Venture capital (VC) portfolios will continue to see a greater shift towards consumer internet plays in Southeast Asia as its top metropolises and growing middle class demonstrate a large untapped potential, notes a new report from Singapore-based VC firm Jungle Ventures.
Southeast Asia’s top 10 metro cities represent a nearly $100 million market with a projected $50-billion potential for online consumption, the VC firm notes in its report. It also cites the early success of startups such as Lazada, Zalora and Pomelo as evidence of the said potential.
Impressive spending power
Metropolitan areas of Southeast Asia account for upwards of 20 per cent of their national GDPs and their combined spending power is more than five times that of India.
The report also rebuffs the general market perception of Southeast Asia being a highly-fragmented market. In fact, it points out that the region’s metropolises demonstrate homogeneous consumer behaviour in terms of consumption of online media and social networks, digital products and services, and aspirational brands.
Rodrigo Martinez, a serial Chilean entrepreneur based in Singapore who exited his early Internet ventures STI and hpG in South America via trade sales, told this portal: “Political boundaries are a human invention. Clever entrepreneurs that focus on products/services that alleviate or cater to the intrinsic ‘pains’ of the human nature, or that ‘scratch the itches’ have, simply put, higher odds of success.”
Market evolution & exits
Jarrod Luo, who co-founded blockchain solutions provider Tembusu Systems and is now a business consultant for growth-stage enterprises, said, “It seems that we are heading towards a consolidation phase now. The disruption phase has happened and is already over.”
This consolidation is being spurred by accelerating mergers and acquisitions (M&A) in the region. In an email interview, Jungle Ventures founding partner Amit Anand said, “M&A continues to remain the most attractive opportunity for the near term. The region is complex enough and most overseas companies prefer to acquire teams that have an understanding and track record of executing in the region.”
Developments such as the Singapore Exchange (SGX) expecting its first fintech listing later this year and the launch of startup stock exchanges in the region are not expected to significantly impact the region’s exit landscape. “These are all great initiatives but we also need to improve investor appetite for technology-based businesses and also liquidity for these stocks if we are to solve the exit via IPO issues,” Anand said.
Luo agrees. “Outside of Singapore, it makes very little sense to be publicly listed in Southeast Asia unless the enterprise is prepared to make more political decisions than commercial decisions,” he said.
India, Indonesia & B2B plays
Anand also predicts that more India-based startups will expand into ASEAN, given that the Indian business environment seems to facilitate the growth of highly competitive ventures.
“I expect more India-based startups to expand to ASEAN. The top 10 metros in Southeast Asia provide a very lucrative if not similar market opportunity to India and given the lack of competitive intensity, there is an opportunity for Indian founders to become category leaders across the region. “In that light, I would have expected Flipkart to have considered acquiring Lazada which Alibaba eventually acquired,” said Anand.
Indonesia is a country of significant interest. With a large and growing middle and affluent consumer (MAC) base of over 100 million people, it offers significant potential over the next decade. It has already tasted success with network-based startups such as Go-Jek, Kredivo and iflix.
Anand also expects increased interest in B2B forays by investors. He points out companies such as Intuit and Shopify that are “great examples of network-based business models in the B2B space”, capturing a small spend of the SME (small and medium enterprises) customers and then adding other products and services to monetize the network over time.
In Southeast Asia’s B2B space, he identifies cross-border commerce enablement, supply chain financing and several other themes as ripe for value creation at this time.