Singapore and Thailand-headquartered digital payments firm 2C2P is counting on its new venture capital arm to accelerate growth and capture new opportunities across Southeast Asia.
The company raised as much as $52 million last year and has set aside $15 million for its newly-established VC arm.
“We are very positive about the online payment outlook… we have come across a lot of companies that we want to engage with commercially. So for us, having established this investment arm enables us to go deeper and further expand the commercial relationship,” said Aung Kyaw Moe, founder and group CEO at 2C2P.
The firm is witnessing steady growth in Thailand, Myanmar, Indonesia, Malaysia and the Philippines.
“The payment space is moving extremely fast. We have come across really interesting companies that we want to be part of, and the inception [of the VC arm] is to make sure we are fully plugged in to what’s the latest and the greatest,” said Moe.
The VC will make investments from $500,000 upwards and could further take majority stakes in targeted companies, Moe said.
In December 2019, 2C2P established a Vietnam entity and acquired an additional 50 per cent in 2C2P Cambodia to wholly own the unit. The group’s investments into subsidiaries reached $4.9 million by the end of 2019, compared to a $4.1 million figure in 2018.
“We still have a lot of headroom to grow, and Southeast Asia is pretty similar to a market like China, where e-commerce is not a luxury but a necessity,” Moe said.
The company generated more than $2 million in comprehensive income in 2019, compared to a $1.1-million loss a year earlier, according to its audited financial statement released in May 2020. Revenue for the year stood at $81.5 million, a 57 per cent jump from 2018.
Edited excerpts of an interview:-
How has the COVID-19 pandemic impacted your investment plan? Have you got a pipeline to look at?
Everyone obviously got impacted, and we are no exception. However, because of our broader range of customer base – in some sectors, we see an increase in volume – we are doing okay from the business point of view. But in terms of investment, we don’t want to rush in. We make investments to align with our strategy. So, while we are currently actively engaging with a few in our pipeline, we are taking caution to make sure that we are betting on the right companies.
We have been growing this business at more than 70 per cent over the last few years, and we are seeing an enormous opportunity in this space. We have come across a lot of companies that we want to engage with commercially, so for us, having established this investment arm enables us to go deeper and further expand the commercial relationship. Investment making still holds during the current environment, but we continue our dialogues. It is still premature to talk about individual names, but we are really excited about the companies we have seen so far.
Do you look at companies that have potential, but because of COVID-19, they got into some kind of difficulties and need investment?
We tend to look at relatively established businesses. We are not a seed investor. And we focus on the larger enterprise segment, so we are looking for investments in the payment related space that can deal with our complexity. We are very positive about the online payment outlook.
Do you have a target of the number of companies you are going to back and how much you will invest in each?
The benefit of having an investment arm as opposed to a traditional VC fund for us is that we have a great amount of flexibility. We are looking for initial investments from $500,000 upwards. But this is not about putting some money in a company and then waiting for financial return. We tend to go in with a smaller check size, taking minority stake with the view to take a majority stake over the years, because we only invest in companies that are fully aligned from a strategic perspective.
What is the rationale for you to expand your business through these investments?
It’s about opportunities. We are confident that there are plenty of opportunities to grow this business organically. But for us, investment is a way to accelerate further. We have been growing strong in Thailand and Myanmar, but we have also seen enormous growth in Indonesia, Malaysia and the Philippines. The payment space is moving extremely fast. We have come across really interesting companies that we want to be part of, and the inception [of the VC arm] is to make sure we are fully plugged in to what’s the latest and the greatest.
Are you also looking at some emerging markets outside of Southeast Asia, the region that you’ve been focused on?
Our focus has primarily been Southeast Asia, but we have always been looking to expand outside the region as well. We always follow our merchants, instead of sitting in a room and strategise. We look at where the merchant demand is, and we can see demand in some of the product categories outside the region.
With all these expansion plans, how do you see funding and the runway for the business?
We don’t really have to worry about the runway. In 2018, we were EBITDA positive and in 2019, we were profitable. Therefore, our fundraise is mainly for expansion and accelerating growth.
The prime objective is to strengthen our team. As we continue to expand the business, investing in the team will be critical. It is a great time to be in payments. It is a difficult environment at the moment, but the longer-term outlook is promising for us, and we want to best position ourselves to capitalise on that.
You started in Thailand, where people say fintech is one of the most developed markets in Southeast Asia. Do you think there’s still growth in the country?
Let me compare that with China. Their digital commerce penetration reached 10 per cent of their GDP recently, which is huge. But they still think that it will continue to grow to 30 per cent. In Southeast Asia, including Thailand, our digital payment or digital commerce is nowhere near 5 per cent. We still have a lot of headroom to grow, and Southeast Asia is pretty similar to a market like China, where e-commerce is not a luxury but a necessity. E-commerce will continue to grow at a rate of 20-30 per cent year-on-year, which we have seen since 2010.
In Southeast Asia, in which markets do you see the best growth at the moment?
I will refer to the Google-Temasek report that ASEAN-6 is the fastest-growing market. In ASEAN-6, the faster-growing economies are Indonesia, Vietnam and Malaysia. COVID-19 may have impacted this growth a little bit, but if we zoom out and look at it from afar, this is just a temporary dip before we continue to maintain the same trend.
How about competition across these markets? What is the position of 2C2P?
We started our companies 17 years ago and started doing payment processing before the term fintech was coined. Capturing the growing market is more important than taking away market share from the other players because the market is growing fast enough so that everybody has a part to play. From the outside, it might look like there is a huge competition going on. But if we dig deeper into the fintech landscape, there are so many players doing different things.
We are in B2B payment. There are very few competitors. Instead of taking away their customers, we compete by focusing on capturing new opportunities. That is why we are trying to accelerate [growth] with various means, including the VC arm.