Sequoia fuels early investment in India and Southeast Asia

On a winter morning in New Delhi, Rajan Anandan and Pieter Kemps walked through a five-star hotel and questioned a group of more than two dozen young startup founders about their goals. One founder set a goal to get the most downloads in the mobile games category. Another promised to reach $100 million in annual recurring revenue within a few years.

“When you think about how big you want to get, don’t think about $100 million or $200 million in revenue,” Anandan told the meeting, which was now completely silent.

“It doesn’t matter what business you build; that’s not big enough to think about. There is not a sustainable company on the planet that makes $100 million in sales. A sustainable company is one that generates $100 million in free cash flow per week,” he said.

Sequoia’s partners spent the next two hours walking the founders through more than a dozen slides, emphasizing that consistent growth over a long period of time, even if it doesn’t skyrocket quarter after quarter, can create a multibillion-dollar business.

His strong belief is supported by the bet that India and Indonesia, as well as other markets in South Asia, will double or triple their GDP in the next 10 to 15 years, and that public markets and technology companies are on the verge of a significantly larger to play a role. role. role in this expansion.

The combined market capitalization of the five largest US technology companies exceeds $7 trillion and contributes more than a quarter of the country’s GDP. China’s top five technology companies, with a market cap of more than $1 trillion, contribute 7% to the country’s GDP. But the top five tech companies in India and Southeast Asia have a market cap of just $140 billion, which is only 2% of their GDP.

The 12 startups gathered in the presentation room were selected from approximately 3,600 applicants for the newest cohort of Sequoia’s four-year early-stage Surge program. Surge launches two cohorts each year, each with between 10 and 20 startups.

The new cohort includes startups operating over a wide area: global cup supports companies in choosing the best emission certificates and reinvents the rating system; Arintra is an AI-powered autonomous medical coding platform that helps US hospitals get paid better and faster by automating insurance claims filing; meragui facilitates couples’ access to marriage-related services; Vaaree is a curated marketplace for quality home goods; alternative world is building a Metaverse gaming platform to help Gen Z gamers create custom 3D worlds; And Frost creates virtual worlds and synthetic datasets that AI teams can use to train their models for applications.

you carefully offer affordable, on-demand products and services for a variety of health and beauty needs; Masterchow wants to help people prepare Asian dishes at home; metastable materials seeks to pioneer a low-cost, clean, and highly scalable lithium-ion battery recycling method; Red Brick AI is a SaaS platform that helps companies create AI based on medical imaging; Needed to help developers and QA engineers test and debug web applications in real time; And Tentang Anak is setting up a breeding ecosystem in Indonesia.

The Thursday morning sessions, attended by TechCrunch, were one of dozens of founders who will attend over the coming months as Sequoia partners walk them through various aspects of building a startup. The workshops teach founders to think about the entire addressable market. You will receive guidance in compiling your technology architecture. Another will help them develop mental models of when to shift from chasing growth to improving unit profitability. And there is also a session to help founders create their company’s vision and slogan. (Succinctly explain the problem you’re solving and how you’re solving it, and don’t make it sound boring, strange, or long-winded.)

Sequoia has “coded” its 50-plus years of learning to assess what areas a founder needs help with on their journey and what obstacles they’re likely to encounter, Anandan said in an interview. The well-established company’s rich resources – there are about 30 employees who work diligently with these founders for months and provide assistance in dozens of areas – sets it apart from its competitors in India, even in the early stages. There are few venture firms operating in India that have such a large team let alone more for any of the areas of focus.

Sequoia doesn’t have to work so hard to close early-stage deals: it started investing in India more than a decade ago and has hit 38 unicorns (out of 102) in the country and 11 in Southeast Asia. So what about the change of heart?

In the past eight years, many companies have tried to join the early investment scene in India. Y Combinator gained traction in the South Asian market after a handful of successful early picks like Meesho, Razorpay and Clear, even though its ever-expanding roster network has had fewer successes in recent years. Blume Ventures and Arkam Ventures have built a reputation for being founder friendly and raising bigger funds and supporting many of the startups that lost the bigger funds. Tanglin Venture Partners, Antler and Good Capital have also earned their place in the market.

“Sequoia has traditionally been viewed as a Series A and B investor,” said a high-profile investor who competed with Sequoia in his previous tenure. “Seeds weren’t a priority for them, but they obviously wanted to start early because the market was getting more expensive.” In Anandan, they found someone who had personally made more than 100 investments in India and had the Google credentials to promote their efforts, another investor said.

An angel investor, who also requested anonymity to speak candidly, said the Sequoia Surge is India’s vehicle and SEA’s answer to the Y Combinator, which hurts the US accelerator in many ways.

As of last year, YC offers $500,000 to startups, with $125,000 giving them a 7% stake in the startup and the rest invested in a SAFE bill that becomes capital in the next round of startups. By comparison, Sequoia offers up to $3 million.

“Sequoia’s boutique offering is also much larger in terms of resources and support, and unlike YC, Sequoia consistently doesn’t curate multiple startups doing the same thing in the same batch and keeps the cohort size relatively small and diverse. So you get a different vibe when you get picked for Surge than when you get picked for YC,” the investor said.

Certainly, Surge seems to have a much higher success rate in India than YC: portfolio companies Surge Doubtnut, Scaler, Khatabook, ShopUp, Bijak, Classplus, Hevo Data, InVideo, Juno, BukuKas, Atlan, LambdaTest, Plum, Absolute, ApnaKlub are among those who have raised several rounds; still hasn’t come up with a unicorn. (The company said startups in its portfolio have raised more than $2 billion in subsequent rounds of funding.)

But as many investors have acknowledged, Surge has outperformed its competitors over the years.

“You have built a great brand. Sequoia and Surge are top choices for startups to raise capital. They have quality programming, a promise to network with the best of the best, and overall they have a great support team,” said the early investor, who, like others, asked for anonymity to speak candidly.

Anandan, and indeed many other Sequoia partners, have always rejected the idea that his company would try to compete with YC for early deals over the years. “We have a lot of respect for them,” he said in an interview.

Lightspeed and Accel, two venture capital funds closer to Sequoia in India than most, also tried to create their own rivals Surge, but failed to make comparable progress.

What made the Surge get the mileage it does? After several attempts, this is the best I could get from Anandan: “You have to have a commitment of quality resources. We invest more than most venture companies in Surge alone. And execution is the easiest thing to say, but the hardest thing in life and business.