Asia Partners Announces Final Close of Second Fund at US$474,000,000

Southern Right Capital is pleased to announce the final close of Asia Partners' second fund at US$474,000,000 in commitments.

SINGAPORE – January 9, 2024 – Asia Partners, a Singapore-based growth equity investment firm, is today announcing the final close of its second fund, Asia Partners II LP (the “Fund”), at US$474,000,000 in commitments. 

With this close, Asia Partners has now reached an important milestone: US$1.0bn in assets under management. Notably, given the current macroeconomic backdrop,  Fund II is 23% larger than the Firm’s inaugural fund, Asia Partners I LP, which had US$384,000,000 in commitments and completed its final close in March 2021.

Asia Partners is focused on the intersection of three key themes:

• The long-term growth potential of Southeast Asia, a region with almost 10% of the world’s population, and Southeast Asia’s increasing economic connectivity to the rest of Asia and the world.

• The rapid growth of innovative technology and technology-enabled businesses in the region, many of which are platforms with pan-regional or global aspirations.

• The scarcity of growth equity capital for these companies, particularly in the $20 million to $100 million investment size range, often described as the ‘Series C/D Gap’ between early-stage venture capital and the public capital markets.

More than 9% of the Fund’s capital is from Asia Partners’ employees and Advisory Board members; this is amongst the highest ratios in the industry and signals a strong degree of alignment with Limited Partners.

The Limited Partners in the Fund include institutional investors, family offices, and individual investors across six continents. Returning investors include the International Development Finance Corporation (DFC) and Financial Investments Corporation (FIC) from the United States, the Deutsche Investitions- und Entwicklungsgesellschaft (DEG) from Germany, and Generation Capital from Canada. The International Finance Corporation (IFC) joined as a new investor in Fund II, among others.

“At Asia Partners, we believe in the potential for growth equity to accelerate economic growth throughout Southeast Asia and beyond,” said Oliver M. Rippel, a Partner of the firm and a member of the Investment Committee.  “We continue to believe this decade will be a golden age of entrepreneurship and innovation for Southeast Asia, and we are focused on accelerating that progress.”

The Asia Partners Advisory Board is chaired by Mr. Hsieh Fu Hua, the former CEO of the Singapore Exchange, the co-founder of the PrimePartners Group, and the Chairman of the National University of Singapore.

“Southeast Asia is highly strategic for international investors, given its importance in global trade, supply chain management, rising affluence and the increasing digitization of daily life,” said Mr. Hsieh. “Opportunities abound for our regional economies to be transformed by the combination of entrepreneurial innovation and growth equity.”

“Asia Partners is deeply committed to supporting the growth of Southeast Asia’s next generation of entrepreneurs,” said Nicholas A. Nash, Managing Partner and a member of the Investment Committee.  “We look forward to continuing our investment program and to applying our leadership team’s and Advisory Board’s collective experience to helping our companies expand, both geographically and strategically.”

Asia Partners’ legal advisor on the fundraise was Gibson, Dunn & Crutcher. Southern Right Capital Limited and Monument Group acted as placement agents.

For more information, media contact: media@asiapartners.com

Asia Partners Announces Final Close of Inaugural Fund at US$384,000,000

Southern Right Capital is pleased to announce the final close of Asia Partners' inaugural fund at US$384,000,000 in commitments.

Asia Partners I, LP (the 'Fund') is the largest debut technology fund in history specifically focused on Southeast Asia, and one of the region’s largest debut funds across all industries.

Asia Partners is a Singapore-based growth equity investment firm with six co-founders: Jill Cheong Hsi Min, Pitra Ciputra Harun, Nicholas Avinash Nash, Oliver Minho Rippel, Kien Nguyen, and Vorapol Supanusonti. Southern Right Capital formed a partnership with the team in the summer of 2019 shortly after launch.

Asia Partners is focused on the intersection of three key themes:

• The long-term growth potential of Southeast Asia, a region with almost 10% of the world’s population.

