Venture capitalists with investment insights for startups in Southeast Asia

While SEA was once known as an ideal region for tourists, the startup ecosystem has seen a significant rise in recent years.

This can be attributed to the growing talent pool, government contributions, as well as capital flows from partners in the region.

Many also attributed the rapid adoption of technology to the pandemic, with the lockdowns emphasizing the need for e-commerce, fintech and logistics. These industries will still be growth drivers for the foreseeable future.

With the dust settling from the economic disruption that is COVID-19, will the attention of the booming sectors change in the eyes of investors and venture capitalists (VCs)?

Three industry experts spoke on the matter during a panel at Wild Digital Southeast Asia 2022.

Mohan Belani, co-founder and CEO of e27, is moderator speaking with VCs Carmen Yuen, General Partner of Vertex Ventures SEA & India (Vertex), and Jeffrey Paine, Co-Founder and Managing Partner at Golden Gate Ventures (GGV).

1. Continuous funding despite unstable economic conditions

Some argue that VCs are cutting back on fewer checks and slowing things down due to the current volatile economic conditions. Carmen challenged this view, sharing that Vertex has always invested in companies to grow them on an exit strategy, then the cycle repeats.

The world is moving forward, she says, and innovation will continue to happen, in good times or bad.

In fact, Vertex is in the process of raising funds for its fifth fund, which the team plans to launch sometime in Q1 next year.

Jeffrey has a similar view on the matter, adding that while they tend to be picky, the funding never stops. After all, new business ventures are important to every country, especially emerging ones.

2. VC is eyeing these high-growth areas in the startup industry

Building on his earlier point, Carmen points out that while innovations are taking place, there are two types of groups.

She expands, “Are we innovating incremental things or are we looking at things that take time, but will fix a big problem?”

The latter fixes a larger, deeper problem, which in turn requires a significant amount of time to develop before it’s ready to go to market.

Carmen speaking on the WD . stage

Along with that, Mohan asked VCs for their views on which areas have high growth potential over the next five years, and which areas Vertex and GGV want to fund.

Carmen responded first, pointing out that Vertex looks at five key areas, including B2B (business to business), SaaS (Software as a Service), fintech, health and sustainability. She further clarified that the field of sustainability can include solutions to the problem of climate change (climate technology).

As for GGV, the interesting areas Jeffrey has named include fintech, agritech and climate technology, which is classed as part of a more rarely found deep-tech sector.

Do you know: Deeptech or hard technology is a classification of startups, whose stated goal is to provide technological solutions based on major scientific or engineering challenges.

3. A bank on deep technology and climate technology for the future

With sustainability and climate change a topic that many companies and individuals are taking seriously, both Carmen and Jeffrey are looking to fund such startups with the right solutions.

In the general term of climate technology, several areas include solutions that consider carbon input or output, electrification, storage, etc.

Jeffrey speaks on the WD stage

For deeptech, some examples might include launching rockets or satellites into space and research & development in lithium batteries.

Deeptech startups tend to offer solutions for the B2B or B2G (business to government) market, such as one of GGV’s portfolio companies, SpeQtral, which specializes in handling systems quantum communication systems for governments.

Do you know: Quantum communication leverages the laws of quantum physics to protect data. These laws allow particles — usually photons of light for data transmission along optical cables — to occur in superposition, which means they can represent multiple combinations of 1s and 0s simultaneously.

Technology Reviews

Carmen concurred, sharing that Vertex has a deeptech company in its portfolio that specializes in self-driving cars.

These innovations align with Carmen’s previous classification of solutions that take a long time to develop before they’re ready to go to market, but will ultimately fix larger, deeper problems. .

Deeptech startups will require a lot of capital and early stage funding to increase the operating costs of the companies.

Jeffrey points out that when looking for investors for such startups, founders need to look for people willing to grow the company with them who understand deeptech is also an industry.

“When you raise capital, you need to find investors who know how to weather these cycles to fund you,” he said.

4. When it comes to which startups are attractive to VCs, copy or not copy?

As Silicon Valley is seen as the gold standard for startups, Carmen and Jeffrey were asked if Southeast Asian companies should try to copy existing business models. Is it appropriate to do so in the first place?

Jeffrey points out that it can be very risky to do so. For startups in Southeast Asia who plan to copy a solution from Silicon Valley, they need to build their company’s presence in multiple Southeast Asian countries from the start.

“Because by the time you build the solution in Malaysia and then only plan to expand, it will be too late because Vietnam, Indonesia and Singapore already have their own versions of the solution,” warns Jeffrey.

“If you copy keys, stocks, crates, you will fail.” Carmen agrees. “China became what it is today because it started what it is in [Silicon] Valley, and they improved it and localized it and now it’s become a powerhouse. “

Taking a more optimistic view, Carmen shares that copying can be beneficial, and says startups in Southeast Asia have been doing a great job of it. These entrepreneurs were able to internalize existing solutions and make them applicable to the local context.

“We also have Southeast Asian companies that have been developing global solutions from the start, so we have quite a few unicorns that have come up with innovations to build on globally,” praised Carmen.

5. If you want strong markets to execute an exit strategy, check it out here

There are startups that want to continuously grow and become unicorns, and there are companies that have exit strategies to generate investment returns for their investors and shareholders.

Some common ways for companies to do so include listing on the stock exchange or through a merger. In addition to the US stock exchanges, Mohan also asked Carmen and Jeffrey to name some strong markets in Southeast Asia.

Carmen named the Singapore Stock Exchange (SGX) and the Indonesian Stock Exchange (IGX) as promising candidates. She added that in light of the economic situation so far, the Stock Exchange of Thailand (SET) is also quite stable although other public markets are going down.

Jeffrey endorses that, agreeing that these are the three most advanced markets in Southeast Asia.

When it comes to mergers and acquisitions, startups may consider being acquired by larger corporations or merging with other startups.

Carmen believes most startups will opt for exit strategies as she sees most companies in Vertex’s portfolio do so through trade or secondary sales.

  • Learn more about Wild Digital here.
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