• Fund III expected to launch later this year with USD 150m-USD 200m target
• Shift very early stage to early stage could drive more deal flow in Indonesia
• Profitability, scalability are key to exits through sales to PE and strategic investors

A slowdown in fundraising hasn’t caused Singapore-based Integra Partners to be more conservative on fund size. Having raised USD 50m for its first early-stage vehicle and USD 90m for its second, the firm will target between USD 150m and USD 200m for Fund III, which is set to launch in the second half of this year. Securing larger stakes in start-ups is central to its thinking.

“One of the lessons we’ve learned in Funds I and II is that not having enough ownership early in some of these companies has, to a certain extent, capped performance,” said Jinesh Patel, a managing partner at Integra.

“With a USD 50m fund, it’s hard to own 10%-20% of a company through to exit because you don’t have enough capital to sustain that investment. Even with a USD 90m fund, it’s challenging to sustain a meaningful position in a company that is successful.”

The firm is also emboldened by an evolution in its core market: financial technology. Once defined by digital banking apps, neobanks, and payments, the fintech universe now underpins significant corporate activity. As evidence, Jennifer Ho, a partner at Integra, points to the firm’s 33 investments spanning small and medium-sized enterprise (SME) enablement, healthcare, climate, and agriculture.

The inclusive power of fintech prompted the United States Agency for International Development (USAID) to support Integra’s Win With Women programme, which launched alongside Fund II. Last year, USAID doubled down, allocating USD 250,000 for investment in female-led tech start-ups.

However, USAID’s ongoing commitment to these initiatives hangs in the balance after the Trump administration signaled fundamental changes to how the US approaches foreign aid. Secretary of State Marco Rubio was appointed acting administrator of USAID earlier this month, having earlier said the agency would be merged into his department. Integra declined to comment on the matter.

Expansion story

USAID wasn’t the only development finance institution (DFI) to get involved around Fund II. Integra secured an anchor investment from Germany’s DEG in July 2021, and although fundraising slowed because of the pandemic and the USD 100m target wasn’t reached, Norway’s Norfund and the US Development Finance Corporation (DFC) came into the May 2023 final close.

French asset manager Tikehau Capital also participated, making its first-ever commitment to a Southeast Asia-based venture capital firm.

This support represented a step up from Fund I, which was raised a year after Integra’s founding as part of alternative investment manager Dymon Asia Capital in 2016. The firm was known as Dymon Asia Ventures until Patel and Chris Kaptein, another managing partner, led a spin-out in 2020.

Headcount has grown to 20, including 16 investment specialists and venture partners, and the team has made 34 investments to date. Another 2-3 new deals are expected in 2025 – plus follow-ons for existing portfolio companies – which would take the Fund II count to 18.

Fund III will be similar in terms of sector strategy and number of investments, but the planned larger corpus will allow Integra to build on its previous pre-Series A through Series B remit. It will primarily invest in companies at the Series A stage that have demonstrated product-market fit.

“We’ve refined our process, and one key lesson we’ve learned particularly from Fund II is the importance of capital efficiency. Our sweet spot is unlikely to be very early-stage companies unless it’s something truly exceptional with a standout founding team or unique capabilities that we’ve not seen before,” Patel said.

The shift in approach is evident in Integra’s recent activities. Patel noted that at least two of the last three investments were valued based on profitability, with one closing at 11x earnings.

Optimistic on Indonesia

There may also be more exposure to Indonesia. Funds I and II are underweight on the market due to concerns about excessively high valuations, but coming in at a slightly later stage alters the dynamic. For example, last October Integra joined a USD 20m Series A expansion for Chickin Indonesia alongside East Ventures, Asian Development Bank, 500 Global, and Heracles. Granite Asia led the round.

“Indonesia is starting to look really good. You’re going to see two types of opportunities: the very traditional venture backable businesses that are reaching Series A and what we would define as restructuring opportunities,” Patel explained.

“There are interesting companies in the areas we focus on, but they’ve been over-capitalized or there’s poor capital efficiency or the cap table is broken or there’s an issue because they’ve either taken too much capital or not run their business very efficiently. In those cases, they are also very appealing to us because you can still make venture-style returns.”

While Integra doesn’t have specific geographic allocation targets, one-third of Fund II is in the Philippines, either directly or regionally. The market’s appeal is largely-based on valuations, with other parts of Southeast Asia now beginning to catch up in terms of start-ups that turn EBITDA positive at an early stage.

The firm is also interested in Malaysia and Vietnam, though macroeconomic conditions give reason for caution, while a debut investment in Thailand is on the cards.

South Asia is a recent, opportunistic addition. Fund II has backed the likes of insurance technology start-up Symbo and accounting platform Cleanhub in India, while regional players such as credit management specialist Flow and e-commerce enablement business Graas have entered South Asia.

A handful of portfolio companies – ReaQta, Uphold, Neat – have expanded globally, but Integra doesn’t expect this to become a major theme. At this point in time, Southeast Asia’s strength is seen as adopting and implementing technology, not driving innovation.

Sources of returns

Regarding exits, the firm is optimistic that Singapore can become an attractive listing destination for regional tech companies, though a significant evolution in market conditions is required. Patel emphasized the importance of aftermarket performance, noting that companies need to maintain at least 60%-80% of their value to ensure real returns for investors.

The issue is not unique to Singapore, but rather a regional challenge, he added. Compared to global peers, Southeast Asia’s capital markets are risk-averse and favour traditional industries, attracting conservative investors who are hesitant to invest in tech companies.

Thailand is seen as the only market where tech companies have a reasonable chance of success because of its high retail component. Nevertheless, Patel is wary that this investor makeup can lead to speculative trading and volatility.

“Exit markets, from a dollar value perspective, tend to be in the USD 200m-USD 500m range in Southeast Asia. You’re more likely to deliver venture returns if you are disciplined about how you invest and your entry valuation, rather than trying to underwrite based on finding unicorns,” he said.

“For us, the capital efficiency of trying to underwrite to a billion-dollar outcome is not synonymous with a positive fund return. We are very disciplined in how we manage that risk, as we don’t expect billion-dollar outcomes from our portfolios.”

There have been six exits from Fund I so far – four trade sales and two sponsor-to-sponsor sales. The latter were both partial exits, with Integra offloading part of its stakes to growth-stage and secondary investors. The firm expects private equity activity to increase, though investors will likely favour companies that are EBITDA-positive and have demonstrated an ability to scale.

The key trade sale exit was cybersecurity player ReaQta, which was acquired by IBM [NYSE:IBM] in 2021. The others are quantum computing start-up Rigetti [NASDAQ:RGTI], alternative lending platform Nikel, and cross-border trade enablement platform Neat. Rigetti merged with a special purpose acquisition company (SPAC), while Nikel and Neat were bought by Felgo Capital and Rapyd, respectively.

Distributions to paid-in (DPI) for Fund I was 0.8x as of January and Integra hopes to reach 1x by year-end. It claims to rank in the 10% globally for funds of the 2017 vintage.

Ho attributes ReaQta’s success to the company’s capital-efficient business model. Integra moved early to acquire a nearly 20% stake and remained largely undiluted through exit because the company didn’t need to raise multiple follow-on rounds to support unprofitable operations.

“The valuation was heavily driven by the fact that ReaQta was building something that represented a real technological leap forward in cybersecurity that was of extreme strategic importance to the buyer at the time, and they were willing to pay a premium to acquire that capability,” Ho said.

“The combination of capital efficiency and a real technological edge is why we were able to achieve an exit that returned the majority of our first fund in one transaction.”