Recession Run: Iterative’s $55m plan amid a downturn

The funding winter is here. News of layoffs and troubles in startups have been cropping up. In this Q&A series, we talk to Southeast Asia’s investors to suss out what opportunities they see, what strategies they’re implementing, and what areas of investment they’re looking at in the next few months.

Hsu Ken Ooi, co-founder and general partner of Iterative, the Singapore-based accelerator and VC firm, says early-stage founders need not fret too much about the impact of the economic downturn that has hit the wider tech startup space.

Hsu Ken Ooi, co-founder and general partner of Iterative. / Photo credit: Iterative

He reassures founders that the goal is still the same: “to solve problems for people” – and that those problems still exist.

With a focus on early-stage startups, Ooi tells Tech in Asia that the more than 60 companies in Iterative’s portfolio have seen “no perceptible difference in terms of their actual performance” from the recessionary headwinds. In fact, he says that most of these firms continue to grow.

“If I’m being honest, the [early-stage] companies are having a hard time because the business is tough, not because of the market conditions.”

The startup ecosystem is fairly saturated with a lot of competition: Firms are competing for limited funding, working hard to capture their niche markets, all while building a sustainable business model.

With this in mind, Ooi says the VC remains positive about investing in a diverse variety of firms, regardless of the market sentiment surrounding them. He believes that a market downturn can help weed out startups that only create hype and noise from those with solid, enduring businesses.

Demonstrating this belief, Iterative continues to bullishly expand its accelerator cohorts – its last program recruited 19 startups, while its next is looking to take on up to 30. This is surprising, given that earlier this August, US accelerator giant Y Combinator cut its cohort by 40%, citing worsening economic conditions.

Here are more insights from Ooi on the businesses likely to be affected by the downturn, and Iterative’s investment plans for its recently closed second, where it raised US$55 million.

What are your plans for Iterative’s second fund?

Ooi: Half of this fund is basically for follow-on investments, and the other half of the fund is for investing in more companies. The first fund was US$10 million, and we invested in 50 companies. We also write larger checks now, anywhere between US$150,000 to US$500,000. It used to be just US$150,000.

The reason we’re partly not focusing on specific verticals is that we are different from other investors – we are high volume, low concentration, while most investors are low volume, high concentration.

In the last two and half years, we’ve invested in 60-plus companies. Since we do a high volume of investments, we tend to be more sector agnostic.