• The rapid growth of innovative technology and technology-enabled businesses in the region, many of which are platforms with pan-regional or global aspirations.

• The scarcity of growth equity capital for these companies, particularly in the $20 million to $100 million investment size range, often described as the ‘Series C/D Gap’ between early- stage venture capital and the public capital markets.

Asia Partners has already invested more than US$90 million across its first three investments, which collectively have operations across every major economy in Southeast Asia.

The Limited Partners in the Fund include institutional investors, family offices, corporations, and individual investors across six continents. The Fund’s investors also include the U.S. International Development Finance Corporation (DFC) and the DEG from Germany.

“At Southern Right Capital, one of our founding principles is the importance of alignment - something we look for in the selection of our investment manager partners and demonstrate through investing ourselves as Limited Partners” said Gideon Nieuwoudt, Managing Partner of Southern Right Capital.

“In Asia Partners case, the co-founders and Advisory Board members make up more than 7% of the Fund’s capital, amongst the highest ratios in the industry and a fantastic testament to this shared value of strong alignment with Limited Partners. We are proud to have assisted Asia Partners with this fundraise and wish the team continued success.”

For more information, please visit www.asiapartners.com. The final close was also covered in the Wall Street Journal and Tech In Asia among other publications.

Southeast Asia's Golden Age: Resilience and Recovery

We’re delighted to share the latest thoughtful and well-researched insights from our partners in Singapore, Asia Partners.

About This Report:

This report is the ‘second chapter’ of our study of Southeast Asia’s internet economy, which began with ‘chapter one’ in 2019. It takes stock of the eight predictions we made in 2019 and, in the spirit of holding ourselves accountable, looks at what we got right and wrong, with the benefit of hindsight. In addition, we are also sharing a few new ideas in this report. We talk about the threshold for the next generation of IPOs from Southeast Asia, the similarities and differences in how emerging markets tech ecosystems develop, and several case studies of how industries are being re-shaped by the tragedy of the COVID-19 pandemic.

What’s in the Report?

• A look back at the eight key predictions from our 2019 Asia Partners Internet Report, and how they’ve held up from the perspective of 2021

• The financial threshold for the next generation of IPOs from Southeast Asia (“The Rule of 25”)

• What can we learn from how different emerging market ecosystems evolve over time (“The Cargo and The Rails”)

• The tragedy of COVID-19 in the region (“Southeast Asia Through the Crisis”)

• Case studies on four industries transformed by COVID-19: education, autos, travel, and healthcare

Carsome Announces Series D Fundraising led by Asia Partners

Capital to accelerate regional expansion of Southeast Asia’s largest integrated e-commerce platform for cars

KUALA LUMPUR, JAKARTA, BANGKOK & SINGAPORE, 8 December 2020:

Carsome, Southeast Asia’s largest integrated car e-commerce platform, recently completed its Series D fundraising. The US$30 million round, one of the largest all-equity financings to-date in Southeast Asia’s online automotive industry, was led by Asia Partners and was joined by existing Carsome investors Burda Principal Investments and Ondine Capital.

According to Eric Cheng, Co-founder and Group CEO of Carsome, this fundraising round, the largest equity investment in Carsome’s history, is a strong endorsement of its integrated business model, with end-to-end digital enablement across used car sellers, dealers, and buyers. “We will use this capital to strengthen our existing regional leadership in consumer-to-business (C2B) used car e-commerce and accelerate our already successful new offering in the business-to-consumer (B2C) segment. We look forward to rolling out Southeast Asia’s first-ever C2B and B2C integrated e-commerce platform for used cars, a significantly superior new retail experience,” said Cheng.

“Over the past six months, we have doubled our monthly revenue compared to pre-pandemic levels, a dramatic acceleration due to the impact of the ongoing Covid-19 pandemic on consumer behavior across our region,” Cheng added. “Consumers across our core markets of Malaysia, Indonesia, Thailand, and Singapore are increasingly purchasing cars to keep their families safe and adapt their businesses.”

