Sequoia is driving early-stage startup investment in India and Southeast Asia

by Ana Lopez

On a recent On a winter morning in New Delhi, Rajan Anandan and Pieter Kemps walked the floor of a five-star hotel and questioned a group of more than two dozen young startup founders about their goals. One of the founders had his eye on getting the most downloads in the mobile games category. Another promised to reach annual recurring revenue of $100 million 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 those present, now completely silent.

“It doesn’t matter what kind of business you build; that’s not thinking big enough at all. There is not a sustainable company on the planet that has $100 million in revenue. A sustainable company is one that generates $100 million in free cash flow per week,” he said.

The Sequoia partners spent the next two hours walking founders through more than a dozen slides, emphasizing that consistent growth over a long period of time — even if it doesn’t skyrocket quarter after quarter — can conjure up trillion-dollar companies.

Their strong belief is supported by a bet that India and Indonesia and other markets in South Asia will double or triple their GDP over the next 10 to 15 years, and public markets and technology companies will play a significantly broader role in that increase.

The combined market capitalization of the five largest technology companies in the US is more than $7 trillion, contributing to more than a quarter of the country’s GDP. The five largest technology companies in China, with a market cap of more than $1 trillion, contribute 7% to the country’s GDP. But the top five tech companies in India and Southeast Asia have a market cap of just $140 billion, accounting for just 2% of their GDP.

The 12 startups gathered in the presentation hall were hand-picked from approximately 3,600 applicants for the newest cohort of Sequoia’s four-year-old early-stage Surge program. Surge launches two cohorts each year, with between 10 and 20 startups each.

The new cohort includes startups operating in a broad space: chalice worldwide helps companies choose better carbon credits and reinvent the rating system; Arintra is an AI-powered autonomous medical coding platform to help US hospitals get paid better and faster by automating insurance claim filing; Meeragi makes it easier for couples to access marriage-related services; Vaaree is a curated marketplace for quality home products; AltWorld builds a metaverse gaming platform to help Gen Z gamers create custom 3D worlds; And Bitfrost builds virtual worlds and synthetic datasets that AI teams can use to train their models for applications.

Direct care offers on-demand, affordable products and services for a variety of health and beauty needs; master chow wants to help people prepare Asian meals at home; Metastable materials seeks to develop a low-cost, clean, and highly scalable lithium-ion battery recycling method; RedBrick AI is a SaaS platform to help companies build AI for medical imaging; Request aims to help developers and quality assurance engineers test and debug web applications in real time; And Tentang Anak is building a parenting ecosystem in Indonesia.

The Thursday morning sessions, attended by businessupdates.org, were among several dozen these founders will participate in over the coming months as Sequoia partners take them through various aspects of building a startup. Workshops teach founders how to think about the total addressable market. They receive guidance in compiling their technical architecture. Another will help them build mental models for when to shift from chasing growth to improving the unit’s economy. And there is also a session to help founders define the vision and slogan for their company. (In a few words, explain the problem you’re solving and how you’re solving it, and don’t make it sound boring, strange, or long-winded.)

Sequoia has “codified” its knowledge of more than 50 years to assess the areas where a founder needs help in his journey and the roadblocks he is likely to encounter, Anandan said in an interview. The huge resources of the legendary company – there are about 30 people who work diligently with these founders for months and help them in numerous fields – distinguishes it from its rivals in India even in the early phase of the venture. There are few venture firms operating in India that have such a large team let alone for any of the focus areas.

Sequoia doesn’t have to put in as much effort to secure early-stage deals: it began investing in India more than a decade ago and has hit 38 unicorns (out of 102 in total) in the country and 11 in Southeast Asia. So what’s with the change of heart?

Over the past eight years or so, many companies have attempted to address early stage investments in India. Y Combinator gained momentum in the South Asian market after a handful of successful early picks such as Meesho, Razorpay and Clear, even though the ever-expanding cast net has taken fewer hits in recent years. Blume Ventures and Arkam Ventures have earned a reputation for being founder-friendly and have raised bigger funds, backing many of the startups that have missed bigger funds. Tanglin Venture Partners, Antler and Good Capital have also earned their spot in the market.

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

An angel investor, who also asked for anonymity to speak candidly, said Sequoia’s Surge is the Indian and SEA vehicle’s answer to Y Combinator, undermining the US accelerator in a number of ways.

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

“Sequoia’s boutique of offerings is also much larger with resources, support and unlike YC, Sequoia is consistent in not choosing multiple startups doing the same thing in the same batch, and it keeps the cohort size quite small and diverse. So you have a different vibe when you get picked in Surge than when YC picks you,” the investor said.

To be sure, even if Surge seems to have a much higher success rate than YC in India – Surge portfolio companies Doubtnut, Scaler, Khatabook, ShopUp, Bijak, Classplus, Hevo Data, InVideo, Juno, BukuKas, Atlan, LambdaTest, Plum, Definitely, ApnaKlub is among those who generated multiple rounds – it has yet to hit a unicorn. (The company said its portfolio startups have raised more than $2 billion in follow-up funding rounds.)

But over the years, as many investors have admitted, Surge has outperformed its rivals.

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

Anandan – and in fact many other Sequoia partners over the years – has always rejected the idea that his company is trying to compete with YC on seed deals. “We have tremendous 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 others, have also tried to build their own Surge rivals but have failed to make similar progress.

Why did Surge get the mileage it has? After several attempts, this is the best I could get out of Anandan: “You have to have the deployment of very high caliber resources. We’ve invested more than most venture companies through Surge alone. And execution is the easiest thing to talk about, but the hardest thing to do in life and business.

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