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GenAI to separate the haves from the have-nots in startup world, says Capria’s Dave Richards

Dave-Richards

The world of startups is being split into two by the arrival of generative AI (GenAI), and those who can leverage this new technology ahead of their peers will have a significant advantage in attracting funding, according to Dave Richards, co-founder and managing partner of Capria Ventures.

“It’s the tale of two cities or two worlds. There’s really the world that is being powered by the new AI technologies, and there’s everything else,” Richards told DealStreetAsia during an interaction.

He believes that the arrival of GenAI is a substantive change in technology instead of a temporary hype due to its ability to create entirely new content, automate tasks, and improve efficiency.

According to Richards, using GenAI has become almost a funding prerequisite for US startups. While it is yet to be the case for Southeast Asian startups, he thinks that familiarity with GenAI can help startups stand out among others that are also raising capital.

While based in Seattle, Capria Ventures focuses on investing in tech startups in India, Southeast Asia, Latin America, and Africa. In Southeast Asia, Capria has partnered with AC Ventures, Ascend Vietnam Ventures, Genesis Alternative Ventures, and Integra Partners.

“Investors, even at the Series A and in some cases even seed stage, are saying, ‘I want to see a path to your cashflow positive with the investment that I’m putting in.’ The only way to do that is to have a different playbook,” he said.

“At least one of the options that we’re really focused on is people leveraging the application of GenAI into their products and services, into what they do to be able to build more with less,” he said.

Richards, however, cautions that investors also need to adapt to the changing landscape. The rapid development of GenAI requires a deeper understanding of the technology and its applications to weed out the impostors.

Capria Ventures has addressed this by building a team of specialists to assist their portfolio companies.

GenAI has been a resounding theme for Capria Ventures since last year.

The firm, through its vehicle Global South Fund II, has pledged to invest mainly in startups with a clear strategy of applying GenAI to expand their market, decrease costs, and increase profits.

Capria announced the first close of its Global South Fund II in April last year. According to the firm’s document, it is targeting a final close of up to $150 million in Q4 2024.

“Overall, I would say, it is hard to raise money. The good news is, investors are still investing and are still interested, but I think it’s slowed down a lot. We talk to investors across the globe. We have US investors, we have European, Asian investors, and more recently we’ve been in lots of conversations with Middle-East investors who have a growing interest in the region,” he said.

“There’s a growing diversity of LP interest in the region but … fundraising has really slowed down overall,” he said.

Cowboy no more

About four years ago, Richards made candid remarks about how the so-called “cowboy VCs” roam the lands of Southeast Asia, unleashing “spray and pray” strategies with little or no clear thesis to their investments.

“We’re seeing the result of that cowboy attitude now happening in the market. A lot of companies that were funded were probably not ready or should not have been funded,” Richards said.

“It’s changed now and I’ve seen the attitude actually with a lot of investors; we talk to the investors in the region all the time, how they’ve all shifted their attitude much more towards being more thoughtful about what we invest in,” he said.

The other thing Richards notices is that some investors in the region thought they could be good at investing in different stages simultaneously by raising vehicles that allowed them to be multistage investors without proper skillset and mindset to invest at different levels.

“Many of the investors in the region, I would say, they don’t personally have a lot of operating experience. So they had a very light touch on the governance of the companies they’re investing in,” he said.

“They weren’t asking the founders hard questions; they weren’t able to help a founder navigate well out of a hard situation, and founders get in hard situations all the time. So most of the founders were really on their own to figure things out.”

Richards expects portfolio sizes for early investments to come down. “Because the reality is you need to spend more time with your companies rather than just having massive portfolios that you spend no time with,” he said.

Five years after Capria entered the Southeast Asian market, the firm is now poised to focus on finding great entrepreneurs in Indonesia—or focus on the Indonesian market while being based in Singapore—and Vietnam to be invested directly.

“Our DNA is to invest in great businesses, great entrepreneurs, and ones that are making a difference in their societies,” he said. “We are primarily interested in businesses that are focused on the up-and-coming, the growing aspiring middle class. Frankly, the association with that is the small business sector.”

Capria Ventures typically invests Series A with a ticket size of about $1-3 million.

The firm largely invested in fintech throughout its history and it continues to be interested in it. Still, Richards said, the B2B marketplace is an up-and-coming area that is increasingly attractive with new technologies available. There are also job tech, agritech, and a variety of different services for small businesses.

This article was originally published on Deal Street Asia >

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