Contrary to many international and regional funds which focus on Series A funding round and beyond when they invest in tech startups in Southeast Asia, Singapore-based Xpdite Capital Partners choose to focus on seed-stage startups.

The VC firm, which is in the midst of raising additional capital, sees a funding gap for such startups, its Partner and Chief Investment Officer Robert Lomnitz told TechNode Global in an interview.

“We focus on seed stage because this is where there is a funding gap in the region. The main influx of capital, both regional and international, has been focused on Series A and beyond,” he said. “There are a very limited number or professional value-added seed stage investors in the market, who can assist in shaping earlier stage businesses into viable companies with strong traction.”

While it has a pan-Asia investment remit, Xpdite Capital Partners mainly focuses on Southeast Asia, in particular Thailand, Singapore, Malaysia, and Vietnam in terms of regional investments and market access focus, he said.

Founded in 2019, Xpdite Capital Partners is an Asia-focused holding company, venture studio and corporate innovator specializing in tech-driven early-stage startups.

The VC firm invests in seed-stage startups in Asia Pacific, accelerate the Asian market entry of international growth companies and manage results-driven startup innovation programs for its corporate clients.

Starting his career as a lawyer at Wall Street, New York, Lomnitz has been investing capital into and building early-stage businesses in emerging and frontier markets for over 20 years.

He previously worked in the technology industry in the UK managing firstly family office money and then the venture business of a London Stock Exchange-traded company. In 2002, he co-founded a UK FSA-regulated asset management business which ultimately became Duet Private Equity Ltd (DPEL). DPEL currently manages in excess of $2 billion of institutional money across a number of emerging market funds.

He is currently a Director of Bangkok Venture Club and is active in the startup community in Southeast Asia as an angel investor, advisor and mentor.

In the interview, Lomnitz shared the challenges Xpdite Capital Partners faces when it invests in seed-stage startups and how they manage risks. He also shared his views on the startup ecosystem in Southeast Asia and gave several suggestions for the tech ecosystem to improve.

Below is the edited excerpt:

Xpdite Capital Partners focuses on Asia Pacific. Within the APAC region, is there any preference in terms of market/countries? And why these markets?

Xpdite is a new breed of investment platform blending regional seed investment, investment in international scale-up market access opportunities and corporate innovation services.

Our businesses all leverage a central team of experienced investment professionals, business builders and corporate innovators and we target venture returns through the deployment of our shareholders’ capital.

We believe that the combination of financial capital, industry expertise and corporate relationships we provide to our portfolio businesses and investments is unique in the market.

Although we have a pan-Asia investment remit, we are mainly focused on SE Asia, in particular Thailand, Singapore, Malaysia and Vietnam in terms of regional investments and market access focus.

Our interest in these markets is largely driven by economic growth factors, the specific opportunities in the core industries in which Xpdite focuses and the team’s relationships.

Although we are very bullish on Indonesia, we feel the market is too large, fragmented and competitive for us. We, however, do look at co-investment in Indonesia, particularly for scale-ups seeking to expand regionally into the markets we serve.

Xpdite Capital Partners focuses on these few themes: Travel & Hospitality, Food & Agriculture, Health & Wellness. Could you further elaborate on this? Where are the opportunities and why?

In our years of investing in emerging markets, we have been most successful in focusing on industries where there are existing and historical, national, or regional core competencies.

The industries we focus on are all industries where the region has historically proven to be capable of producing products and services that compete on a global level.

These are also industries that are experiencing strong inflection points in terms of customer expectations (eco-friendly, safe, healthy, tech-enabled), cost structure, supply chain and sales channels and where innovative technology and products can address major industry pain points.

These are also the industries where our team has the experience, relationships and expertise to add most value to our portfolio.

Xpdite focuses on seed-stage startups. Why seed stage? What are the challenges to invest in seed-stage startups? How to choose and decide which startups to invest? How to manage risks?

We focus on seed because this is where there is a funding gap in the region. The main influx of capital, both regional and international, has been focused on Series A and beyond.

There are a very limited number of professional value-added seed-stage investors in the market, who can assist in shaping earlier-stage businesses into viable companies with strong traction.

The challenge in investing so early is that you are investing in potential, rather than an existing business and there are many key business metrics that are still unproven.

Our initial evaluation is therefore mostly based on the strength of the management team, the size of the problem/market opportunity and the quality and defensibility of the solution.

We manage risk by investing significant time in the initial evaluation of the opportunity, getting to know the management and the market well and focusing on businesses we understand and where we already see where we can add value beyond capital through mentoring, partnerships and client introductions. We also monitor and measure performance against key performance index (KPIs) regularly.

Is Xpdite raising any funds soon? Who are the existing investors?

Yes, we are raising additional capital for our platform at the moment and also launching a separate investment fund, targeting independent hospitality companies as LPs and focused specifically on hospitality technologies and services.

Our current investors comprise mostly our founding partners, high net worth individuals and family offices from the region, the US, UK and Europe.

Besides Thailand-based surplus food delivery startup Yindii, what are Xpdite other portfolio companies?

We have invested in FindMyFare, Sri Lanka’s leading online travel business and Innaway, a Vietnamese hospitality marketing solution. We have two additional investments in the health and food industries that we will announce shortly.

Could you share more on your exit strategy? Any return target?

We target exits through a sale of our portfolio companies. Since we are structured as a permanent capital investment company, we would also have the flexibility to list on a public market to create liquidity should the opportunity arise.

We also consolidate the revenues of our regional scale-up joint ventures and generate independent income from our corporate innovation services, so our business is a hybrid between a VC and venture builder, not solely dependent on investment returns to create shareholder return. We target an annualized internal rate of return (IRR) of 25 percent.

What’s your view on the startup ecosystem in Southeast Asia? any suggestions for the ecosystem to improve?

Despite the hype and the good progress, the ecosystem in Southeast Asia is still in an early phase and the quality of the entrepreneurs, the availability of risk capital at all stages and the opportunities for exit all lag behind the US, Europe and even Africa.

The governments of the region must invest in higher education, create better tax and other incentives for investors to support early-stage businesses, relax visa requirements to attract intellectual capital and adapt public market and other regulations if it wishes to allow for quick creation of new, valuable businesses.

Despite these challenges, we are bullish on and committed to the region and look forward to participating in its growth to create value for our shareholders.

East Ventures remains bullish on Indonesia & Southeast Asia despite headwinds