With Thai corporate VCs chasing global deals, local startups likely to face the heat

Thailand’s corporate venture capital firms, which have played an active role in driving investments in the country’s startup ecosystem, are now increasingly chasing overseas deals.

Thai CVC firms invested a total of $106.7 million in 2018, of which they poured $95 million in overseas investments, according to Techsauce.

The CVC units, which often have a global mandate, also operate fund of funds, investing in both Asia and US venture capital funds to increase their exposure to new technologies.

Digital Ventures managing director Paul Ark explains that the capital available with corporates is much larger than what the local industry can absorb. Thailand is still an early tech ecosystem, where seed funding rounds account for half of the investment landscape.

Take the case of Siri Ventures, the joint venture between Thailand’s leading businesses Sansiri and Siam Commercial Bank (SCB). Most of its portfolio are non-Thai companies, and it has backed US fund Fifth Wall Ventures.

Similarly, SCB’s Digital Ventures has invested in Golden Gate Ventures, Nyca II and Dymon Asia. It has backed international startups including Ripple, Pulse ID, IndoorAtlas, Paykey, 1Qbit, and Pagaya.

“We have seen many proven models both from the Western (US and Europe) and Eastern (China and India) worlds where B2B commerce can be fundamentally transformed. Hence, we aim not only to invest in local Southeast Asia’s startup companies but also to act as the gateway for growth-stage companies to expand to Southeast Asia,” explained Jane Prescott, investment partner at AddVentures, the VC unit of Siam Cement Group.

AddVentures has been investing in both local and international startups.

Meanwhile, specialist corporate funds such as energy major PTT’s unit tend to look at opportunities in China, Israel or the West, as they chase deep-tech solutions that most Thai or even regional startups cannot provide.

In 2018, Thai banks led venture capital activity representing 42 per cent of the total CVCs in the country, according to a report by Business Sweden Thailand. Meanwhile, telecom companies and real estate groups represented 13 per cent and 12 per cent, respectively. Besides, there are CVC units from other sectors including retail, construction, manufacturing, and energy.

These CVCs have an aggregate investment corpus of nearly $600 million, according to our updated data combined with numbers provided by Techsauce. Most of the funds were set up in 2016-2017 when the Thai ecosystem had just started to take off.

Disruption is no longer extraterrestrial

AddVentures, founded in 2017 by Siam Cement Group, has been actively investing in B2B, industrial and enterprise sectors with the goal to build a new business portfolio for SCG and collaborate with startups in the areas relevant to the parent firm.

“In recent years, many corporates in Thailand have started to see the potential of how technologies impact their businesses, especially ones in B2C/retail space,” said Prescott.

“While synergistic values may appear to come as the primary goal, financial returns can be of the essence for the CVCs to thrive in the long run as well,” she added.

Both CVCs and financial investors are of the view that traditional businesses lack capabilities in terms of technical know-how, soft skills, and mindset to innovate from within.

“Being the biggest local player does not mean there is protection against being disrupted,” Paul Ark from Digital Ventures asserted.

Despite a more active role of these CVCs, Pun Jaruthassanakul, investment manager at 500 TukTuks, observed that there had been some conservatism and reluctance to invest and work with startups.

Now, the corporate investors have started to get more comfortable, as they realise “plug and play” is a better way for corporates to keep up with today’s rapid changes in business models and technologies, so as to achieve their vision of being the leading companies in their respective industries.

However, they are motivated by both hope and fear, according to Ark. “We are at a turning point where disruptive technologies that were previously seen as extraterrestrial threats are no longer intangible. They are here,” he said.

Ark also pointed out that a lot of corporates set up investment funds because everyone else is doing it, adding CVC is one route of getting into innovation, while there are other routes such as accelerators and partnerships.

Why Thailand is ready for more pure VC play

“Thai market is unique in the sense that most of the VC funding comes from corporates,” said Prescott.

But apart from a small number of corporate-backed accelerators such as True Incube and dtac, Thai CVCs often invest in the growth stage companies.

At the early stage, 500 TukTuks is the most active investor. Other regional VC firms have only started to search for opportunities, while many of them are active in the later stage.

So, what Thailand needs now is a robust country-focused early-stage venture capital investing system to address the funding gaps faced by the startups.

The reasons are not too far to seek. Thailand has around 1,150 startups, according to TechASEAN. The number of Thai startups with a valuation above $100 million (including Ookbee, Pomelo, LookSi, and Rabbit) is also catching up with its peers Malaysia and Vietnam, according to a Cento Ventures report last year.

Since earlier this year, Thai startups have snagged a spate of large-sized deals. If Eko’s $20-million Series B financing was the biggest equity round recorded last year, currently fashion e-commerce startup Pomelo is making headlines for raising a $50-million Series C round, we reported last week.

Fintech company Omise has landed an investment from Japanese Nomura Holdings after securing $17.5 million from SBI Asset Management and a $25-million ICO. Also last week, aCommerce bagged $10 million in a new round.

During 2011-2018, Thai startups raised a total of $337.37 million. Overall deal counts and value kept on increasing, hitting a peak of $105.55 million in 2017 before plunging to $61.15 million in 2018.

Monk’s Hill Ventures partner Justin Nguyen commented: “Thailand is taking off in many ways and we are seeing some very promising companies here. In addition, support from government and CVCs is strong, providing both funding and know-how that’s accelerating the process.”

500 TukTuks made a total of 51 Thai deals in 2011-2018, while its American affiliate did 12 deals, according to Techsauce. Dtac was the second most active with 46 investments during that period.

Monk’s Hill Ventures is one of a few regional investors who has recently beefed up activities in Thailand. While scouting for Series A deals in the country, it sees a strong pipeline in terms of opportunities.

Its partner said there are opportunities for Thai founders to “put their ingenuity and creativity towards solving some of the pressing regional problems.”

“External viewpoints are of the essence to fine-tune the perspective of local founders. Many of the currently developing business models have already been tested and proven in other regions, like China or the US. Experienced regional investors can share the learnings with the local founders to jump-start their business development and growth,” Prescott opined.

Now, what Thailand needs are investors who have deep VC experience, those who have taken a startup to an exit or an IPO. “Because VC is still a new concept in emerging markets like Thailand, we need people who have gone through the funding cycle to exit instead of trying to figure it out as we go,” said 500 TukTuks’ Jaruthassanakul.

He described the ecosystem as an “open and friendly environment” where early-stage financial investors share the deals with both CVCs and other regional funds rather than trying to win a deal and keeping it quiet.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.