Commenting on the fundraising, lead investor Oliver M. Rippel of Asia Partners observed that Carsome’s combination of strong executive leadership and a robust business model position the company well for future growth. “Carsome’s integrated approach offering a one-stop solution to used car buyers and sellers is genuinely impressive. We see that this will be the way forward for the used car industry, and we look forward to working closely with Eric and his very capable team in further scaling the business across the region.”

Founded in 2015, Carsome has grown to employ more than 1,000 people and today transacts an annualized 70,000 cars totalling US$600 million in transacted value on its online platform. Building on its original foundation in Malaysia, one of Southeast Asia’s largest car markets, Carsome then launched its operations in Singapore, Indonesia and Thailand, deepening its regional footprint.

Since founding, Carsome has delivered an impressive record of accomplishments, growing from strength to strength. Carsome recorded its highest revenue quarter in Q3 2020 in its history, doubling its revenue from the pre-pandemic period. In November 2020, Carsome celebrated its 100,000th car sold through its platform – an important milestone achieved within five years of founding.

Notably, Carsome has also achieved operational profitability as of October, ahead of earlier projections. “We have built a defensible, scalable, and profitable business with very healthy unit economics attributed to both growth in gross margin and steady improvements in productivity and conversion metrics,” said Juliet Zhu, Carsome Group Chief Financial Officer. “Our Series D round will further support potential merger and acquisition opportunities in acquiring ancillary capabilities and consolidating our supply chain.”

Crucial to Carsome’s success has been its commitment to rigorous car inspections, offering Carsome-inspected and certified cars directly to customers in a seamless fashion, building a reservoir of consumer trust and brand equity in an essential but historically complex industry. Every car that transacts on the Carsome platform goes through a comprehensive 175-point inspection, and every Carsome car purchase is backed up with an extended warranty and a money back guarantee.

Carsome’s successful track record of digitizing a traditionally offline and fragmented industry, as well as its resilience in the face of the global pandemic, were key factors in several existing investors’ decisions to reinvest in the Series D round. “We appreciate the way Carsome has continued to support car sellers and dealers through the pandemic,” said Albert Shyy, the Singapore-based Managing Director of Asia for Burda Principal Investments, who first invested in the Series B round. “We witnessed Carsome’s growth and resilience during the pandemic and are proud to continue our support,” added Randolph Hsu, the Taipei-based Founding Partner of Ondine Capital, who first invested in the Series C round.

While the platform flourishes from digitalization tailwinds, Carsome remains focused on supporting its partners to navigate new challenges brought about by the pandemic. Carsome introduced various incentives and bonus rewards for used car dealers in Malaysia, Indonesia and Thailand under its Dealer Alliance Support Program. The company also introduced its Covid-19 Support Fund this year for employees affected by the pandemic.

Coverage in the FT: Online used car sales fuel Asia fundraising burst

Private Equity: Looking at Southeast Asia’s promising tech businesses

The last few years have seen Southeast Asia become a major focal point for private investment dollars. With the region’s 600 million-strong population and fast-growing middle class, its consumer market is the latest battleground for businesses looking to grow. Investment dollars have poured into the region, seeking large unicorns and even larger returns.

Looking ahead, Southeast Asia’s growing influence as a consumer market will give rise to a slew of technology-focused companies, many of which have the potential to hit billion-dollar status. In fact, Singapore-based private equity firm Asia Partner’s proprietary models suggest that the region’s tech ecosystem will see the emergence of many unicorns in the next 10 years.

“We are tremendously optimistic that there will be 20 more billion-dollar companies in the region over the next decade. Our projections mirror the findings of Bain & Co, which forecasts that 10 such companies will emerge over the next five years,” says the firm’s co-founder Nick Nash.

In fact, he and co-founder Oliver Rippel see China’s all-conquering consumer market (and the tech giants that have risen as a result) as a compelling proxy for the investment thesis that they are running in Southeast Asia. The firm focuses on growth equity in the region’s technology space.

