Investors’ appetite for emerging market opportunities in Southeast Asia is expected to retain, as many of them attempt to “hedge risks” brought by the COVID-19 pandemic by investing in businesses with a global footprint.
Many investors are trying to reach out to founders who have “a global mindset” and who have managed to expand their businesses across different markets to “hedge some of the risks” brought by the global health crisis, said Wallace Guo, Managing Partner of Taihecap, during an online panel session at DealStreetAsia’s Asia PE-VC Summit 2020.
“In the long run, I think strategic investors may try to not only invest but also buy some assets in this region to extend their influence,” said Guo, who started the firm’s foray into the global market, including Southeast Asia and India, in 2019.
Taihecap is a Beijing-based investment bank that has helped about 150 enterprises raise a total of over $20 billion since its inception in 2012. Most of these transactions happened at Series B to pre-IPO round across industries like e-commerce, education, fintech, and logistics.
Before foreign direct investment (FDI) to developing economies in Asia was hit hard by the virus-induced economic downturn, growth momentum in foreign capital inflows in developing Asia – the world’s largest FDI recipient – was mainly driven by investments in India and Southeast Asia.
Southeast Asia, where FDI rose 5 per cent year-on-year (YOY) to a record level of $156 billion in 2019, was one of Asia’s major growth engines mainly supported by strong investments in Singapore, Indonesia, and Vietnam, which received over 80 per cent inflows in the region, according to UNCTAD’s World Investment Report 2020. FDI in India reached $51 billion in 2019 with a YOY increase of 20 per cent.
Pick a battleground
Although Southeast Asia is a sizable market comprising 11 countries and a total population of nearly 680 million, investors at the panel highlighted the importance for startups to pick a battleground as a starting point, before they tap this combination of “exceptionally different” jurisdictions.
Among many, Singapore remains worthy of its name as a global business hub thanks to the city-state’s established regulations, favourable business environment, and friendly foreign talent introduction policies, said Soo Boon Koh, Founding & Managing Partner of iGlobe Partners.
“Many startups, even if they started in markets like Indonesia, have holding companies in Singapore,” said Koh.
Koh founded iGlobe Partners in the 1990s after years of leading Vertex Ventures’ investment efforts in Silicon Valley in the 80s.
The Singapore-based venture capital firm invests in smart city, fintech, and synthetic biology. It has helped build companies including cross-platform game engine developer Unity, payments startup hoolah, and Singapore-based smart city solutions provider Anacle, which went public in Hong Kong in December 2016.
Koh pointed to one of her portfolio companies, SWAT Mobility, which was created in 2015 in Singapore as a smart mobility platform that provides on-demand, ride-sharing services for city commuters. The firm has expanded its operations into another seven markets besides Singapore, covering Australia, Indonesia, Japan, the Philippines, Thailand, Vietnam, and most recently (in July 2020), Japan.
“If a Singapore-based company wants to be successful, it has to penetrate in other markets across Asia for more revenues,” said Koh. She added that “a go-to Japan strategy” will help businesses attract investments from Japanese local VCs and get more liquidity since there are not many stock exchanges in Southeast Asia.
As investors on the ground seek to help local startups expand globally, overseas funds and corporates are trying to duplicate successful growth stories elsewhere – from markets including China – to build companies that can serve similar consumer demands in Southeast Asia.
“We look for ecosystem businesses that have parallels to the ecosystem businesses that Ping An has built within China,” said Donald Lacey, COO & Managing Director of Ping An Global Voyager Fund.
“The human needs that have given rise to an online used car portal or an online telemedicine portal [in China] are the same needs that a family in Indonesia or Malaysia might have,” said Lacey.
The executive at Ping An Global Voyager Fund, a $1-billion corporate investment platform of China’s Ping An Insurance, is actively considering those Southeast Asian markets which are “at a point of adequate scale and economic development” for it to deploy capital and incubate startups.
Since its inception in 2017, Ping An Global Voyager Fund has been investing in the fintech and digital health industries worldwide. Although it closely sources opportunities in Southeast Asia, most of the fund’s investments nowadays are in North America, western Europe, China, and India.
“In Southeast Asia, we don’t see a lot of enterprise services, B2B, or SaaS companies, but we do see a lot of interesting emerging ecosystem plays,” said Lacey.
“And what we’ve learned from our experience in China is that these ecosystems, as they develop, they oftentimes give rise to ancillary opportunities, in the financial services sector in particular,” he said, referring to the fast-rising fintech firm Ant Group as its parent company Alibaba’s e-commerce landscape expands drastically in China.
Ping An, China’s largest insurer by market value, had started to deploy this strategy a few years back, through the formation of a joint venture with Grab to offer online healthcare services in Southeast Asia. In August 2018, the firm’s online healthcare platform Ping An Good Doctor had created a 70:30 venture with Grab, which gives users in the region access to AI-based online medical consultations, medicine delivery, and appointment bookings.
Ping An Global Voyager Fund adopted the same strategy in India, when last December it led a $70-million Series D round in Indian automobile classifieds platform CarDekho, an analogue to its China portfolio Autohome.
Global investors’ interest in Southeast Asia’s emerging markets is expected to retain. However, Taihecap’s Guo pointed out that it would be common if local startups can only raise money from “a select group of investors” in the short run.
“The large pool of global investors” may not be deploying their capital anytime soon, if the pandemic persists and makes it hard for them to travel & conduct due diligence.