This month, Surge—the 16-week accelerator programme run by storied venture capital firm Sequoia—welcomes its second cohort of startups. But even with its first batch still visible in its rearview, the initiative is already showing signs of disrupting the venture capital scene in Southeast Asia.

At least two of the Indian participants in the inaugural Surge intake are preparing to raise significant financing rounds, with plenty of reported interest in others. Things on the Southeast Asia front, though, have been more pedestrian. A price-conscious market for investors—by virtue of the few exits that the region has seen—Sequoia’s VC peers are baulking at the large valuations that freshly-minted Surge graduates are coming to the table with.

Used to discussions on their terms, VCs in the region—most of whom call Singapore home—are coming into talks at a disadvantage.

“The founders were all good at pitching, had blue chip backgrounds and could paint the opportunity and state of their company,” one investor who met with five Surge startups from Southeast Asia recalled. The investor passed because the company “wanted a higher valuation compared to what the market is looking at.”

“I sense that Sequoia is trying to play the Silicon Valley/China market game in Southeast Asia, but it hasn’t been proven here,” said another. This person suggested that the association with Sequoia was responsible for startups seeking double the valuation they had expected.

“It felt very much like Ivy League school,” suggested a third investor who held meetings with the Southeast Asia cohort. “Yes, you get a great education, but you can’t necessarily walk into a job.”

Sequoia has always been the venture capital firm to beat in Southeast Asia. It out-muscles all others in the region on financial firepower, history, international reach and—crucially—reputation. Sequoia India and Southeast Asia—as its fund is called in this part of the world—has always enjoyed these unfair advantages.

But Surge is a tacit admission that the firm can do better on early stage deals. Sequoia counts unicorns—startups valued over $1 billion—Ola, Zomato, OYO, Byju’s, Freshworks and MuSigma in its portfolio. However, it was not an early investor in any of these, limiting its upside from such deals.

Over in Southeast Asia, the situation is different. The firm has taken advantage of a higher signal-to-noise ratio and reduced competition to take lucrative stakes in unicorns such as Gojek, Tokopedia and Traveloka, as well as those still vying for billion-dollar valuations such as Zilingo, One Championship and Carousell. While it has always had a reputation for tough dealing, Surge has pushed things further despite pledges to work closely with other VCs.

“We’ve made seed investments and collaborated with other firms in the past. We’ve already spoken to a few friendly firms and they are excited to be involved,” Shailendra Singh, one of Sequoia’s managing directors, said in January regarding the potential to collaborate with other investors.

The investors who spoke to The Ken voiced concern that Surge companies are pricing themselves out of potential investments.

AUTHOR

Jon Russell

Jon Russell is Southeast Asia editor for The Ken based in Bangkok. Originally from the UK, Jon moved to Thailand in 2008. He’s passionate about telling thoughtful business stories, and tracking the impact of the internet in his adopted home of Southeast Asia.

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