To this end, the co-founders are bullish on tech-focused marketplace businesses that cater for Southeast Asia’s burgeoning consumer base. “We look at e-commerce businesses in the travel vertical. We also look at online car and real estate classifieds. We have seen a lot of offerings pop up in Southeast Asia for cars and even motorcycles, for example. Other than that, online education, healthcare technology and financial technology are all verticals that we look at,” says Nash.

Technology and business have become so intertwined in the last decade that the strict business-to-business (B2B) or business-to-consumer (B2C) delineations do not always apply to this new generation of tech companies such as online marketplaces.

Rippel explains, “We live in a world where the lines between these old descriptors [B2B and B2C models] are blurring. The very definition of the new marketplace business is that it links a broad group of suppliers with a broad group of consumers. In fact, these marketplaces serve both end-users and businesses that ultimately want to reach the consumer.”

The duo believe that their investment thesis is sound as their research has tracked compelling similarities between the evolutionary phases of the Chinese technology landscape and that of Southeast Asia’s. Evolving right alongside China’s technology is the country’s one billion-plus population. As it becomes more prosperous, its consumers will become an increasingly attractive market to sell to. Over the last 10 years or so, a number of Chinese billion-dollar tech giants have emerged to serve this population.

Rippel says China’s consumer market took its economy through four distinct evolutionary phases and that Southeast Asia is mirroring that evolution. “Looking back at the last two decades, China went through four distinct phases before it became the thriving technology ecosystem that it is today.”

The first of these phases was the development and widespread adoption of telecommunications infrastructure, or what he refers to as basic plumbing of the tech world. Next, came the so-called Internet 1.0, which saw the emergence of very large, mainly horizontal, consumer-driven e-commerce platforms.

“These broad-based e-commerce platforms covered everything from fashion to electronics. Examples include Amazon.com, eBay, Alibaba Group Holding and JD.com,” says Rippel.

Later on, within the e-commerce space, there was a shift away from the broad-based selling platforms, says Nash. As that generalist e-commerce space began to saturate, businesses evolved to develop e-commerce niches of their own.

“We started to see the emergence of specialised e-commerce platforms catering for just one particular segment. For example, fashion platforms have become very popular. Their interfaces are specifically catered to optimise the fashion shopping experience. In addition, these platforms go very deeply into the unique fashion supply chain for the benefit of fashion merchants,” he says.

This was the third evolutionary phase and one that China moved out of in the last few years.

According to Nash, China is currently in the fourth evolutionary phase. “We commonly refer to it as the online-to-offline (O2O) model. We are starting to see the emergence of omni-channel platforms that cover both the online and offline realms,” he says.

Last year, Chinese tech giant Alibaba opened a slew of supermarkets that use the O2O model. Founded in 2015, Hema has opened 150 stores across 21 cities in China, according to a June news report by Caixin.

It is possible for customers to purchase raw produce, have it delivered to on-site kitchen staff for cooking and then have the food ready for them at a designated dining area. The entire series of transactions take place via Alibaba’s payment app.

Nash says the pattern of initial public offerings (IPOs) by Chinese companies, broken down by sector, between 1995 and 2019 corresponds quite precisely to these four stages of industry evolution. “I would suggest that China is 11 years ahead of Southeast Asia in terms of affluence [based on per capita GDP]. Combining these ideas, it will not be surprising if Southeast Asia’s technology ecosystem is about 11 years behind that of China, as measured by the timeline of the IPOs.”

Successful exits

The two co-founders have unique credentials when it comes to identifying and building multibillion-dollar tech companies. Prior to joining forces, Nash and Rippel oversaw two successful exits in Asia ex-China — the 2017 New York Stock Exchange IPO of Southeast Asian technology giant Sea Ltd and the 2018 Walmart Inc acquisition of Indian e-commerce giant Flipkart respectively.

Nash joined Sea (formerly known as Garena) from one of the company’s earlier investors, General Atlantic, in 2014. Singapore-based Sea is a diversified Southeast Asian tech company that owns and manages online gaming platform Garena, e-commerce player Shopee and e-wallet provider AirPay.

