Lots of opportunities in SEA for tech innovation, entrepreneurship: Matthew Koertge, Telstra Ventures

Matthew Koertge, MD, Telstra Ventures

Southeast Asia is one of the most exciting markets globally to invest in for Telstra Ventures, the corporate venture capital (CVC) arm of Telstra, says managing director Matthew Koertge.

“There is an active and growing investment appetite for viable startups in Southeast Asia. The region is emerging as a major untapped market and is one of the most exciting to invest in,” Koertge told DEALSTREETASIA in a recent interview.

Telstra has invested more than A$300 million in 45 technology companies worldwide. While the firm has no plans to establish a Southeast Asia-focused fund, Koertge said it will continue to grow its portfolio in Southeast Asia.

Telstra Ventures has already made a number of strategic investments to establish its presence in the region. Last year, it invested in Singapore-based venture capital firm Monk’s Hill Ventures. It has also partnered with Indonesia’s PT Metra Digital Investama to tap opportunities in the largest market in Southeast Asia.

One of the markets in Southeast Asia that the firm is particularly optimistic about is Indonesia.

“Indonesia is a region we are definitely very excited about. Other than its size, the country is showing strong numbers on mobile, smartphone and internet usage. Even more promising is the willingness of Indonesian consumers to engage in e-commerce through consumer/mobile apps and online marketplaces,” Koertge noted.

Edited excerpts:

In terms of strategy, what are the pillars for Telstra Ventures when it comes to looking at Southeast Asia and the broader Asia Pacific?

There is no doubt that Southeast Asia and the broader Asia Pacific are ripe with opportunities. Southeast Asia alone has a huge and growing population of more than 600 million people and over S$2.4 trillion in GDP.  We have also seen very exciting and innovative startups emerge from countries like China, Singapore and Indonesia in recent years. Recognising this, Telstra is making it a point to connect our business to the emerging innovations from the region.

Telstra’s vision is to be a world-class technology company that empowers people to connect and helping Telstra to deliver on this goal drives our investments. We are constantly looking for new opportunities and trying to find interesting companies, which are strategically relevant to Telstra and have high investment return opportunity.

We look for companies with an innovative technology we can use internally or provide to our customers. Talented and driven leaders who have a proven track record of setting up and growing businesses also inspire a lot of confidence in the future trajectory of emerging companies. We are hoping to work with these kinds of leaders to drive sustainable growth of their companies.

Part of our strategy in the region is also not to go it alone. Our investment in Singapore-based venture capital fund Monk’s Hill Ventures last year is a good example. That was a strategic move to benefit from Monk’s Hill’s regional expertise, which has helped us gain broader access to opportunities in certain Asian markets.

Telstra also signed a memorandum of understanding with Telkom Indonesia’s corporate venture arm, PT Metra Digital Investama, last year to collaborate on startup investment opportunities in Southeast Asia, especially in the e- commerce, e-health, IoT and fintech sectors.

What’s been the IRR to date for Telstra Ventures?

A number of Telstra Ventures’ portfolio companies have achieved liquidity events, with IRRs exceeding the targets we have set for ourselves. We’ve also generated more than A$200 million in revenue through Telstra sales channels.

Our portfolio companies benefit from Telstra’s funding, expertise and strategic input. In exchange, Telstra benefits from their innovative and cutting-edge technologies. We’ve made it a point to adopt some of the services and products created by our investees – such as DocuSign, Matrixx, Near, Panviva, and Zimperium – and these have produced amazing results for us.

For example, Near’s flagship product Allspark has helped us to segment and understand our customers better. By understanding the way they behave in physical stores, we’ve also been better able to reach out to potential customers, and track message effectiveness based on their behavioural outcomes.

At Telstra, we try to balance our needs with the needs of our portfolio companies. This is the kind of mutually beneficial relationship we will work to achieve as we continue to establish our presence in Asia.

How much capital has Telstra Ventures deployed across Southeast Asia and India, and what particular sectors is it concentrated in?

To date, we have invested in eight companies across Asia. For context, Telstra has invested more than A$300 million in 45 technology companies worldwide. By looking at some of our investments in the region, you will see that they’ve been concentrated in the cloud, mobile and media sectors.

Our ventures include Taiwanese-based video software company Gorilla Technology Group, Chinese cloud services provider Qiniu and Singapore- based tailored advertising business Near.

Having said that, the investment opportunities are endless, especially considering the robust entrepreneurial and digital-led activity we are seeing in Asia. Telstra is constantly scouring the region for the next innovation that will bring strategic benefits to our company and our customers.

Given the hyper-growth narrative of markets like India and Southeast Asia, will Telstra Ventures be launching a separate ASEAN-focused fund to target startup investments in the region?

Telstra Ventures’ investment fund has a global mandate so we have no plans to set up a dedicated ASEAN fund at this time. However, we expect our portfolio to grow in the region.

