The demographics and talent pool of Indonesia and Vietnam are the key reasons for Access Ventures to select these markets to focus on in Southeast Asia, said an executive at the South Korea-based venture capital firm.
Access Ventures’ portfolio in Southeast Asia includes fintech firm Moca, Kata.ai, Omni Labs, Kofera and Ecotruck. The firm closed its debut fund in September 2018.
In an interaction with DEALSTREETASIA, Access Ventures partner Charles Rim said the VC firm is also drawn to the region due to more acquisitions happening in the region that provide an exit route for venture capital.
“One of the reasons we launched our fund is that one of the biggest improvements happening in Southeast Asia is the exit environment,” Rim said, adding that large global and regional corporations are eyeing Southeast Asia for investment deals. An increasing part of it will be acqui-hiring, as they will need talent for expansion in the region.
Access Ventures is also investing in Korean and US startups with a Southeast Asia strategy. Rim said the firm planned to raise its second fund this year, with a strong focus on Southeast Asia.
Can you tell us about your firm’s investments so far?
Our main premise when we launched the current fund was to do one-third of the investments in Korea and two-thirds in Southeast Asia. Our focus is Indonesia and Vietnam-related businesses. We believe it is a strategic fit because many Korean companies are investing in Southeast Asia, so we can help Korean companies expand their business globally and particularly in this region. We focus on Indonesia and Vietnam but we have several investments in businesses incorporated in Singapore because they’re going after multiple markets. For the US investments, they also have the same profile of either doing business in Korea or in the Southeast Asian market.
Sometime this year, we will launch our second fund that will primarily focus on Southeast Asia but will have a unique profile including portfolio companies established in places like Korea and Silicon Valley.
In terms of stages, we invest in seed to Series A stages. Most of our deals are co-investments with other VCs, and we have also led some early round deals. Our current fund is a little less than $20 million and we have deployed about 60 per cent of it.
You had quite a lot of investments in Indonesia and Vietnam. Why have you chosen to bet on these markets? Are you seeking investments in other Southeast Asian countries as well?
I think the demographics in Indonesia and Vietnam are attractive for investment. We also have a strong network and knowledge that we can leverage to focus on these areas. That is why we decided with the first small fund not to expand to too many territories other than Singapore. The demographics are very robust but different for each market. In Indonesia, there is a much bigger population base and it is the biggest market in Southeast Asia. We particularly like Vietnam because of the technical talent. Vietnam is also seeing a lot more startup founders with global experience which will result in more regional businesses in the future.
Given the dynamics in this region, do you think it is relevant to have a country-focused fund?
In order to have the best chance to succeed in venture capital, we need to have a good pool of opportunities. We expect our next fund to be a larger one and we would want to focus on the region, particularly Indonesia and Vietnam while looking at other countries. Given that the stage of development of startups in Southeast Asia is still early, we believe we will have more success by focusing on the region by specifically targeting certain markets rather than having a single country fund.
Indonesia is a market that witnesses higher valuation than others. How can early-stage investors participate meaningfully in the ecosystem?
It is true that there has been stronger venture capital interest in the Indonesian market, so there is more money and hence, the overall valuations are higher than other countries in the region. I think it is particularly happening in the fintech sector and in particular later stage funding rounds. I expect this year there will be a correction and valuations will settle down. Over the last year and a half, execution in fintech was not as robust as expected.
Higher valuation is largely at the Series A and later stages. So one way to deal with it is to get deals earlier. We are very active looking at seed and pre-Series A deals where valuations are still more reasonable. As long as you get involved in early-stage deals, you can help these companies plan out their next stages of funding. To the extent that we are not investing in companies that are going to face a valuation bubble, we are safe from that risk. Going forward, I don’t think it will have long term impact on success as an early-stage investor. There will be proper valuation and the right traction expectation at each stage. So as the bubble comes down, it helps the overall venture capital market.
I think we have to find the ones that are smart and aggressive in terms of growing fast. We are seeing valuation in fintech quite high, so we look at other sectors and focus on areas like logistics and data analytics where the valuations are not as prohibitive.
Both Indonesia and Vietnam are quite young compared to other Asian markets. What are the challenges you observe?
I think talent is one of the key challenges. There are not many teams with the right depth of talent, especially at C-level. Another challenge is monetisation. As the GDP level is still low, the monetisation of businesses, particularly B2C companies, is happening at a slower pace. Investors need to be patient about the monetisation that will occur in the early stage.
Vietnam has not seen a lot of major exits. Is it a key concern? Do you have to be a long-term investor in this country?
By the nature of venture capital, we are always looking to be a long-term investor. One of the reasons we launched our fund is that one of the biggest improvements happening in Southeast Asia is the exit environment. It is the largest global internet market in terms of potential growth. That is why a lot of businesses are coming to the region and a lot of acquirers are actively looking at Southeast Asian companies. Silicon Valley giants like Google and its competitors are starting to look more seriously at Southeast Asia companies as an investment and acquisition opportunity. We are also seeing Asian players including Japan, Korea and China become more aggressive.
There are also more acqui-hire deals because being short of the shortage of engineering and growth marketing talent is really a concern. A lot of large corporations are going to look at acquisitions based not upon traction or revenue metrics but on the basis of products and teams. A good example of that is Moca, one of our portfolio companies in Vietnam that we exited to Grab in a strategic investment deal. That is the case of a company which is very strong in product and tech talent. From global players like Google to regional players like Grab, tech talent is going to be a key area that they want to grow. We hope to see more acquisitions like that, which was not an active area over the past decade.
How does the startup ecosystem in South Korea look like? Korean investors have been increasingly investing in SE Asia. What has led to that interest?
Korea is a step ahead in terms of maturity of the startup environment compared to Southeast Asia. We have gone through more than a decade since the initial unicorns out of Korea became an active investor in the local market. It is similar to Silicon Valley where the first unicorns helped accelerate the startup environment by being investors and acquirers of early-stage companies. The first wave of early unicorns such as Naver, Daum, Kakao, Line created the first wave of startup acquisitions, and now we are seeing a second in companies such as Coupang, Viva Republica, Woowa Brothers, Yanolja and others.
Companies are going to Southeast Asia because the growth opportunities in Korea are slowing down, and the market size in Korea is much smaller. Korean investors see Southeast Asia as the next big frontier of internet growth. They have been the leading FDI investor in Vietnam and among the top two FDI investors in Indonesia. The businesses that historically have invested in these markets were old school manufacturing businesses, and now it is transmitting to technology. We are seeing that from China too because the growth in China is slowing as well.