Should VCs have many friends or a few buddies?

In part 1 of this series, we looked into how Southeast Asia’s venture capitalists co-invest. Some tend to be agnostic, while others tend to work with a few select “friends.”

But what are the implications of these patterns?

For instance, would startup founders benefit from being aware of these alliances? The short answer is yes – if they’re savvy enough to use it to their advantage.

Meanwhile, a study from Oxford University’s Said Business School found that US-based VCs “get tired of their friends,” indicating that deeper relationships are linked to lower exit performance. But there are caveats: For instance, relationships built during “wartime” hold up better in the long run. It’s an intriguing point to examine amid the Covid-19 pandemic.

Agnostic firms may have advantages in flexibility, while other firms can count on strong connections with influential conglomerates. But ultimately, Southeast Asia’s tech ecosystem is relatively young, so things are bound to change as it develops further.

Good to know, but not a must

Should founders be mindful of these VC alliances?

An investor from a regional firm who declined to be named doesn’t think so. “Our advice is to not pick funds based on who you can raise subsequent rounds with. [Instead, choose] who can help you build a quality business,” he says. “That’s the best predictor [and] what we recommend for everybody.”

But Justin Hall, a partner at Golden Gate Ventures, says it’s important to be aware of these alliances. For founders in countries like Indonesia, the Philippines, or Thailand, where conglomerates and powerful families have long shaped business culture, this really shouldn’t come as a shock.

“Whether they are institutional rivals, corporates, or even families (with a capital F), there are some entities that will never, ever co-invest with one another, and that has both current and downstream ramifications,” he says.

On the other hand, getting a good, reputable lead with a solid track record of cooperation with other funds is beneficial, Hall explains. It means the founder has access to a wider network of potential investors.

An entrepreneur who has co-founded two startups in the region finds that both notions can be true at the same time.

Should startups be choosy?

For VCs, which approach is better?

Too early