Sequoia boosts investments in start-ups in India and Southeast Asia

On a recent On a winter morning in New Delhi, Rajan Anandan and Pieter Kemps paced the floor of a five-star hotel, interviewing a group of more than two dozen young startup founders about their goals. A founder sought to achieve the most downloads in the mobile games category. Another pledged to reach $100 million in annual recurring revenue within a few years.

“When you think about how big you want to get, don’t think about $100 million or $200 million in revenue,” Anandan told the now totally silent rally.

“It doesn’t matter what business you build; that’s not thinking big enough at all. There is no sustainable business on the planet that generates $100 million in revenue. A sustainable business is a business that generates $100 million in free cash flow per week,” he said.

Sequoia’s partners spent the next two hours presenting the founders with more than a dozen slides, emphasizing that consistent growth over a long period – even if not soaring from quarter to quarter – can conjure up trillion-dollar companies.

Their firm belief is based on betting that India, Indonesia and other South Asian markets will double and triple their GDP over the next 10-15 years, and public markets and technology companies should play a much larger role in this push.

The combined market capitalization of the top five tech companies in the United States exceeds $7 trillion, contributing more than a quarter of the country’s GDP. The top five technology companies in China, with a market capitalization of over $1 trillion, contribute 7% of the country’s GDP. But the top five tech companies in India and Southeast Asia have a market capitalization of just $140 billion, which is just 2% of their GDP.

The 12 startups gathered in the pitch room had been hand-picked from approximately 3,600 applicants for the latest cohort of Sequoia’s early-stage, four-year-old Surge program. Surge launches two cohorts each year, comprising between 10 and 20 startups each.

The new cohort includes startups operating in a vast space: Global chalice helps companies choose better carbon credits and rethink the rating system; Arintra is an AI-powered standalone medical coding platform to help US hospitals get paid better and faster by automating their insurance claims submission; Meragi facilitates couples’ access to marriage-related services; Vaaree is an organized market for high quality home products; AltWorld builds a metaverse gaming platform to help Gen Z gamers create custom 3D worlds; And Bifrost builds virtual worlds and synthetic datasets that AI teams can use to train their models for apps.

Diri Care offers affordable, on-demand products and services for a range of health and beauty needs; Masterchow wants to help people prepare Asian meals at home; Metastable materials attempts to develop a low-cost, clean, and highly scalable method of recycling lithium-ion batteries; RedBrick AI is a SaaS platform to help companies build medical imaging AI; On demand wants to help developers and QA engineers test and debug web applications in real time; And Tentang Anak builds a parental ecosystem in Indonesia.

The Thursday morning sessions, attended by TechCrunch, were among several dozen these founders will attend over the next few months as Sequoia partners walk them through different aspects of building a startup. Workshops will teach founders how to think about the total addressable market. They will receive advice to reconstruct their technological architecture. Another will help them build mental models for when to shift from pursuing growth to improving the unit economy. And there’s also a session to help founders draw their company’s vision and slogan. (In a few words, explain the problem you’re solving and how you’re solving it, and don’t make things seem boring, off-brand, or long.)

Sequoia has “codified” its 50-plus-year learning to assess where a founder needs help on their journey and what obstacles they’re likely to encounter, Anandan said in an interview. The legendary company’s vast resources – there are around 30 people who work diligently with these founders for months, offering assistance in dozens of areas – set it apart from its rivals in India, even at the start of its the company. There are very few venture capital firms operating in India that have such a large team, let alone for any one of the focus areas.

Sequoia doesn’t have to try so hard to win early-stage contracts: it started investing in India more than a decade ago and hit 38 unicorns (out of 102 total) in the country and 11 in Southeast Asia. So what about the change of heart?

Over the past eight years or so, many companies have tried to tackle the seed investment scene in India. Y Combinator has gained momentum in the South Asian market after a handful of successful early casts such as Meesho, Razorpay and Clear, although its steadily growing casting network in recent years has seen less success. Blume Ventures and Arkam Ventures have earned a reputation for being founder-friendly and have raised larger funds, backing many startups that larger funds have missed. Tanglin Venture Partners, Antler and Good Capital have also earned their place in the market.

“Sequoia was considered a Series A and B investor at the time,” said a high profile investor, who in his previous stint competed with Sequoia. “Seeds weren’t a major focus for them, but they clearly wanted to get in early as deals were starting to get more expensive in the market.” In Anandan, they found someone who had made more than 100 investments in India personally and had Google credentials to boost their efforts, another investor said.

An angel investor, who also requested anonymity to speak candidly, said Sequoia’s Surge is India’s vehicle and SEA’s answer to Y Combinator, undermining the US accelerator in several ways.

Since last year, YC has been offering startups $500,000, where $125,000 gets them 7% equity in the startup and the rest is invested on a SAFE note that converts to equity in the startup’s next round. Sequoia, by comparison, offers up to $3 million.

“Sequoia’s deal store is also much larger with resources, support and unlike YC, Sequoia is consistent with not picking multiple startups doing the same thing in the same bundle, and it maintains the size of the fairly small and diverse cohort, so you have a different vibe when you get picked in Surge versus if YC picks you,” the investor said.

Certainly even though Surge seems to have a much higher strike rate than YC in India – Surge portfolio companies Doubtnut, Scaler, Khatabook, ShopUp, Bijak, Classplus, Hevo Data, InVideo, Juno, BukuKas, Atlan, LambdaTest, Plum , Absolutely, ApnaKlub is among those who have raised multiple rounds – he has yet to hit a unicorn. (The company said startups in its portfolio have raised more than $2 billion in subsequent funding rounds.)

But over the years, as many investors have conceded, Surge has outstripped its rivals.

“They have built a great brand. Sequoia and Surge are the top choice for startups to raise capital. They have high quality programs, they promise to network with the best of the best and have a huge support team in general,” said the first investor who, like others, requested anonymity to speak candidly.

Anandan — and indeed, many other Sequoia partners over the years — has always dismissed the idea of ​​his company trying to compete with YC on seed deals. “We have immense respect for them,” he said in the interview.

Lightspeed and Accel, two venture capital funds that are closer rivals to Sequoia in India than most, have also attempted to build rivals Surge of their own but have been unable to make similar inroads.

What made Surge get the mileage he has? After several attempts, here is the best I could glean from Anandan: “You must have the commitment of very high caliber resources. We’ve invested more than most venture capital firms through Surge alone. And execution is the easiest thing to tackle, but the hardest thing to do in life and in business.