The APAC funding environment has slowed this year, with venture capital (VC) deals falling by 16.5% in the first half. Challenging macroeconomic conditions and high interest rates have led investment funds to adopt a more cautious approach.
Devashish Rastogi, Principal at Acacia Venture Capital Partners, has experienced these shifts first-hand. This gives him a unique perspective on how to navigate today’s challenging VC landscape while seeking opportunities in emerging technologies and untapped markets.
We spoke to Devashish about the current state of venture capital, including the key trends shaping the industry, the challenges faced by investors and the growth potential in regions like Latin America and Africa.
Q. Please can you give us an overview of your career to date?
I started out on the technology side and moved into credit risk. I then worked in market research for a year, which gave me a deeper insight into how payments are used in consumer-facing sectors. After that, I spent seven years in three different startups.
I then moved to China and provided consulting services to companies expanding in Southeast Asia. Venture capital is something I always wanted to do, because I’ve worked on the startup side, raising capital and understanding what makes a good investment.
At Acacia, I’m focusing on raising a new $50 million fund. We do early stage investing in emerging markets—primarily in Latin America, but also in Africa. And we’re exploring some emerging technology trends in the US.
Q. A recent report highlighted a decline in APAC VC investments in the first half of 2024 vs 2023. What’s your view on the current state of the VC industry in the region?
There’s been a global fundraising slowdown, and the key factor is high interest rates. Another reason is that public markets have slowed down, with M&A and IPOs dropping in 2018. During COVID, they went out of fashion because interest rates were so high.
“There are times when liquidity is available, and times when it’s not. The key is to be consistent in your investment thesis and portfolio management. Really good businesses have a knack of surviving these ups and downs.”
But now, mid-market, sub-billion dollar M&A is slowly coming back. With Trump returning to the White House, we expect the weakening of regulations will open up the IPO market globally.
Fundraising should slowly start improving, because it’s a cyclical business. There are times when liquidity is available, and times when it’s not. The key is to be consistent in your investment thesis and portfolio management. Really good businesses have a knack of surviving these ups and downs.
Q. What unique trends and challenges are you observing in venture capital globally?
In the US, we’re seeing a big focus on deep tech and AI. There are several layers to this. There’s the hardware layer, which is semiconductor companies and those providing services to semiconductors. Then you have language model companies—for example, OpenAI. Finally, you have the application layer—that’s where we invest.
Semiconductor industries are very capital intensive, so only investors with experience stand a chance. Language model companies have become very expensive too; they’re valued in the hundreds of billions of dollars. It’s the application layer, which is going to make AI mainstream, where there are more opportunities. But it’s got harder; valuations are through the roof. We’ve been slow in deploying capital to AI because there are so many companies doing the same thing.
In Europe you have more of a focus on areas like climate tech, and then emerging markets in Latin America or Africa are catching up. They’re not looking at AI yet; they want things like e-commerce access, payment systems, mortgage options. We’re applying the lessons we’ve learned in Asia to these countries and combining them with local knowledge and expertise, which are very important when it comes to understanding the customer’s culture.
“It’s the application layer, which is going to make AI mainstream, where there are more opportunities. But it’s got harder; valuations are through the roof.”
For example, when eBay came to China, they thought they were the world leader in e-commerce. But they didn’t understand the Chinese market, and Taobao wiped the floor with them. Conversely, when Taobao came to Southeast Asia and acquired Lazada, there was huge friction because they decided to bring the Chinese model into this part of the world.
Businesses globally face similar issues. How can we do more marketing? How can we lower the cost of customer acquisition? How do we increase our unit economics? How do we expand into a new market? How do we grow our team?
Q. What criteria do you prioritize when assessing the potential of an emerging company or sector for investment?
First, we look for a team with experience—ideally one that’s created a startup before. Otherwise, we need a team that’s open to learning and is willing to adapt.
Next, we’ll look at things like the size of the market. Our targets usually have a total addressable market of no less than $2 billion. The logic being, if they take 5% of the market, that’s a hundred million in revenue. If you multiply that by 10, you’re looking at a billion dollars in valuation.
“For the last few years ESG was a buzzword. Everyone needed to have an ESG investment, it was the sexy thing to do. Now, a lot of the funds or companies focused on ESG have not provided those returns.”
Then we look at whether their solution solves a problem in the market. Is there a proof of concept? Are they post-revenue? We look for very high-growth companies—25% month on month, whether it’s revenue or user growth. We’ll then write an investment memorandum, speaking to industry experts to understand the market mechanics.
The amount of work we put in for early stage investment is about the same as a large company would for a hundred million dollar deal.
Q. Last question – you mentioned climate tech earlier. Is this still a priority for VCs or is it losing some momentum?
For the last few years ESG was a buzzword. Everyone needed to have an ESG investment, it was the sexy thing to do.
Now, a lot of the funds or companies focused on ESG have not provided those returns, but when you look at markets like Europe, there’s a lot of government funding going into this space.
I believe it’s something we all need to start looking at because with climate change the world is not getting better any time soon.
And when I say climate tech, I’m talking about technologies like EVs, sustainable fuels, and battery technology, which have a meaningful impact across a lot of sectors. This is where you’ll see more focus and where investors stand to see better returns.
