As Openspace Ventures returns to market with its second growth fund – on the heels of closing its fourth early-stage vehicle – the firm will follow a modified remit. A rebranding from OSV+ to Openspace Growth is intended to signal graduation from classic re-ups for fast-growing portfolio companies to something more akin to growth-stage private equity.

“We define it as a cross-between VC-style growth investing and PE-style growth investing. We have the capabilities to do deals that may look like PE – at all stages, we are hands-on, we are operationally minded, we have 100-day plans,” said Shane Chesson, a founder and partner at Openspace.

“We will be doing growth with a tech DNA because that is what’s most needed, with AI [artificial intelligence] being one example of a pervasive trend that shifts the needle. In this setup, our mid-stage deals don’t have to be follow-ons, and they don’t have to be tech-centric companies. It’s the tech enablement of private equity opportunities at the growth stage.”

The firm closed its debut growth fund of USD 200m in early 2022. A successor vehicle was mooted as early as the first quarter of 2023, but plans were put on the backburner as growth-stage investment in Southeast Asia continued to struggle. Expansion funding for technology companies slid from a record high of USD 10.1bn in 2021 to a six-year low of USD 1.6bn in 2023, according to AVCJ Research.

“We were backed to do an opportunity fund when the market was in a different place. Follow-ons were happening quickly; the listing opportunity was wide open. We could invest in the best without changing the nature of the early-stage fund,” said Chesson. “Companies are still growing well and getting to profitability, but those fast growth rounds and US-style deal-making are less prominent.”

Deployment of Fund I has slowed to the point that the last cheque is about to be written. The Fund II target is unlikely to surpass USD 300m. As part of the PE pivot – the strategy is led by Jessica Huang Pouleur, formerly of Providence Equity Partners – two-thirds of Fund II is expected to enter new growth-stage investments. Two-thirds of Fund I went into re-ups for early-stage portfolio companies.

Tough times

The recalibration comes at a challenging time for venture capital globally, and Asia is no exception. Fundraising – excluding renminbi vehicles – reached USD 13.7bn in 2023, compared to a trailing eight-year average of USD 23.7bn. The running total for 2024 is USD 6.5bn. Southeast Asia went from USD 3.9bn in 2022 to USD 1.5bn in 2023, and about USD 500m has been raised year-to-date.

Against this backdrop, Openspace’s fourth early-stage fund came in at USD 163m, short of the USD 300m target, having spent about 16 months in the market. Funds I, II, and III closed on USD 89m, USD 135m, and USD 200m, respectively. Chesson observed that the headwinds are not caused by global factors alone; Southeast Asia faces challenges of its own.

“The emphasis now is on what we are doing about it. At the firm level, we can be scrappy, invest in the right assets, do more M&A, and investigate different listing options. At the ecosystem level, we are working as part of SVCA [Singapore Venture & Private Capital Association] and the government-led working groups to address the exit dilemma around SGX,” he said.

“This exchange has not delivered yet but is a natural home for many of the companies in the region – emerging markets exposure with Singapore standards at the core. With the right structures, private and public involvement and will of action, there is a path there to build a strong cohort of listed new economy companies over the coming years.”

Chesson declined to comment further on how Singapore Exchange could become a viable destination for new economy IPOs. However, speaking to AVCJ earlier this year, he was positive about the Australian system whereby a dozen small-cap specialists backed by superannuation fund capital invest pre-IPO, at IPO, and post-IPO.

Engaging LPs

Chesson was more forthcoming on distributions to paid-in (DPI). Fund I is tracking well, having returned more than 1.4x from the likes of Gojek (merged with Tokopedia to form GoTo [IDX:GOTO], listed in Indonesia), Trade Gecko (trade sale), Whispir [ASX:WSP] (listed in Australia), and full or partial exits from another five companies through growth rounds. Subsequent funds have ground to make up.

“Investors in Fund I, which has good DPI, know the results that can come from our platform. Investors in Funds II, III, IV and the first growth fund are conscious that the maturity of the ecosystem isn’t there yet and they have seen a downswing. We’ve come a long way, but we need to do better on exits,” he said.

Re-ups account for the bulk of Fund IV, including Duke University, StepStone Group, and 57 Stars, while Japan International Cooperation Agency (JICA), a Japanese development finance institution (DFI), was a notable addition. Overall, the institutional share of the LP base rose from 53% to 72% – sovereign wealth funds, endowments, DFIs – and the mainstream family office contribution fell from 30% to 10%.

Creating an avenue for Southeast Asian start-ups to list within the region would help engage more investors, but a rebound in growth-stage activity is necessary too. Chesson suggests Openspace might be unique in completing three growth deals in Southeast Asia over the past 18 months, backing AI specialist Fano Labs, insurance tech platform Igloo, and energy storage player Ampd Energy.

“The tech-growth investors and some classic private equity investors have either withdrawn completely, or they are only doing one deal a year,” he said. “Strategics provide some supplementation, but we need more GPs in the mid-stage with a tech heritage and an ability to act with private equity style.”