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The Southeast Asian Tech Wave - A New Frontier For Global VC
By Gavin Teo, Co-Founder, Straits Venture Capital And Board Partner, B Capital Group Discusses Leading Startups On The Path To Progress
A new market opportunityQuote: “In the space of a single generation, seven hundred million Southeast Asians are entering the middle class. This consumer wave has ignited a tremendous market opportunity for tech innovation. Startups that can combine global experience with local knowledge are well placed to become the next category leaders across the region.I see that the role of venture capital is to provide resources and support to founders and management teams along this journey.” Current investment trends Quote: “Technology will follow market opportunity, which in turn follows where GDP per capita spend is concentrated and growing” The story of SEA VC started with e-commerce, enabled by the smartphone. This gave rise to businesses like Shopee, Lazada and Tokopedia. Concurrently, when you sell things online, you need to fulfill offline, and this is why e-comm and logistics are directly correlated. After the e-commerce wave came pioneers in technology-enabled logistics and transportation - companies like Ninjavan, SF Express and Logivan, as well as ride sharing companies like Gojek and Grab. After selling online and moving offline, the next wave was financing all the above, or in short, payments, lending and insurance. This has created the current fintech and insure-tech wave, giving rise to companies like Fazz, Funding Societies and CXA. We are at the peak of that fintech wave today. The key question is “what is next?” – my belief is that technology will follow market opportunity, which in turn follows where GDP per capita spend is concentrated and growing. These are areas that encircle the consumer, such as healthcare, education, housing and food technology. I intend to invest ahead of these trends.
Challenges Startups Face in APAC, and how to turn them into advantages. Quote: “In my view, the Southeast Asian VC market will evolve to resemble Europe more than the US or China.” This is a fragmented region with many large and disparate markets in terms of population and GDP per capita. In 2020, there is perhaps only one Southeast Asian market, Indonesia (with 250M people) that can give rise to “Indo-for-Indo” unicorns. Startups in markets like Hong Kong and Singapore have the benefit of tapping into consumers with GDP per capita exceeding the United States, but these are also “pilot markets”, where entrepreneurs need to think global from day one, given the restrictions in local TAM. Then there are countries like Thailand (70M people), Vietnam (92M people), Philippines (100M people), where the decision to regionally expand in the face of domestic and global opportunity is a more nuanced decision. Geo fragmentation is a challenge but also a great opportunity for founders who can pattern match across markets, seize cross border opportunities and outmaneuver competition to become the next category leaders. Reflections to emerging fund managers in the region Quote: “In Asia, VC is about discovery. In the West, VC is about access” In Asia, the market opportunity for VC is based on discovery – getting to promising entrepreneurs early with a thesis-based and localized sourcing model, understanding that many entrepreneurs may be first time founders and less initiated in dealing with VCs. This is in contrast to developed countries in the West, where the VC game is about access – knowing the right VC syndicates and following “people flow” as tech talent moves in largely transparent, capital and labor markets. Therefore, in Asia, a strong “ground game” to hunt opportunities in Surabaya and Hanoi (vs. Jakarta and HCMC), as well as Bangkok, Manila and of course Singapore, is a critical piece of the puzzle. This means marrying cross-border pattern matching with local language, culture, and sourcing expertise. Ecosystem is also incredibly important. This includes the role of government in spurring innovation and opening “sandboxes” for regulated markets like financial services and healthcare. It also includes cross-industry opportunities where say, Gojek showed us that the “right to win” in C2C payments for an underbanked population, stems from first building an e-wallet for a ride-sharing use case and then expanding into payments. This is why Gojek in Indo looks so different than Uber in the US. The rise of “super apps” will mean models like WeChat have tremendous market power. It also means different approaches to growth compared to the West, where consumer silos are large and deep enough to create independent category leaders, and doing too much is seen as hubris. That is why Facebook and Amazon dance with each other in the US, whereas Tencent and Alibaba compete with each other across categories in China. Understanding how to navigate these ecosystems in the Southeast Asian frontier – working with the ecosystem for distribution, funding, exit – this is incredibly important for VCs and startup founders to navigate. It is also a great opportunity.