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Singapore-based Upstream Ventures is launching a new $80 million Pan Asia fund that will invest in early stage ventures in in India, Singapore and China. It intends to fill the gap for early stage funding in sectors such as Internet, new media, wireless and telecommunications; IT software and solutions; and semiconductors in these geographies. The fund is aiming for a first close later this year.

VC Circle spoke to Pierre Hennes, a partner at Upsteam Ventures and one who is focused more on Indian venture investing, about the new fund and how he views India.

Tell us a little about Upstream Ventures

Upstream Ventures was established in 2003 in Singapore to manage a family fund of early-stage investments. Recognizing the emerging opportunities for technology and investment in Asia, the firm’s founder, Carmelo Pistorio, assembled a core team of professionals committed to the vision of transforming the group’s opportunistic angel activities into a structured Venture Capital firm. An early trade sale from the angel portfolio served to further build the current investment portfolio and fund the growth of the management company, which today includes an expanded team of operationally-focused investment professionals spanning Singapore, China and India.

Over the past several years, Upstream Ventures has developed a strong global network with a particular focus on China, India and Singapore. The network spans research institutes and incubators, multinationals, venture capital and private equity firms, professional associations and academia. The firm has also attracted experienced, highly-respected entrepreneurs and experts from industry, venture capital and higher education to its International Advisory Board.

Today, Upstream Ventures provides early-stage venture capital funding, expertise and networks to emerging companies across Singapore, China and India. Upstream Ventures backs outstanding teams that have the vision and discipline to build high-growth innovative enterprises targeting Asian and global markets.

You plan to raise a new early stage VC fund for funding opportunities in China, India and Singapore. What is the size of the fund and when do you plan to close it?

The Upstream Asia Enterprise Fund is a $80 million closed-end fund for investment in early-stage companies in Singapore, India and China. The fund has secured commitments from its anchor investors and is in discussion with a number of qualified prospective investors, aiming for a first close later this year.

What type of opportunities are you looking to invest from this fund? What will be the range of investments?

The fund will invest in early-stage companies in China, India and Singapore and anticipates initial investments of $500,000 per company. Total commitments per company are limited to $5 million staged in up to three rounds of funding. The fund will invest in companies with core technologies, devices and applications in fields such as: Internet and new media; wireless and telecommunications; IT software and solutions; and semiconductors.

Is this the first time you are looking to invest in India? How do you see the opportunities here?

The fund’s investment managers have several years of direct investment experience in India. With a high concentration of the world’s manufacturing and services, Singapore, China and India are now increasingly a locus of global research and development. The region continues to lead in economic growth, driven in part by large populations of highly educated and trained professionals, many returning from overseas as entrepreneurs with deep industrial and scientific experience. India and China also have sizeable domestic markets and rapidly growing middle classes driving demand. The fast growth in demand from consumer and enterprise markets, and a new generation of homegrown technologies are increasingly re-shaping Asia’s economies, making Asia the center of venture activity.

Not surprisingly, the region’s private equity markets are attracting large inflows of foreign investments. These funds, however, remain still essentially focused in late stage, mezzanine and buyout deals, creating an urgent need for funding and expertise available for early-stage ventures.

I think there is a clear lack of early stage financing in India. However there could be risks and challenges in investing at that stage. How do you view this?

Strongly agree. There is a tremendous amount of committed capital that will be unleashed in India over the coming 24 months. However, many of these funds are too large ($100 million-plus), and will be forced to commit larger amounts of capital per investee company, driving valuations (and the entrepreneur’s expectations and confidence) higher. Startups in India talk of the $250K gap, while VCs will be trying to shove millions down the entrepreneurs’ throats. There are very few smaller sized funds (<$30 million) operating – and these will be the funds to benefit from the higher valuations, so long as we move fast and catch the entrepreneur early.

Those very early-stage VCs that instill good governance practices, build strong management teams and help investees achieve traction early-on will establish a good reputation among the larger funds, becoming trusted sources of deal flow (for which they will be willing to pay a premium). We will mitigate our investment dilution risk by following on initial investments with up to $5 million total exposure per company.

With a $80 million target fund size spread across Singapore, India and China, we address the gap for early-stage funding. Our cross-border approach offers a competitive edge to the early stage venture by bridging the best of these three ecosystems. Furthermore, it allows us to select the best opportunities across all three countries while benefiting from geographical diversification.

What do you like about India now?

India is on fire. Improved infrastructure and the loosening of financial controls are spurring investment. Everything mobile-related. Leveraging the existing service base to move into products – for the home market and abroad. Bridging and tapping the digital divide. The excitement of e-enabling the populace. The FTA with Singapore. Growing trade with China. Emergence of Tier 2 cities. Highly educated populace. Hungry entrepreneurs.