ESG funds, the next trend in early stage investments?

Logistics, SaaS, health tech, and e-commerce industries to see significant growth in this ‘golden age of technology'.

An influx of environmental, social, and governance (ESG)-focused funds may become the newest trend in early-stage investments as more investors and start-ups take a pause to consider the impact of their work.

In an exclusive with Singapore Business Review, early-stage venture capital fund Accelerating Asia’s Co-Founder and General Partner Amra Naidoo said that more and more start-ups and investors take into consideration the impact of their work.

“We’ve already seen an influx of impact investors and ESG-focused funds enter the region. With the rate that things are changing in this region, there are a lot of big problems that need to be solved. Often entrepreneurs are at the forefront of solving these problems without truly realising the potential for societal or environmental impact that their businesses could have,” Naidoo said.

Despite this, she added, it was exciting to see that these entrepreneurs are creating solutions that have the potential to uplift so many people in so many different ways. 

“It’s not just about creating a positive impact, there seems to be a much more general consciousness about how their work might impact their stakeholders in general differently, with entrepreneurs and start-ups thinking more consciously about how they can proactively contribute to an overall better, healthier, kinder world,” Naidoo stressed.

She said entrepreneurs being conscious about the greater impacts in the world is greatly reflected in Accelerating Asia’s portfolio. Naidoo said 80% of the companies in their portfolio are addressing one or more of the Sustainable Development Goals whilst also having solid business models and market traction.

Hot market

Naidoo said tech start-ups, especially in the logistics and smart cities, fintech, and health tech industries, continue to be vertical trends and hot industries and will continue to be so in South and Southeast Asia as the regions continue to grow and develop. 

“There are definitely opportunities for localisation and local adoption of technologies that we are already familiar with — because Southeast Asia and South Asia are such unique markets with a specific set of challenges and dynamics that, I think, we will see more hyper localisation,” Naidoo said.

In Singapore, the start-up ecosystem continues to grow stronger, with investors having a keen interest in early-stage companies.

Recently, Accelerating Asia has increased its investment amount with start-ups now eligible to US$250,000, from only $150,000 previously.

According to Naidoo, the growth and traction their portfolio of start-ups recently gained have been part of the reason that pushed the company’s move.

The venture capital (VC) fund firm recently reported that its 36 start-ups collectively raised US$27 million ($36.2 million) to date, 65% of which has been raised since joining Accelerating Asia.

“Second, we’re seeing the portfolio have interest from investors at the angel and later stages which is an early indication of the strength of the start-ups that come into our portfolio and a signal that our VC accelerator is working. So, we’ve decided the time is right to increase our investment amount and take bigger bets on the start-ups coming through our program,” Naidoo said.

Naidoo said that currently, we are still in the golden age of technology, especially in Asia. She expects that the start-up ecosystem will see significant growth in industries such as logistics, SaaS, health tech, and e-commerce.

Working on the future

As every VC fund focuses on different stages, verticals and regions, it comes down to the individual VC’s investment thesis and strategy.

“From our perspective, we invest in Pre-Series A start-ups from Southeast Asia and South Asia and work to lower the overall investment risk through the VC accelerator model. We work alongside our portfolio of start-ups for an extended period through our model, gather intel and support their growth and fundraising to ensure startups are poised for future growth," Naidoo said, adding: "From a fund perspective, our model enables us to be better positioned to make follow-on investment decisions into top performers.”

Currently, they will set their sights on Southeast and South Asia as they continue to see opportunities for international early-stage VCs in emerging markets like Bangladesh. They also plan to expand their footprints in Indonesia and Vietnam whilst continuing to build on Accelerating Asia’s presence in Singapore. 

“From our point of view, we also think as an early-stage VC, we take a close look at business model viability and early indications of traction — at the end of the day, we want to invest in start-ups that have long-term potential for growth and a sound business model while also delivering real-world solutions to the problems people in the region face,” Naidoo said.