[Hugo Capital] SG’s Hugo Capital looks to raise up to $200m to invest in growth-stage firms

Hugo Capital Partners, a new investment firm based in Singapore, is in the midst of raising a $150-200 million fund as it tries to capitalise on the growing Southeast Asian market, its co-founder Andreas Enderlin told DealStreetAsia. The firm, which was set up last September, seeks to make the first close of the fund by mid-next year, while the final close is scheduled for end-2022.

The fund has a lifecycle of 10 years and an option of extending its lifespan by another two years, but Enderlin said that it would aim to cash out from its portfolio companies within a timeframe of three to five years. Enderlin said that Hugo Capital Partners has so far raised money from several European family offices which are looking to ramp up their exposure in Southeast Asia. He declined to disclose the firm’s internal rate of return and the corpus it has raised so far.

Hugo Capital Partners is looking to make late-stage and secondary investments in business-to-business technology companies, particularly in sectors such as automation and robotics, enterprise, medtech, and sustainability. Its investment ticket size could be anywhere in the range of $5-30 million. The firm is also scouting for buyout opportunities in small and medium-sized enterprises (SMEs). 

According to a 2020 Bain, Temasek, and Google report, Southeast Asia’s internet economy is set to grow to $300 billion in gross merchandise value in 2025. The number stood at $100 billion last year.

Opportunities in the region are also clear from the number of unicorns being minted every year. For instance, between January and October this year alone, 19 startups have garnered a valuation of $1 billion or above, according to DealStreetAsia’s calculations, nearly twice the number made between 2013 and 2020. But given that many early-stage venture capital firms are already entrenched in Southeast Asia, Enderlin said Hugo will look at committing growth-stage capital instead.

“We’re looking for reliable returns, not a big bang growth story,” Enderlin said. Secondaries are possible investments as many of the first early-stage venture capital funds are coming to the end of their lifecycle, he added. DealStreetAsia’s September report on private capital funding found that while there was an increase in investment volume in Series C and later stages for the first nine months of 2021 from the same period in 2020 and 2019, the number of deals and the total amount was smaller than those done at Series A and B stages. But the region is increasingly drawing interest from both local and global investors – with firms such as Tiger Global, Hedosophia, KKR, and L Catterton currently crowding Southeast Asia’s growth equity arena. Enderlin said the investors have different strategies. “There will be enough room for various players,” he said. “SMEs want to have a personal relationship with the decision-maker at the investment firm, with people that speak their language, and that appreciate a specific entrepreneurial experience.” The firm is currently in talks to invest in a medical device maker, a cybersecurity company, an agritech AI firm, a business software company, and a warehouse robotics company. Enderlin declined to disclose the names of these companies as the deals are not confirmed yet. So far, it has invested in ride-hailing giant Gojek and digital health startup Alodokter on a deal-by-deal basis. Both the companies are headquartered in Indonesia.

As for its strategy to invest in SMEs, Enderlin said it is to take advantage of the growing digitalisation and challenges these companies face. SMEs make up 97% of all businesses, 69% of the labour force, and 41% of a country’s GDP in Southeast Asia, according to a 2020 report by the Asian Development Bank. Yet, as technology increasingly underpins every aspect of consumption and businesses, many of these SMEs still need help implementing it, scaling up, and increasing productivity. These businesses also tend to be family-run and have unclear liquidity and succession plans. Enderlin, who was previously an executive with Swiss private equity firm CGS Management and the ASEAN president of German automotive manufacturer Schaeffler, believes Hugo can help to improve these SMEs’ operations.

“We have gone through the pain and pleasure of the operating trenches like scaling a business and entering new markets ourselves, and know what the challenges and opportunities are,” he said. The firm may not do a buyout immediately all the time, and instead, take a minority stake and gradually commit more money. The main criterion is that a Hugo executive must have a board seat with these SMEs regardless of investment size, and other protection clauses like veto rights on the chief executive. Challenges to overcome Though it is bullish about Southeast Asia’s technology companies overall, Enderlin said there are risks in the near term as the pandemic and supply chain disruptions continue. And though local markets are stepping up efforts to attract more listings, Indonesian e-commerce firm Bukalapak, which went public on the Indonesia Stock Exchange in August, has done poorly since its debut, earning the ire of retail investors. The SPAC market has also cooled “so the window is certainly not as wide open as it used to be,” he added. Grab has said it is “on track” to go public on the NASDAQ by the end of this year, while GoTo is expected to list on the IDX early next year before listing in the US. “Let’s cross fingers that we’ll have reasonable exits,” Enderlin.

Interest rates are also projected to rise next year, which could lead to the tech sector cooling off. Hugo may be able to rake in profit from the lower valuations then, he added. Other funds launched recently targeting Southeast Asia’s technology firms include venture capital firm Auspac Investment Management’s $50 million fund, which is looking at Series A deals, and White Star Capital. The US venture capital firm announced the final close for its third fund at $360 million last week, and is planning to open a new office in Singapore, having hired VenturaXVentures’ founder and former The Lane Crawford Joyce Group
chief catalyst officer Cristina Ventura as a venture partner to expand its investment efforts in Southeast Asia.