Nash was appointed group president of Sea and he led the company to its listing on the New York Stock Exchange in October 2017. The IPO, which raised US$884 million, remains the largest ever for a Southeast Asian internet company. It had achieved an internal rate of return (IRR) of 67.7% as at end-July. Year to date, the stock is up nearly 177%.

An Asian-American, Nash moved to Singapore in 2011 to work with US investment firm General Atlantic. As principal and head of Southeast Asia, he opened and led its Singapore operations that year. “After making our first investment in the company that is now Sea, I ‘retired’ from General Atlantic and joined Sea as group president.”

Nash co-led the business alongside Sea founder and group CEO Forrest Li, overseeing the company’s region-wide expansion, the launch of Shopee and the eventual IPO. “I was intimately involved in leading the IPO journey which, very happily, turned out to be a major success for investors. We went public at US$15. The stock is now trading in excess of US$29.”

The counter was trading at US30.55 on Nov 6.

Rippel is a veteran of the Asian B2C investment space. Prior to co-founding Asia Partners, he was CEO of B2C e-commerce at Naspers, a large South Africa-based global technology investor. “Naspers is notable for being the largest shareholder (32%) of Chinese tech giant Tencent Holdings Ltd,” he tells Personal Wealth.

While at Naspers, Rippel was one of the early investors of Indian e-commerce giant Flipkart. He initiated the investment, served on its board and then brokered the eventual sale to US retail giant Walmart Inc at a massive US$21 billion valuation. The sale garnered a return on capital of 3.6 times, resulting in a net gain of US$1.6 billion for Naspers, on the back of an initial investment of US$600 million. “The Flipkart exit got Naspers an estimated IRR of 29%,” he says.

Rippel also spent almost nine years with eBay in various regional leadership positions.

Nash and Rippel have known each other since 2011 as they both came to Singapore around that time. In fact, they were already acquainted because Naspers was an indirect shareholder of Sea (Naspers is a major shareholder of Tencent which, in turn, is a major shareholder of Sea). “We have exchanged thoughts on consumer technology in emerging markets and Southeast Asia for a long time,” says Rippel.

Fresh off their highly successful exits, Nash and Rippel did what they saw as the natural progression for themselves — joining forces and setting up Asia Partners with three other friends; a Thai, an Indonesian and a Vietnamese.

Travel theme a strong pull

Perhaps unsurprisingly, Asia Partners’ maiden investment is indicative of the co-founders’ belief in Southeast Asia’s influence as a consumer market. In mid-August, the firm led a Series C funding round for Singapore-based budget hotel booking company RedDoorz. According to its website, RedDoorz has more than 1,000 properties across Southeast Asia.

According to Crunchbase, the funding round netted RedDoorz US$70 million, although Asia Partners declined to specify the size of its investment. RedDoorz has raised US$134.4 million to date.

The start-up is a customised platform catering for budget travellers in Southeast Asia. “RedDoorz focuses on budget hotel offerings and provides a very specialised solution for travellers as well as property owners,” says Nash.

Incidentally, per the co-founders’ views on the emergence of more Southeast Asian unicorns, they believe RedDoorz is well on its way to billion-dollar status.

The budget travel sector is a multibillion-dollar market, with hundreds of thousands of budget hotels across the region, says Rippel. “This is currently a very fragmented marketplace. The one and two-star budget hotels are often managed directly by the property owner, who probably has one or two small properties. These hotels tend to have varying levels of quality and service and face the big issue of low occupancy rates. RedDoorz increases occupancy rates for hotel owners by helping them professionalise and standardise some of their offerings.”

But the company faces a number of potential challenges to its growth. It is competing against a SoftBank-backed unicorn in the budget travel sector. Known as OYO, the India-based company has branched out to a multitude of global locations in recent years. According to media reports citing 25-year-old founder and CEO Ritesh Agarwal, OYO operates in more than 80 markets globally and manages more than 1.2 million rooms. As at July, the company was valued at US$10 billion, according to TechCrunch.

