Southeast Asia’s direct-to-consumer (DTC) market is going through a major transformation with many new labels emerging in the region. This includes names like Indonesian culinary startup Mangkokku, and Singapore-bsaed Ox Street designing Asian-inspired streetwear for the region’s next generation of image-conscious millennials.
DTC players, which sell directly to the end-consumer bypassing third-party retailers, continue to raise large sums from venture capitalists. Of the total $14.85 billion funding raised by startups in Southeast Asia in the 12 months ended June 2021, DTC startups accounted for $452.3 million from 32 deals.
Fundraisings by DTC startups
|Date||Company name||Stage||Market||Investors||Sector||Funding size ($)|
|2020-07-14||Burgreens||Pre-Series A||Indonesia||Teja Ventures, ANGIN||Food & beverage, health food|
|2020-07-15||SYCA Official||Seed||Indonesia||SALT Ventures||e-commerce, beauty products|
|2020-09-02||Moodco||Seed||Indonesia||IMG Idealab||Food & beverage, chocolate products|
|2020-11-23||Mangkokku||Seed||Indonesia||Alpha JWC Ventures||Food & beverage||2,000,000|
|2020-12-02||Haus! Indonesia||Series A||Indonesia||BRI Ventures||Food & beverage||2,000,000|
|2020-12-14||Brodo||Series A||Indonesia||BRI Ventures||Fashion|
|2020-09-25||Yummy Corp||Series B||Indonesia||SoftBank Ventures Asia, Vectr Ventures, AppWorks, Quest Ventures, Coca Cola Amatil X, Palm Drive Capital||Food & beverage, cloud kitchen||12,000,000|
|2020-11-10||MMC(MakcikKafe)||Venture - Series Unknown||Malaysia||ScaleUp Malaysia||Food & beverage|
|2020-07-10||WTH Foods||Seed||Philippines||Big Idea Ventures||Food tech, plant-based protein||1,25,000|
|2020-06-25||Shiok Meats||Bridge Financing Round||Singapore||Agronomics, Veg Invest, Impact Venture, Mindshift Capital Fund||Food tech, biotech, cell-based meat||3,000,000|
|2020-07-10||Gaia Foods||Pre-Seed||Singapore||Big Idea Ventures||Food tech, plant-based meat||200,000|
|2020-06-24||TurtleTree Labs||Seed||Singapore||Green Monday Ventures; KBW Ventures; CPT Capital; Artesian; New Luna Ventures||Food tech, artificial dairy products||3,200,000|
|2020-07-09||Aromatec||Seed||Singapore||Sunbo Partners||Food tech, food processing|
|2020-07-09||Karana||Seed||Singapore||Henry Soesanto, Bid Idea Ventures, Germi8, Kevin Poon, Gerald Li||Food tech, plant-based meat||1,700,000|
|2020-08-26||Shandi Global||Seed||Singapore||Brinc||Food tech, plant-based meat|
|2020-10-01||Next Gen Foods||Seed||Singapore||Food tech, plant-based meat||2,200,000|
|2020-12-17||TurtleTree Labs||Seed||Singapore||Green Monday Ventures, Eat Beyond Global, KBW Ventures, Verso Capital||Food tech, artificial dairy products||6,200,000|
|2020-09-30||Shiok Meats||Series A||Singapore||SEEDS Capital; Japan’s Real Tech Fund and Toyo Seikan Group Holdings; Iron Grey; Yellowdog Empowers Fund; Singapore’s Ilshin Holdings and Makana Ventures; Veg Invest Trust; Beyond Impact; AiiM Partners; Kelvin Chan Siang Lim; and Alex Payne and Nicole Brodeur.||Food tech, biotech, cell-based meat||12,600,000|
|2020-12-21||Alchemy Foodtech||Venture - Series Unknown||Singapore||Thai Union, Sunbo Angel Partners, Seeds Capital, Muang Thai Fuchsia Ventures, Heritas Capital Management, Bits x Bites||Food tech, anti diabetic food|
|2021-01-11||Hangry||Venture - Series Unknown||Indonesia||Surge, Alpha JWC Ventures||F&B||2,000,000|
|2021-02-03||Pocket Pet||Pre-Seed||Indonesia||Antler||E-commerce, online marketplace for pets|
|2021-03-03||Eden Farm Indonesia||Pre-Series A||Indonesia||Investible, AC Ventures, Corin Capital||Food Tech|
|2021-03-22||Segari||Seed||Indonesia||AC Ventures, Saison Capital||E-commerce, retail, grocery|
|2021-02-01||Green Butcher||Seed||Indonesia||Unovis Asset Management||Food Tech, Plant-based meat|
|2021-02-22||Saturdays||Seed||Indonesia||Alpha JWC, Kinesys Group, Alto Partners||Retail, eyewear|
|2021-01-13||Kind Kones||Seed||Malaysia||DSG Consumer Partners, Sabre Ventures||Food Tech||754399|
|2021-02-09||Mosaic Solutions||Seed||Philippines||Gentree Fund||F&B||1,000,000|
|2021-02-25||Next Gen Foods||Seed||Singapore||Temasek, K3||Food Tech||10,000,000|
|2021-02-04||ZM Labs||Series B||Singapore||Jungle Ventures||Consumer goods||7,500,000|
