Fundraising to get tougher this year as investors get high on caliber: Catcha’s Patrick Grove

Patrick Grove, Group CEO, Catcha Group

Companies in Southeast Asia have to reach out to investors outside the region and educate them on their business if they are looking for big ticket fundings which are hard to come by within Southeast Asia, Patrick Grove, founder and CEO of Malaysian digital firm Catcha Group which has recently closed a $90 million round from global investors for its video streaming service iflix, said in an interaction.

Grove admitted that there was a dearth of later stage or big ticket funding within the region, as most investors who were committing capital in this region,  were involved in early stage rounds. The trend continues to stay as early stage funding as a percentage of the total number of deals increased to 62 per cent in 2016, as against 55 per cent in 2015, according to data released by CB Insights last month. “I think it is hard to find investors in the region for big ticket investments but only as long as you are here. But once you are on that plane, its easier,” Patrick told DealStreetAsia in an interaction last week.

Catcha Group, a company with varied internet businesses currently has assets worth $1 billion and wants to be known for being the first Asean internet company that goes outside this region to become a global player, he said. In fact, Catcha’s dream of expanding beyond the region is being brought to fruition by iflix, Asia’s version of global video streaming service Netflix, which is set to be in 30 markets by end of this year.

“However the challenge this year will be that fund raising will be harder to get for most companies, as investors and Venture Capital firms become more demanding on the caliber of companies that are worthy of further funding,” he added.

Nevertheless, he exuded confidence in the caliber that the entrepreneurs from Southeast Asia have to go beyond the region and grow. Among the companies that Catcha has built are REV Asia, Frontier Digital Ventures, iflix and Ensogo. Edited Excerpts

How has the journey been this far? What has been the most important lesson learnt?

It has been an amazing journey so far, and I have loved every moment of being an entrepreneur in one of the fastest growing tech region’s. When I think of how I got to be where I am today, it was perseverance that enabled us to survive. I learnt never to let the word “No” get in the way of building a great disruptive business.

What is the Catcha Group’s asset size at the moment? What are you focusing on currently in terms of new businesses or plans for existing ones?

The Group currently has over $1 billion assets under management. We want to build big, game-changing internet companies that are based in this part of the world but has a global footprint.

You had a vision for iflix to have 1 billion users in 10 years. How far have you reached in attaining that vision? How many users do you have currently and what are your plans for the iflix in terms of geographical expansion?

Right now, we are focusing on growing the business and capitalizing on the opportunity before us. We are planning to be in at least 30 markets by the end of the year.

There is a market buzz that you were looking to raise much more than $90 million for iflix. You were looking at $200 may be. Is that true?

I dont’t know where that came from. I think there was one article that came up with a number of its own and everybody then took this number. I would say that we raised what we wanted to raise.

What are your views on the valuations for iflix, is it undervalued ? Are we seeing the company getting into the Unicorn club anytime soon? Is listing the company on your mind ?

Valuation and an IPO is not something we would comment on. In general, we are pursuing a significant opportunity worth tens of billions of dollars and will need to invest hundreds of millions of dollars to fully capitalize on that. Fortunately, we have world-class private equity and venture capital investors equally excited about the business and our growth strategy.

As an internet company that runs quite a few websites — property, auto or e-commerce — what kind of growth do you expect from the segment and why. Is there a challenge that the industry in this region faces and as a sector player what would be your main concern?

The ASEAN region will register over 300 million smartphone users this year. There are more people here in this region using the internet than those in the EU or the United States. This represents a huge, untapped digital market that is yet to be explored. However the challenge this year will be that fund raising will be harder to get for most companies, as investors and VCs become more demanding on the caliber of companies that are worthy of further funding.

Among your assets, which one would you say has achieved its potential or rather achieved what you had expected for it?

We achieved a great milestone last year with the sale of iProperty to REA Group in one of the largest internet exit in ASEAN history. It was a testament that great companies can come from this part of the world. We also had Frontier Digital Ventures debut on the ASX last year, with solid growth plans for the companies and new investments in their portfolio. And, of course, we are constantly achieving amazing things with iflix every day with our recent fund raising as well as launching in MENA with Zain.

What is the news on Ensogo? What are your plans with the company? What went wrong there?