Nash and Rippel remain confident in RedDoorz’ prospects for a number of reasons. Among others, the hospitality business is not a classic “winner takes all” kind of market. “The hotel business is a multiplayer and often, a multi-winner sort of market. Our research on this theme found that there were very few players operating in RedDoorz’ space. And yes, one of those companies is OYO,” says Nash.

He adds that they believe the business of online marketing and distribution of budget hotels is fundamentally a local, rather than global, business.

On a broader scale, their research led them to conclude that technology businesses fall into three core categories — the global network effect, unique local winners and the local network effect. It is a central tenet of their investment approach, one that they say is incredibly predictive.

Companies in the first category include Alphabet Inc’s Google, Facebook Inc, Amazon Web Services and Microsoft. Unique local winners include Chinese search engine giant Baidu. And the third category includes Alibaba, Grab, Gojek and RedDoorz. The vast majority of emerging market tech companies are concentrated in the third category.

The model, among others, explains why the likes of Grab and Gojek outcompeted Uber in Southeast Asia, despite the latter raising much more capital globally. Uber, itself a beneficiary of the local network effect, albeit in its home region of the US and other Western markets, entered Southeast Asia without an appreciation for various hyperlocal customs.

For example, Gojek ran ahead of Uber in Indonesia because the former understood the latent demand for motorcycle riders to ferry passengers around. Gojek brought these services to market much earlier than Uber.

As for Malaysia’s Grab, it understood very quickly how Malaysians preferred to pay cash and thus, provided that as a payment option. Uber only followed suit much later during its short lifespan in the country.

Simply put, these locally founded companies had a better understanding of their immediate surroundings than other, much bigger and well-funded global rivals. That is why Nash and Rippel believe RedDoorz is such a compelling investment prospect, even when compared with OYO.

Woe the unicorns?

The early successes of RedDoorz and OYO notwithstanding, 2019 has so far seen a number of high-profile failures and missteps by once seemingly imperious unicorns. The list of failed or struggling unicorns over the past five years is growing.

Ride-hailing giants such as Uber and Lyft have significantly underperformed their IPOs earlier this year. Both companies have had long standing questions on profitability and cash burn rates, even well before going public.

Going back a few years, US biotechnology start-up Theranos, helmed by its charismatic founder Elizabeth Holmes, promised to revolutionise the medical testing sector. The billions in investments the company received sensationally made Holmes the youngest and wealthiest self-made female billionaire in the US at one time, according to Forbes.

In 2015, a Wall Street Journal exposé revealed serious allegations of fraud, with employee complaints revealing that the company’s supposedly breakthrough blood testing machines were inaccurate and not fit for purpose. The allegations sent Theranos into a tailspin, culminating in its closure last year.

Regulators filed fraud charges against Holmes and her former chief operating officer Ramesh “Sunny” Balwani. At the time of writing, the two are fighting the criminal charges in a US court.

The latest multibillion-dollar implosion is that of co-working start-up WeWork. Another company backed by the billions of SoftBank, WeWork saw a high-profile crumbling of its much-anticipated IPO, initially set for the second half of this year. Since then, founder Adam Neumann has been removed as CEO amid allegations that the company was vastly overvalued.

Last month, The Wall Street Journal reported that SoftBank had agreed to take a majority stake in the ailing start-up. As part of the agreement, Neumann walked away with a payout of nearly US$1.7 billion in exchange for agreeing to cut ties with the company he founded. The deal values WeWork at just US$8 billion, giving SoftBank a roughly 80% stake in the company. Just a few months ago, WeWork was valued at US$47 billion.

The growing list of failures has brought into sharp focus the detrimental impact on investors. Should high-net-worth individuals, limited partners and even public markets have an appetite for technology companies with opaque business models and a long-standing track record of heavy losses?

