Investment Opportunities in SEA
The N-House Community had the privilege of hosting Shannon Lee, Jessica Koh, Badai Tanmizi and Jia Songshan for our weekly Entrepreneurship event, Wicked Wednesday. Shannon is an Investment Director at MDI Ventures; Jessica is an Investment Associate at Vertex Ventures; Badai is in the Venture Capital Investment Team at Qualgro Partners; while Songshan was an Analyst at GFR Fund.
The economies in SEA are booming across the region, especially in countries like Indonesia, Vietnam and Thailand. There has been a trend towards consumer-facing products and services, with big players like Shopee and Gojek leading the scene.
What makes SEA so attractive?
There has been an exponential growth in deal volume and deal size in SEA, growing from an annual deal volume of half a billion in 2013, to 3 billion in 2018. There are many reasons for this growth. There is an increasing trend in smartphone penetration rate as well as the growing middle class in countries like Indonesia and Vietnam. This can determine a lot of things: the number of people online, the number of people who can afford and consume the products and services and how big the market can grow to. This directly affects the market penetration rate and growth for consumer-facing companies.
There has also been a huge growth in the number of startups in SEA. This is attributed to the increased awareness about startups among the youths. Instead of being a cultural stigma, being in a startup is highly looked upon in most places in SEA. There has also been a lot of support to the startup ecosystem. There are increasing amounts of grants by the government and organisations like NUS Enterprise supporting the startup scene amongst students.
With the population size of Singapore being relatively small to her neighbours, Singapore might lose out in terms of the growth of consumer-facing businesses. A huge bulk of the funding has gone to companies like Tokopedia and Gojek where there is larger return of investments, where they mainly operate in countries with a larger market size. Still, many investors are still interested in Singapore as there is great support from the Singaporean government on the startup ecosystem. Many companies also set up their headquarters in Singapore due to the ecosystem and resources available. Moreover, while there are consumer-facing unicorns in other countries, Singapore focuses more on the frontier and cutting-edge technology like Artificial Intelligence and Cybersecurity.
With so much going on in the region, how then can Singaporeans remain plugged in to the opportunities ever present to them? In fact, many startups (started by Singaporeans and non-Singaporeans from other Southeast Asian countries) are headquartered here in Singapore. This is due to our favourable economic infrastructure, global network and branding. One such example is Grab, which first started out in Malaysia but later incorporated in Singapore. Singapore also continues to boast one of the most favourable startup ecosystem and communities in Asia as well. Thus, the vibrant activities in SEA continue to benefit and provide opportunities for Singaporeans as well!
Popular Trends in SEA
Over the past few years, there has been a resurgence over the retail sector, specifically the e-commerce sector, across the SEA region. However, are there any sectors we should be looking out for as well? The panel has also discussed about what Venture Capitalists (VCs) like them are looking for now.
Artificial Intelligence has been around for quite some time and is here to stay, as an increasing number of companies are starting to adopt it in their practices.
There have been many notable data breaches happening across the world, resulting in huge loss of personal information, money and trust. This has increased the awareness of the need for cybersecurity across the SEA region, especially when their business revolves around vulnerable technology.
Health and population trends in SEA are ageing. Digital health has arrived as many consumers are beginning to take more interest in their health.
Resources are limited and scarcity is always a problem we have to solve. With climate change, more people are interested in sustainability.
With a rising middle class in SEA, more youths are getting access to online gaming and getting interested in gaming, allowing the gaming industry to grow steadily.
What Are Some Tips You Have for Budding Startup Founders?
VCs provide holistic support to startups, extending far beyond funding to providing mentorship and networks. Thus, most venture capitalists possess extensive startup experience and some were previously founders themselves. Our speakers shared 3 tips for prospective startup founders.
Always Be Sure
Founders should never assume the behavior of your target market. They should always go down to the ground to validate your idea with real stakeholders and customers. This is especially applicable to SEA, where entrepreneurs looking to expand to the region often assume similarities between the various countries. The truth is that the different markets in different countries are diverse and unique in their own way. There is no one size fits all business approach for SEA, and one thing that VCs look out for is whether or not a founding team has done their homework.
Market Risk Over Execution Risk
Market risk refers to whether or not the market adoption rate, market size and timing is suitable, while execution risk refers to whether or not a founding team has the skill sets and technical capability to reach their goals. While it is best to minimise all risks as much as possible, it is generally a priority to mitigate execution risk over the market risk. This is because it is essential to ensure that a team is able to actually carry out what they set out to do, before even considering whether it can be scaled up to market.
Attitude and Integrity
Besides assessing the technical capability of a founding team, VCs also look out for intrinsic values like attitude and integrity when making investment decisions. VCs want know how passionate a founding team is about their business as this can show whether they have the attitude to persevere when the going gets tough. The ability to build rapport and show that you value the other parties’ time is also essential. One tip that our panel shared for potential founders is to send the investors a follow up email after each meeting to say thank you and recap the main points. Lastly, founder should always be honest and transparent, and never misrepresent or lie to investors. With the wealth of knowledge and wide network of connections that VCs have, it is easy for them to fact-check the statements made by the founding team. After all, in any partnership, trust and chemistry is integral.
To conclude, SEA is indeed a melting pot of cultural and historical diversity, and also a land of abundant opportunity. A huge thank you to Shannon, Jessica, Badai and Songshan for helping to shed light on the intricacies of doing business in one of the World’s fastest growing regions. To all the participants, we hope that this session has helped to spark your entrepreneurial journey, and we look forward to seeing you at the next Wicked Wednesday event!