|2021-03-02||Nutrition Technologies||Venture - Series Unknown||Singapore||Hera Capital, Openspace Ventures, SEEDS Capital||Food Tech||5,000,000|
|2021-03-12||Alchemy Foodtech||Series A||Singapore||SEEDS Capital, Heritas Venture Fund||Food Tech||2,000,000|
|2021-02-24||Pixibo||Series A||Singapore||Atlas Ventures||E-commerce, Fashion Tech||1,400,000|
|2021-03-02||The Golden Duck||Series A||Singapore||Canaan Gold||F&B||1,200,000|
|2021-03-12||Freshkon (Oculus)||Series A (additional)||Singapore||Sunshine Capital, Nyang Holdings||Consumer goods||4,16,000|
|2021-01-06||ProfilePrint||Seed||Singapore||Glocalink Singapore, Leave-a-Nest Singapore, BP de Silva Group, SEEDS Capital||Food tech|
|2021-01-12||Advantir Innovations||Seed||Singapore||Raging Bull Investments, she1K Global, Expara Asia Ventures, Azerus||Food Tech|
|2021-03-31||MAROU CHOCOLATE||Private Equity||Vietnam||Mekong Capital||F&B|
|2021-03-19||Kilo||Seed||Vietnam||Goodwater Capital, 500 Fintech, January Capital, 500 Startups Vietnam||E-commerce, B2C|
|2021-04-07||Flash Coffee||Series A||Singapore||White Star Capital, DX Ventures, Global Foundres Capital, Conny & Co||F&B||15,000,000|
|2021-05-03||Hangry||Series A||Indonesia||Alpha JWC, Atlas Pacific Capital, Salt Ventures, Heyokha Brothers||13,000,000|
|2021-05-05||Social Bella||Indonesia||L Catterton, Indies Capital, East Ventures, Jungle Ventures||56,000,000|
|2021-05-06||Rainforest||Seed||Singapore||Nordstar Partners, Insignia Ventures||36,000,000|
|2021-05-05||Una Brands||Seed||Singapore||500 Startups, Kingsway Capital, 468 Capital, President Capital, Global Founders Capital||40,000,000|
|2021-05-18||Grain||Singapore||Lo and Behold Group||2,600,000|
|2021-05-18||GOOD Meat||Singapore||UBS O'Conner, Graphene Ventures, K3 Ventures||170,000,000|
|2021-05-25||Lemonilo||Series B||Indonesia||Sequoia Capital India|
|2021-05-31||Zenyum||Series B||Singapore||L Catterton, Sequoia Capital India, RTP Global, Partech, TNB Aura, SEEDS Capital, FEBE Ventures||40,000,000|
|2021-06-03||Deelish Brands||Pre-Series A||Singapore||Calibre Capital||1,100,000|
|2021-06-08||Float Foods||Singapore||Insignia Ventures Partners, DSG Consumer Partners, Apricot Capital, Baksh Capital, Teja Ventures, Ebb & Flow, Water Tiger Investments, Agrocorp Ventures, Innovate 360||1,700,000|
|2021-06-16||RPG Commerce||Series A||Malaysia||Vertex Ventures, Joseph Phua|
|2021-06-29||KLAR||Seed||Indonesia||AC Ventures, Kenangan Fund|
Institutional investors are leaning into the space in recent months, with the likes of L Catterton and Temasek Holdings writing their first cheques into the Indonesian beauty line Social Bella and Singapore’s Next Gen Foods respectively.
Industry stakeholders say global private equity firms like General Atlantic, KKR, and TPG have all opened conversations with early-stage VC funds on DTC deal flow, eager to cast their net on the next consumer growth opportunity in Southeast Asia.
DTC brands are also growing in size and prominence. Today, names like Indonesian beauty line Social Bella and Singapore-based dental cosmetics firm Zenyum have matured past the seed to Series A stages, into Series B and Series C stages.
Achieving scale however, continues to be an uphill task for DTC startups, especially where cash burn is concerned. This is particularly challenging for early-stage DTC brands, which may be considered premature by investors in terms of product sales, traction, or brand love — all of which require substantial amounts of capital to generate in order to grow.
Achieving scale is an uphill task
Investors tend to flag the need to balance Customer Acquisition Costs (CAC) with Customer Lifetime Value (LTV), which is an estimate of the average revenue that a customer will generate throughout his or her lifespan. However, for a new brand entering the market, that’s difficult to do without first ramping up CAC.
“Profitability is the key challenge in DTC. There are not many products with profitable unit economics, and when a great product breaks through, competition is usually so fast to pop up that CAC shoots up,” shared Gijs Verheijke, founder of online sneaker brand Ox Street.