Nash and Rippel hasten to distance their portfolio company from recent technology struggles. “While it is difficult to comment on some recent tech IPOs as we were not investors in those companies, we observe that ultimately, investing in innovation requires a long-term horizon. We also note that the larger driver of venture capital investments and IPO appetite tends to be the broader, macro-IPO cycle [which occurs in waves and is loosely correlated to economic cycles], rather than the performance of any one or two particular companies,” says Nash.

They also note that RedDoorz founder Amit Saberwal runs a very lean operation and is careful to avoid the excesses associated with founders who have come into millions of investment dollars. Instead, they point to the outperformance of a slew of global tech IPOs over a 10-year period (July 2009 to July 2019). When ranked by aftermarket IRR, investors who bought into a slew of now-household technology IPOs and held the stocks until the present day would have been handsomely rewarded.

Between the respective IPO dates and July this year, investors would have seen returns of between 101.9% and 14.3% had they invested in any of the top 20 IPOs during the time frame in question. The proprietary ranking includes Facebook, HR solutions giant Ceridian HCM Holding Inc and Sea.

Original Article: https://www.theedgemarkets.com/article/private-equity-looking-southeast-asias-promising-tech-businesses

Asia Partners on CNBC - “We don't look for unicorns, we look for rhinoceroses”

Nick Nash of Asia Partners says his private equity firms looks for humble, quiet, underappreciated companies to invest in. He describes these as "rhinoceroses" instead of "unicorns," which is what start-ups valued at more than $1 billion are called.

Link to Interview: https://www.cnbc.com/video/2019/11/13/we-dont-look-for-unicorns-we-look-for-rhinoceroses-asia-partners.html

20 unicorns will emerge in Southeast Asia by 2030, predicts Asia Partners’ Nick Nash

It’s a “golden age” for aspiring unicorns in Southeast Asia, according to Nick Nash, co-founder of growth equity investment firm Asia Partners. At current levels of affluence, the region is in a sweet spot – the same zone that China and Japan were at when a majority of their tech companies went public.

Nash was formerly the group president of internet company Sea, which runs gaming platform Garena, ecommerce site Shopee, and payments platform AirPay. He stepped down from the role in December 2018, after the Singapore-based firm’s October 2017 trade debut on the New York Stock Exchange. He went on to launch Asia Partners in January this year.

Delivering the keynote address at the 2019 Tech in Asia Conference in Jakarta, Nash said that at present, Southeast Asia’ current zone of per capita income sits between China and India. At this zone, discretionary income increases exponentially – around six times – when income doubles, creating an opportunity for businesses looking to scale.

He added that most of the tech companies in China went public in or around that “zone of affluence” – a point where spendable income grows from 5% to 15% of total income – which occurred in the country between 2003 and 2013. Korea and Japan experienced a similar trajectory.

The same phenomenon could explain why it was challenging to build a large-scale business in India, despite its vast population potential of 1.3 billion. “On average, each of them only earns US$2,000 a year, and only US$100 of that is discretionary,” Nash said.

He observed that every Chinese tech company that listed in the last 25 years did it in four steps. “They laid the table with telecommunications. [Then] they had a first generation of web companies, a second generation that was a little bit more specialized, and a third generation of very mobile- oriented companies that were also very offline-enabled.”

By studying the Chinese playbook, Nash predicts that 20 more unicorns will emerge from the region in the next decade, coming from sectors across online-to-offline, online health, social/chat, ecommerce logistics, and online travel, among others.

Playing to home court advantages

Southeast Asia’s complexities could be part of its home court advantage “because if something is complicated, at least we [Southeast Asians] can understand and navigate it,” Nash noted.

Local companies have prospered and even outdone their global competitors in some instances, thanks to their understanding of local markets as well as mastery of the supply chain and cross- border interactions.

“You’ve got six major economies, and all of them have a different gift,” Nash pointed out. Companies can go regional by capitalizing on each country’s relative strengths: the size of Thailand and Indonesia’s gross domestic product and population, Singapore’s accessibility global capital markets and abundance of technical talent – an advantage that Vietnam also has.

