Venture Capital 'is really seeing record numbers': 500 Global Founding Partner & CEO

Yahoo Finance's Jared Blikre and Zack Guzman spoke with 500 Global Founding Partner and CEO Christine Tsai about the growth her firm has seen in the venture capital sector and unicorn startups.

Video Transcript

ZACK GUZMAN: Well, as we've been discussing, a bevy of IPOs coming out from the private world, Rivian the latest one that we've been discussing today. It's worth checking in on the trends on the private side as VCs continue to pump more and more money into some of these startups. And of course, 2021 has been a record year in a lot of metrics, as companies stay private for longer.

And for more on that, very happy to welcome into the show Christine Tsai, 500 Global CEO, at that firm that has yielded 33 unicorns, of course, companies over that $1 billion mark. And Christine, good to be chatting with you today just because, you know, we've seen fundraising rounds completely explode. I know crypto's obviously one that's hot right now. But what are you seeing in terms of the trends in the private side as VCs try and gobble up, I guess, some of the hottest private companies out there right now?

CHRISTINE TSAI: Thanks for having me this morning. It's exactly as you said. Venture is really seeing record numbers in terms of global funding around the world. It hit a record high, I think, in just Q3 at $160 billion total. This is actually up, I think, 78% year over year from 2020. So there was a lot of concern coming into COVID at the beginning of last year in terms of what that would do to the economy, of course, but then specifically, in my world, what it would do to venture capital and in funding.

But if anything, it's as if, you know, it's a good-- never a time like a crisis to be investing. And it's definitely reflected in the numbers. And I think even in terms of the private markets and the number of unicorns being birthed, that, too, is seeing record numbers every quarter, especially from outside of the US. So we are quite busy.

JARED BLIKRE: Well, I want to ask you about access to capital here. And just kind of get big picture because interest rates have been very, very low for about 12 years, going back to the great-- the global financial crisis. In the current environment, we are expecting a Fed decision tomorrow on tapering. That's not affecting interest rates, but that could probably happen next year. As you see interest rates rising, how does that affect your plan, your runway for all of these companies that you're looking? And you know they're going to have to raise more money at higher rates.

CHRISTINE TSAI: I mean, typically for our companies, you know, as we've seen changes in the Fed and the interest rates, it hasn't really had, at least from our vantage point, a significant impact on them raising from venture capital. Now in terms of them-- the companies that take debt or venture debt or whatnot, you know, there's some fluctuations there, as always. But we see that for companies that are raising equity rounds, even convertible notes, like, it's relatively-- it doesn't seem to have a dramatic impact. And the companies continue to raise. VCs continue to invest into these companies and access these opportunities.

ZACK GUZMAN: And you mentioned kind of the heat, if we're going to call this a hot fundraising environment, not just here in the US. It's hot across the globe. And I wonder if there's one market there that's kind of standing out now, too. I mean, a lot of people have pointed to Latin America as kind of catching up in terms of some of these companies driving big fundraising rounds. I mean, what are you seeing there as you look across the globe?

CHRISTINE TSAI: It's pretty fascinating to see. You know, at 500 Global, we've been investing for more than 10 years in both Silicon Valley and emerging markets. And if you think about where these markets were back then, there was a lot of questions that we got in terms of, like, why invest outside of Silicon Valley, let alone outside of the US? And so Latin America, East Asia, the Middle East, Africa, and then Southeast Asia is one example that I'll focus on.

You know, we started investing in Southeast Asia. Actually, I think our first investment into the region was in 2011 or so. We invested into a company in Singapore called Viki, which was later acquired in 2013 by Rakuten for about 200 million. But, you know, those were very early days. Now here we are in 2021. Southeast Asia has really grown into-- matured into a world class startup, VC ecosystem, innovation economy.

The amount of funding and deals that have been done, as an example, in just the first half of this year, I think there were a record of close to 400 deals-- VC deals done across Southeast Asia. And the region is home to 27 unicorns. In our own portfolio in Southeast Asia, we now have eight unicorns, five of which actually came from the first 21 deals we did in the region. So it's really phenomenal the growth that's been happening.

We saw an IPO come out of our portfolio, a company called Bukalapac, which was Indonesia's largest IPO to date. And we also have seen the announcements of $40 million SPAC by Grab, which is well-known in the region, as well as a number of other companies that have announced either very significant financings at over hundreds of millions or announced plans to go public. So it really is a region to be paying attention to. And in some ways, don't even really consider it emerging anymore. There's just a huge potential.

JARED BLIKRE: Yeah, a good point on that. You talked before about some of the trends, the types of companies that you're looking at and that have emerged as favorites in the pandemic era. I'm just wondering, I always like to talk about the moonshots because we seem to be at the very precipice of so many disruptive technologies, especially when we talk about space and the autonomous revolution. What are you seeing some of the longer shot bets that might be interesting?

CHRISTINE TSAI: That's a great question because I think that a lot of times when investors or, you know, general public think about these moonshot ideas, they may think of certain areas in the world that drive that innovation. But from what we have been seeing as a global investor, we actually see these moonshot ideas that are coming from all around the world, certainly in Southeast Asia and in other markets as well.

You know, in terms of themes that we see happening, you know, some of those moonshot ideas are in the sectors that you would think of as, you know, deep tech, space tech. We have a number of investments in those sectors that are coming out of Southeast Asia. You know, one example is a company called Gilmour Space that is in the space aeronautics sector, which definitely long-term moonshot idea.

And in terms of, say, Southeast Asia-- and this reflects in other regions as well-- we see a lot of opportunity in terms of unicorn models that have already proven themselves, but within the Southeast Asia region are yet to be-- are still being developed. And huge opportunity, things around just sustainable cities, fintech. Certainly crypto, blockchain are big all around the world, big opportunity to really democratize and decentralize access. So, we're really looking forward to what's to come.

ZACK GUZMAN: I mean, I'm excited by a lot of this stuff happening on in crypto, too, obviously. And we've seen-- I think CB Insights is out with a chart looking at the mega rounds in crypto, up 1,400%, I think, in Q3. So it's a major jump from where we saw some of these deals just as soon as last year. When you look at, though, perhaps bubble fears-- and Jared's talking about how cheap money is right now.

Of course, it's been a while since we've seen the big bust of tech at the turn of the century. But I mean, when you look at it, obviously, this is all good and well, as long as more VCs are willing to come in here. But I mean, how real is the risk maybe of some of these valuations that we're seeing now running too hot relative to where they were even just a few years ago? What's your take on that?

CHRISTINE TSAI: It's definitely something that has come up in conversations, especially with more of the later stage investors. Some LPs certainly express concern about valuations being out of control and the diligence or maybe lack of diligence that may be happening at the later stage growth rounds. There's certainly a lot of hype or conversation about, say, Tiger Global coming in and doing a lot more private rounds of venture rounds and the lack of one-day diligence at such a-- with such large check sizes.

But I think, you know, despite that, we see what our companies are raising all the way from the first check all through the last check. And I think even though there are concerns about valuations, I think for us, it's really a sign that there is just more of that validation in terms of investors wanting to get exposure into alternatives, exposure into private markets.

Especially around tech startups, we've seen a lot of huge outcomes. And there's certainly albeit a lot of risk when you're investing early stage. But the upside is significant. And so I think not too concerned that this is a bubble in the sense like previous eras. Like, nothing to that extent. It's really just, there's just more money coming into the market.

JARED BLIKRE: Well, if we have some FOMO, a little bit of FOMO, and it's not a bubble yet, it looks like some-- a little bit more upside here. Some really fascinating insights. We appreciate you coming by here. Christine Tsai, 500 Global CEO.