While many Chinese venture capitalists are looking to or have begun to deploy capital in Southeast Asia, localisation is still the key tool to navigate this region, according to panelists at DealStreetAsia’s Asia PE-VC Summit 2019 held in Singapore.
“There is a lot of interest among Chinese unicorns to do business here. But, I think localisation is most important. The best is to win a strategic investment and let the local teams run the business – it could either be an exit for the founders or they could be part of the ecosystem. There is a need for a local co-founder, otherwise, I don’t think it will work,” said ZWC Partners founding and managing partner Patrick Cheung in a panel discussion titled ‘Is Chinese money shifting direction to invest closer to home’.
Insignia Ventures Partners founding managing partner Yinglan Tan concurred saying that although Chinese juggernauts such as ByteDance will be able to clone their Chinese business model in other markets in Southeast Asia and India, there are several aspects of a business that will still require local on-the-ground expertise.
“Sectors like logistics and fintech that require a licence are more difficult for Chinese companies to do it themselves. Out of our 20 core investments, 19 are local entrepreneurs – they can navigate the territory and know the local and regulatory nuances. But Chinese juggernauts will deploy more capital here due to the macro factors like growing middle class and smartphone penetration,” he said.
Southeast Asia, with a 700 million population has been on the radar of many global investors including large Chinese VC firms such as GGV Capital and Qiming Venture Partners. GGV Capital has set up a regional office in Singapore earlier this year and Qiming Venture is mulling a Southeast Asian fund.
Qiming Venture Partners partner Helen Wong said that while some Chinese investors are entering Southeast Asia, many are still investing in their own backyard, noting that there is a clear separation among the investment verticals pursued by investors.
“There’s only a handful of Chinese VC funds in Southeast Asia. On the consumer internet side, we want to have these unicorns that are big movers for [higher] returns – but it’s harder to find that in the China market today because it is so much more mature, and you have the BAT (Baidu, Alibaba, Tencent) of the worlds who are also in the same space, so we have to look outside,” she observed.
“For enterprise tech, I think things are actually getting better, especially with the trade war, there’s a lot of import substitution going on so we’re investing in semiconductor and enterprise software companies,” she said, adding that healthcare investments are growing in China.
While BAce Capital managing partner Benny Chen – who has over a decade of experience investing in China, India and Southeast Asia – said Southeast Asia gives a chance for companies that have the mobile- and app-first technology to play a greater role in fixing distribution and improving efficiency.
“Whether it’s in India or Jakarta – Android devices, face recognition and biometrics will be the leapfrog to give us a better chance to identify and empower our companies,” he said.
So how are Chinese investors providing value-add to Southeast Asian funds and companies?
Noting that Insignia Ventures has several Chinese unicorns as its limited partners, Tan said Chinese investors are able to bring a lot of expertise and know-how of the Chinese market which could be translated and then adopted by Southeast Asia.
ZWC’s Cheung and Qiming’s Wong concurred, adding that Chinese investors are able to bring strategic partnerships and cross-border opportunities to the region.
“We have a lot of capital from the US but our expertise and know-how are in China, especially on the consumer internet side. I would say that the Chine ecosystem is actually more developed, even perhaps, compared to the US market. So what we bring is really our knowledge,” said Wong.
Tan added the influx of Chinese capital into Southeast Asia is caused by several factors, including the widely-discussed US-China trade tension.
“Brexit is happening and Japan-Korean trade war and we also have Hong Kong’s situation. But Southeast Asia seems to be relatively stable. There seems to be a global diversification of supply chain and last year, in Vietnam, especially. Logistics growth is 4x in Vietnam, prompting a lot of logistics startups to emerge. Another opportunity is talent as well, graduates from US coming back to capitalise on the opportunity and the middle-class growth in Southeast Asia. So it’s a very interesting situation in the region right now,” he said.