“Our model balances risk and reward that we think optimises top quartile returns for ventures and we execute on that thesis,” says Harnal. “It makes sense for us from a mathematical perspective. And now, because 500 has been around for 12 years and the oldest funds have hit fruition, we know the math works out.” 

“In fact, it has worked way better than we thought. So it's a validation of the thesis that we have, and we continue to invest according to it.”

Here, we ask Harnal, who is a member of the Gen.T Tribe this year, more about the trends shaping Southeast Asia and why the current economic downturn might be a good thing for the startup ecosystem.

What are some trends guiding your next investments? 

Vishal Harnal (VH): For the latest batch of investments that we're making, we have about eight themes that will form 70 to 80 percent of the investments, and 20 percent of them would be opportunistic. 

The first is this concept that we call sustainable cities. It includes companies that are building in the climate and sustainability spaces. This isn’t new behaviour, but what's changed is that there's a stronger willingness and almost necessity by force to build those products and services—and this is influenced by two factors.

One, there’s a top-down mandate by governments. A great example is Indonesia president Joko Widodo wanting his country’s new capital to be run on purely electric vehicles. That completely changes the dynamic of what people are going to build because now, the government is mandating that the cities must be electric. So we've been investing in electric motorcycle companies, among others, to build out that ecosystem. 

The second factor is that consumers are demanding it bottom-up. 

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Another sector that's big for us is the creator economy, where individuals have more power on the internet. Individuals have become more self-sufficient and entrepreneurs can build up their own brands and presences. 

Take yourself for an example, you've started your own company, providing media content, so freelancers or people who are doing work like you, you require a different set of industries as well, not just platforms to help you showcase yourselves. For example, how do you get access to credit? How do you underwrite the credit of a freelancer? How do you give a freelancer a loan when you don't have a steady income in a pay slip? So financing is becoming a huge issue. 

As the freelance economy becomes larger, the ecosystem around that presents a large opportunity. 

Then, you have Web3 on top of that, which provides a greater degree of disintermediation of power towards other participants in this ecosystem, where you own the content that you have as well. 

Read more: “Web3 Isn’t Here To Take Everyone’s Lunch”: OliveX's Keith Rumjahn On What The Future Of The Internet May Look Like

The other sectors that we are looking at, which have not received as much attention in Southeast Asia are healthcare and education. 

We also have fintech that isn’t just catered towards the wealthy who want robo-advisory services and investments, but fintech that’s facilitating transactions in rural areas and other parts of the ecosystem like insurance. Fintech is an evergreen category because finance will continue to evolve and technology will continue to allow finance to continue to evolve. 

Then we have rural digitisation. I care about this a lot as the story of Southeast Asia has not been the story of countries until now. It's been the story of cities. But now technological innovation is getting to a stage where it can be applied to the rest of the countries as well. Entrepreneurs in the region are starting to build innovative companies outside of tier-one cities where the majority of their country's population live. 

The last area we’re looking at is human and machine productivity, which includes Software-as-a-Service (SaaS) companies and industrial automation. The SaaS category was accelerated by Covid, as enterprises of all sizes adopted new technologies developed by startups to innovate and optimise processes. 

There's also a generational shift in business ownership; those in management now are more technologically savvy and likely to adopt new solutions, which gives startups the opportunity to grow in these sectors.

The strategy for 500 Global is to cut small cheques to a larger amount of companies. This means it probably has a proportionate success-failure rate. What did your biggest investment failure teach you and are there common mistakes founders can avoid? 

VH: I'm not afraid of failure. The minute you let it paralyse you, you'll never make a decision. Failure is part of the startup ecosystem, so baking that into the way you invest is important. 

What I feel sad about are preventable failures; the situations in which companies did not need to die, but did because of unforced errors as they call it in tennis. This can include fundraising too late or not having your eye on certain key metrics related to product.

 We’ve also seen founders get distracted doing too many things and not doing things in a methodical manner. Many people think that as a founder, you should do many things simultaneously and spread yourself thin, but the opposite is true—you want to be razor-focused and devote your time, energy and attention to your company. At the earliest stages, you should do one thing, and do it well.

Read more: "I Believe In Learning By Doing And Making Mistakes," Says Serial Entrepreneur Lindsay Jang

Are you worried about the current economic climate? How is that guiding your investments?

VH: I'm not. The whole ecosystem is learning it because no one in the region from the venture space has been through this before. I'm excited to go through it because I think that market cycles are just that—cycles. No one's taking the view that this is not going away. The question is, when are we going to go back to the bull market? As a firm, with my team, the founders and the ecosystem, we're learning the playbooks for bull markets and bear markets.

Are there qualities you think a venture capitalist needs to have?

VH: The earlier part of investing is more qualitative than quantitative, as there's very little you can draw from the numbers of companies that are less than 24 months old—they're almost meaningless. The longer the history of a company, that’s when finances start to matter, which means you need people with quantitative backgrounds to be able to underwrite those deals. 

As an early-stage investor, you need to be an optimist, you need to be charismatic, you need to be a multifaceted thinker who can connect dots between a variety of different fields. 

You cannot be a cynic. If you're a cynic and a pessimist, you're never going to be able to listen to people with an open mind. In the later stages, you want to be pessimistic because that’s when you’re taking a hard look at the numbers and asking founders about their vision over the last five, six years. How have they made good on that vision? What have they achieved? It takes a different lens and frame. 

You also have to be analytical and detail-oriented; it's almost like you're paying playing chess in three dimensions.

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