AppWorks launched its fourth flagship fund amid challenging conditions in 2022, but the Taiwan-based VC firm and accelerator still managed to upgrade its LP base by attracting a clutch of sovereign wealth funds into the USD 165m final close.

“We were able to methodically generate cash distribution for our LPs, and that really helped us demonstrate how AppWorks has been managing capital responsibly during this difficult period,” said Jamie Lin, chairman and partner at the firm.

“On top of that, for some corporate and sovereign LPs – who are strategic investors – the ecosystem we have built over the past 16 years serves not only as a source of financial return but also as a platform for their strategic expansion.”

The sovereigns are Taiwan’s National Development Fund (NDF), Malaysia’s Khazanah Nasional – operating via Jelawang Capital – and Korea Venture Investment Corporation (KVIC). NDF also featured in Funds II and III, while Khazanah and KVIC are new relationships.

The LP base is roughly one-third corporates, one-third sovereign wealth funds, and one-third financial institutions, high net worth individuals, and family offices. Other investors that have disclosed their participation include Fubon Life, Taiwan Mobile, Wistron Corporation, Phison Electronics, and E Ink.

AppWorks raised USD 11m, USD 52m and USD 154m for its first three funds, the latter closing in 2021. Fund IV came to market with a target of USD 360m but ran up against inflation triggered by the war in Ukraine, US interest rate hikes, and volatile capital markets. Within six months, the firm shifted its ambitions to USD 150m-USD 160m.

Picking winners

Founded in 2009, AppWorks also operates a regionally focused, equity-free accelerator program that runs semi-annually. Each cohort typically comprises 40 early-stage startups from across Asia. Lin observed that the value of this ecosystem is recognised by sovereign LPs that want to help local start-ups develop internationally.

“Many Korean startups excel domestically, but few have expanded internationally. Meanwhile, Malaysia sees an ecosystem rich in early-stage startups but one that needs more support for mid-stage growth and overseas expansion,” Lin said.

Fund III invested in 47 start-ups. Fund IV is expected to back 60–80, and approximately 60% of the corpus has already been deployed across around 30 companies. The sweet spot is seed to pre-Series B rounds with a focus on artificial intelligence (AI) and blockchain. First cheques are typically in the USD 500K to USD 15m range.

AppWorks claims to have produced one hectocorn, two decacorns, five unicorns and 13 centaurs. Seven portfolio companies have completed IPOs, and nine have done IEOs (initial exchange offerings). Of the IPOs, five have been in Taiwan and one apiece in the US and Singapore. Hong Kong would be added to that list if logistics player Lalamove – a Fund II investment – goes public.

Three Taiwan IPOs are the main drivers of Fund I’s 3x return. Distributions to paid-in (DPI) on Funds II and III are 1.9x and 0.5x, respectively, according to Lin. Fund II received a 10x windfall from Taiwan omnichannel commerce services provider 91App, which listed in 2021. In November, 91App acquired point-of-sale business iChef for USD 32m, delivering another exit for Fund II.

AppWorks aims for a cluster of 10x home runs to take the overall return on each fund to approximately 3x. In the case of Lalamove, the firm initially took part in the Series A, but began to divest as soon as it passed the 10x mark. The position has now been fully exited through secondary sales via Lalamove’s Series D, E, and F rounds.

“For Lalamove, this is why we will not capture further upside from their potential IPO next year. It’s worth bearing in mind that the outcome is also unpredictable. We prioritise taking a methodical approach to securing solid returns for our LPs.” Lin said.

“While we welcome exceptional 5x returns, our objective is to achieve consistent performance in the 2.5x to 3x range.”

AppWorks is currently mulling potential exit options for its Fund II investment in KKday, a regional travel e-commerce platform that is preparing for an IPO.

International angles

The firm has also changed its geographical focus over time. Every Fund I portfolio company is based in Taiwan. While the fund achieved its targeted return, analysis revealed a limitation: local public markets assign lower valuation multiples. For Fund II, AppWorks shifted focus to regional companies. Fund III, meanwhile, embraced Web3, which is inherently global in nature.

The sovereign wealth relationships in Fund IV are expected to facilitate deeper penetration of Korea, Malaysia, and Taiwan. Japan, Vietnam, the Philippines and Indonesia are seen as expansion markets.

In Japan, AppWorks wants to serve as a two-way bridge, bringing its Asian portfolio companies to the local market and helping spread Japanese innovation region-wide. KKday fits the inbound profile. Online collectables marketplace Jiraffe, a Fund IV investment, is moving in the other direction.

Southeast Asia, once seen as “playing catch-up” on digitalisation, is now a source of cutting-edge innovation, particularly in AI and Web3, Lin noted.

For example, Vietnamese AI chat platform AI Hay, which received a pre-Series A round from Fund IV in 2023, is nearing 10 million monthly active users (MAUs). The company employs a hybrid approach, leveraging existing large language models, open-source architectures, and proprietary in-house models to serve different types of prompts.

“Even compared to AI companies in the likes of the US, this is a cutting-edge strategy,” Lin added. “Southeast Asia has changed a lot over the past five years, and companies there are ready to tackle similar challenges as those in more mature ecosystems.”

[Editor’s note: Amended to clarify that NDF featured in Funds II and III, and to note that Fund III has invested in 47 start-ups.]