such as when the company reaches a specific milestone or is formally valued for future investments.

Advantages of the East Ventures’ ecosystem 

Venture capital funding is appealing for startups because in addition to investment capital, VC firms often offer mentoring and networking services. These services can help new companies establish themselves and find talent and advisors, and strong VC backing can help secure further investments.

As a member of the East Ventures family or portfolio, startups can tap into our extensive digital ecosystem, which includes other founders, corporates, and venture capital and investor connections. Our goal is to help startups succeed by providing a robust supporting ecosystem and offering insight and synergy to help them grow their businesses more efficiently and effectively.

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This article has been published on Kumparan [1] and [2], 14 January 2023.