Many of today’s tech startups have another edge that their predecessors didn’t: their founders are alumni of companies that are already regional. The 10 pan-regional “academies” like Gojek, Garena, Grab, Lazada, Facebook and Google etc. – have collectively produced over 20,000 “graduates,” and 10% of them have gone on to put up their own businesses.

Armed with experience in navigating Southeast Asian markets, members of a growing Lazada mafia are setting up shop in the region. The experience of building a company from nothing to unicorn status imparts valuable lessons, such as how to be more operationally efficient, former executives told Tech in Asia. This alumni network could also open doors for potential investment deals down the line.

Unlike previous generations in which entrepreneurs generally met people in a university setting or through family networks and consultancies, the current crop of founders can pull together their peers from regional companies like Grab and Gojek – peers who already know how to build a regional business.

In the last few years, a rising number of Indonesians have been studying in other Southeast Asian countries like Malaysia and Thailand, but this practice can be encouraged on a larger scale, Nash said.

China’s tech boom was fueled by a dramatic upskilling of its workforce – 11 times as many Chinese students are pursuing undergraduate degrees in the US today than two decades ago. The ongoing trade war and military tensions between the US and China presents an opportunity for Southeast Asia to take advantage of a “low-hanging fruit” – to obtain engineering and specialized professional degrees abroad. “A lot of people who used to go to America from China – those seats are now empty,” Nash adds.

A missed opportunity

Though over 200 investment firms – including family offices – in the region back companies that seek seed funding and over 26 firms invest in series A and B rounds, only about three companies are looking to plow in between US$20 million to US$100 million in series C or D rounds, Nash revealed.

But that stage is the crucial bottleneck that stands between businesses struggling to scale and those that rise to unicorn status.

Investors like Singapore’s sovereign wealth fund Temasek Holdings are putting more resources into earlier-stage fundings. Last month, Vertex Venture Holdings – Temasek’s venture capital arm – raised US$290 million for a new fund that targets growth-stage companies. The Vertex Growth Fund is expected to invest between US$10 million to US$15 million per startup.

Temasek has also launched a US$50 million joint venture fund focused on logistics and invested in at least one seed-stage startup.

The investment firm, however, remains “very focused” on the segment of “aspiring unicorns” valued between US$100 million to US$1 billion, Rohit Sipahimalani, joint head of Temasek's portfolio strategy and risk group, told the Straits Times earlier this month.

“There’s an old joke that it’s easier to raise US$400 million or US$4 million in Southeast Asia than it is to raise US$40 million,” Nash said.

According to Nash’s calculations, US and China are doing about 700 and 130 of those deals, respectively, every year. He added that in Indonesia, such deals happen at a frequency of 0.0039 per million citizens annually, which means it’s 600 times harder to raise a series C and D in Indonesia than it is in the US.

But less money is being allocated into such funding, even when taken in dollar terms. “[North] America puts 0.12 basis points of its gross domestic product into those deals every year. Indonesia is putting 0.5 basis points of its gross domestic product annually,” he added.

Nash urged investors to rethink the way they look at Indonesia. It’s a market where commercial real estate has the same risk-return ratio as the tech sector, and yet the former receives much more capital than the latter.

Capital market activity is telling: in the 1990s, Indonesia was a “very active” user of the US capital market, Nash said. From 1990 to 2000, Indonesian firms raised about US$9 billion in capital markets, and a quarter of that came from the US – more than the money raised from Chinese companies.

Yet from 2001 to today, there hasn’t been a single Indonesian IPO in the US. “There’s no legal or structural reason for that. Indonesia remains the fourth-most important country on the planet and the top two in terms of growth, yet the Chinese have continued to tap into the US market for growth and we haven’t,” Nash added.

It’s a more dismal picture when the tech sector in Indonesia is singled out. “In the 1990s, 55% of the capital they raised came from the American stock market. But in the 2000s, none of them did.”

https://www.techinasia.com/20-unicorns-emerge-southeast-asia-2030-predicts-asia-partners-nick-nash