We learnt that the eCommerce business in Southeast Asia is a complicated one. The business was not performing at the level we would have liked, and therefore a decision was made to stop and preserve the shareholders’ capital to look at new investment opportunities. We have learnt our lessons and we are willing to try e-commerce again but have nothing on the horizon.

You have an investment in Berkshire Hathaway. This is not your group’s core business so what made you invest in the company and what is your vision with this investment?

I’ve been a fan of Warren Buffet since I was a teenager, and believe that he is one of the best money managers in the world. I actually love that his investments aren’t related to what I do everyday.

If you diversify, which business would catch your interest the first?

If there’s a way that we can create disruption using the technology or the internet, we want to do that.

When the whole of this region when comes to beyond series A, there are not many VCs. It is too small for PEs and not so small for VCs ?

If you need to raise more than $10 million or or more, you need to travel outside of SEA. Something from my experience, you have to go to LA, New York. You have to be willing to get on that plane to reach those who are interested in this part of the world. You see, a guy like Sky invested $50 million in iflix. They have never been to Malaysia. You don’t have to be in just SEA, you have to go to them, educate them. So I think it is hard to find investors in SEA for big ticket investments but only as long as you are in SEA. But once you are on that plane, its easier. Grab, Gojek or Iflix are examples. The money is there.

In the past you have said, you want to be the first companies in the region to do a billion dollar plus IPO.

That is not so much what we want to be known for. We want to be known for being the first Asean internet company that goes outside Asean. Like all the Asean tech companies are very focused on SEA. For example Garena or Grab they just do SEA and Gojek just does Indonesia. We always realise that we are smart enough and good to build a business that could be more than just SEA. So, you see at iflix we spend a lot of time and effort in taking that business to the Middle East. For a long time we did not find a partner. For the joint venture with Zain, that is the biggest phone company in Middle East. We are launching iflix in three weeks in the middle east so that is one example. We want to prove to other entrepreneurs that you don’t have to always focus on SEA.

We not aiming so much to be a Unicorn. So, look at those Silicon Valley companies who come to our part of the world. Chinese companies are coming in. Why is it that they can come to our market and we can not go to their market when we are good enough.

How do you see the battle between the Silicon Valley companies and the Chinese companies. The Chinese will buy and the Silicon valley companies will build from scratch. Do you think that will happen here too, build verses buy.

I think they will all buy instead of build. Alibaba is investing here and Tencent is investing. Sometimes they build from scratch because there is nothing left to buy. I don’t think there is a strategy to build from scratch from anyone.

What is the situation in terms of listing your companies ?

In terms of listing, there is nothing on the horizon. You see, as a Group what we will only focus to build great disruptive internet companies in SEA that are going global. So, you look at iflix or FDV, which has companies in Morocco, Pakistan, Myanmaar. So we want to tell the next generation of entrepreneurs that you don’t have to focus on Malaysia or Indonesia or SEA. You can consider the whole world.

You said, if you diversify, you would want to create disruption using the technology or the internet. Do you have anything in mind.

No we don’t have anything in mind. When you look at everything that we build in SEA,people just copy. They don’t build so there is no innovation. Like Grab did not invent the idea of getting a taxi on Grab, Uber did. We want to be a global player and not just be an Asean player. We can’t be a cut and paste business. We have to invest in technology and players. You have to go beyond that and innovate and invest in technology that they don’t have to be better and penetrate into more markets. We have made tech innovation a priority but it was not a priority before.

So, where do you see innovation in this part?

I think what Gojek did was great. They took the initial idea and build on that. So we are also going to do the same. We have a plan to make iflix more interactive. People could like, comment and share the videos. This is something that Netflix does not have.

Will original content be the key for iflix ?

It will be key but not as important as it is for Netflix. In Hollywood, there are five major studios which is like 80 per cent of the Netflix supply. So if they were to cut them, Netflix would have nothing. Look at our markets, we don’t have five studios giving us movies. We have 150. The average person in Malaysia watches English, Malay, Cantonese, Mandarin and Tamil and also Korean. So, we are never reliant on one studio. Netflix had to do its own shows because it has the risk of being cut off by the studios. We will do original content but never to an extent that Netflix does it.

You had earlier said that this region will see another $500 million plus exit this year – where do you see that coming from? Are exits going to be tough? 

I don’t think so. I think exits will come. It could be Gojek and Grab. I am not saying it is them but it could be them. Ask me in December.

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.