The market for distribution is also fragmented, which means DTC founders face an overload of options when it comes to boosting brand awareness. When do you choose TikTok over Instagram? When do you use both? When should you go offline, and how?
“As a DTC brand scales, online CAC goes up to a point where it usually becomes more expensive to grow online compared to taking a brick-and-mortar strategy. Because of this, the pathways for a brand to scale can be incredibly nuanced. I don’t think that’s something a lot of investors fully appreciate,” added Verheijke.
Meanwhile, global social media and technology advancements have meant that barriers-to-entry for DTC brands have never been lower. As a case in point, Ox Street goes head-to-head with multiple streetwear brands regionally including Novelship, Saints SG, and Kick Avenue.
How to tackle rising CAC?
In order to sidestep stubbornly high CACs, some DTC founders are re-jigging their business models.
One Southeast Asian example of this is Alpha JWC-backed social commerce startup Raena, which has tied up with niche beauty brands from South Korea and Japan to make its products available on e-commerce platforms like Lazada and Shopee in Indonesia. This allows Raena to drive brand awareness and acquire customers by leveraging marketplace resellers, instead of doing it directly on its own.
“What most of these DTC brands are realising is that it is very expensive to acquire customers online directly. So they’re looking to leverage platforms like Lazada and Shopee to get customers without inreasing their CACs,” said Rishika Chandan, executive director at Venturi Partners.
“We’re seeing some very innovative business models whether they’re B2B or B2B2C. Companies are getting creative about how they can control CAC and still acquire the customer,” she added.
Others like Malaysia’s RPG Commerce, which recently landed its first venture-backed fundraising led by Vertex Ventures SEA, is turning currency arbitrage into a key advantage for its business.
The DTC e-commerce firm, which has brands like Eubi and Montigo to its name, manufactures its products in China, maintains its headquarters in Malaysia, and sells to developed markets like the US, Europe, and Australia, which alone accounts for 90% of RPG’s sales.
“Chinese renminbi is our product currency. We operate from Malaysia, so we leverage the ringgit as an operational cost centre. Our main currency as a company is in US dollars. So that gives us an arbitrage from day one. This currency arbitrage triangle gives us the kind of scalability that we can shoot for,” said Melvin Chee, CEO and co-founder of RPG Commerce.
“Spending power is very important for us, since it correlates to average order value (AOV). Our items are sold for $40-50 on average, which is quite a reasonable price point in the US. Selling to developed markets will remain a key part of our strategy,” he added.
Having bootstrapped itself since its founding in 2017, RPG is today projecting to generate $100 million in annualised revenue across its 10 brands, and has been profitable from Day 1. According to Chee, the fundraising proceeds will allow the firm to accelerate its growth by launching new brands and hiring new talent. It forecasts its revenue to triple by the end of 2021.
Finding Southeast Asia’s next Shein may prove elusive
While these are notable examples, a sceptic would probably point out that they are still business model innovations rather than true technological or product innovations.
The same can be said for Thrasio-inspired roll-up marketplaces like Rainforest and Una Brands, both of which have raised hefty seed rounds just to acquire, manage and scale DTC brands from Amazon, Lazada, and Shopee.
“The value that founders can unlock in DTC has grown smaller in the last five years,” acknowledged James Tan, managing partner at Quest Ventures. “We are very open to meeting DTC startups in Southeast Asia, and I believe we have analysed or met every one of them. But there are not many.”
DTC founders and investors alike continue to look to the Chinese market for inspiration. The emergence of ultra-fast fashion brands like Shein has thrown open many possibilities for DTC brands when it comes to harnessing big data.
However, some point out that models like Shein’s will be difficult to replicate in Southeast Asia, where supply chains are highly fragmented.
“Shein is succeeding not because of its global coverage, but because of the thousands of suppliers it has at any time for any product and the quick turnaround time and quality that these suppliers have. Southeast Asia does not have the scale of production to match,” Tan added.
“Any worthy upstart from Southeast Asia will have to solve production before competing with Shein. If any such competitor were to emerge, it would be from Vietnam, which is already the world’s third-largest garment producer after China and Bangladesh,” he continued.
As consumer-facing brands, the oft-mentioned variances in cultures and living standards across Southeast Asia also come into play here, which would mean that there are more likely to be local winners rather than regional ones, said Tan. “This limits their total addressable markets.”
That’s not to say that DTC opportunities are thinning out for everybody. With $1.96 billion raised by Southeast Asian VCs in 2020, investors are likely to keep hunting for new, exciting, and CAC-efficient startups in the market.
“I think if we look beyond the fashion sector, there are plenty of unmet needs and solutions that can still be addressed by the B2C model. The diversity of markets in Southeast Asia and India will mean there will be very localised opportunity sets that have not yet been discovered,” said James Lee, managing director of Vertex Growth Fund.
“But I do agree that technology today has been largely commoditised, which means that it’s really down to identifying your core problem and addressing this underserved market. The execution team will also be a key determinant of whether this company can out-compete its peers operating in a similar space,” he added.