We’ve already made a number of strategic investments to establish our presence in Asia. For one, Monk’s Hill Ventures will allow us to tap new opportunities in Southeast Asia. Our collaboration with Telkom Indonesia’s CVC, PT Metra Digital Investama, is a continuation of our efforts to seek out the best and emerging technologies in the region.

We are strongly committed to accelerating tech innovation in Asia. More crucially, we believe our support – in the form of financial support and domain expertise – will help stimulate talent and healthy competition, which are crucial for an ecosystem where entrepreneurs can succeed in the long-run.

There’s been a lot of discussion around the exit architecture of the venture ecosystem in ASEAN. Any views on the predominance of specific routes such as M&A/trade sales or IPOs?

In Southeast Asia, technology businesses are still considered high risk compared to industries like real estate. The tech/startup world moves fast, so investors are understandably fidgety. It’s no surprise then that IPOs are relatively rare, especially compared to M&A.

Listed markets in SEA are also less mature compared to the likes of NASDAQ in the US, or even Australia’s ASX. No doubt the Singapore Exchange (SGX) is maturing nicely, but it still needs more liquidity, as well as investor education before it’s ready as a prime option for regional tech firms looking to exit.

Things are looking encouraging, however – Garena going public in New York could vastly improve investor confidence in SEA tech companies. The inflow of funding spells a major boost for skills, knowledge and resources in the regional tech industry.

I mentioned that M&A transactions are much more frequent than IPOs. This trend will only increase, and has, in fact, been lauded as the exit strategy of choice in the region. The data doesn’t lie – SEA has both a large population and GDP, a rising middle class, high mobile/internet penetration and active digital and online consumption.

When you compare this to the slowing Chinese economy and the Indian and Chinese markets which are reaching saturation on the rate of returns, it’s no surprise that foreign companies are showing increasing interest in SEA. Alibaba’s acquisition of Singapore’s Lazada for US$1 billion is a testament to this.

Comparing and contrasting the Australian, Singapore and Southeast Asia venture ecosystems, what are the investment themes that Telstra Ventures sees as the pillars of each respective region?

Across the board, our investment themes include high growth companies with new or emerging technologies that we can leverage within Telstra, or for our customers, or both. We see a lot of opportunities in Southeast Asia in terms of technology innovation and entrepreneurship. In general, across this region, the capital flow has been on an upward trend, but there are still more opportunities than capital.

Singapore and Jakarta are demonstrating signs of fully developed ecosystems with access to talent, capital and rapidly evolving markets. Leveraging the regional opportunity, last year, we signed a memorandum of understanding with Telkom Indonesia’s corporate venture arm, PT Metra Digital Investama, to collaborate on startup investment opportunities in Southeast Asia, especially in the e-commerce, e-health, IoT and fintech sectors.

In October 2016, we led a Series B funding round in C88 Financial Technologies Pte Ltd, which owns and operates the largest consumer financial websites in Indonesia and the Philippines.

Telecom firms are investing in a number of different areas, with Telstra Ventures among the leading players in this private market space. What are the focus sectors for Telstra Ventures?

Our Telstra Ventures team is focused on startups in the areas of next generation networking, consumer mobile applications and security, and will likely invest in more customer experience and digitization themes. The idea is to build investments in these emerging companies so that we can bring cutting-edge technologies in-house and to our customers.

Some examples of our global investments are: VeloCloud, a software-defined networking platform company; Health Engine, which is among Australia’s leading healthcare booking engines; C88 Financial Technologies, which works within Asia to connect banks and insurers consumers looking for financial products online; Crowdstrike, an endpoint security platform; and Zimperium, a mobile security threat prevention platform.

Australia’s VC space saw significant shock from the Internet bubble burst in the early 2000s. Do you see this historical cycle repeating itself with corporate venture units in the Asia Pacific?

During early 2000, companies were going to market with early-IPOs and fetching huge prices, with stocks sometimes doubling on the first day. It seemed like anyone with an idea could start making money. Today, it remains to be seen if history might repeat itself.

Having said that, for corporate venture units to make the right investments and reap the benefits, their primary and strategic motivation should be driving innovation within the enterprise alongside traditional R&D programs and mergers and acquisitions.

It is important that corporate venture units are prudent and only invest in companies with a good strategic fit. Telstra Ventures usually invests in later-stage companies that have established their leadership and are planning to scale.

We, therefore, believe that corporates should look for companies that are led by entrepreneurs who have the drive and ability to build a world class technology company, and who target large, attractive and growing markets and possess a revolutionary technology, product or service with a clear competitive advantage in the market, as well as a sustainable business model with proven commercial traction strategically aligned to, and have synergy with, at least one of the corporate investor’s business units.

Corporate venture units that leverage their parent company’s distribution channels, large customer bases and technical expertise have proven they can effectively partner with creative entrepreneurs. We call this group of corporate venture units ‘Strategic Growth Investors.’ By opening new paths to market and providing other value-adds to entrepreneurs, Strategic Growth Investors offer something that traditional VC firms cannot, which is revenue.

Overall, corporate venture units that consistently display certain traits, including access to sufficient capital, the long-term support of their parent and the ability to provide genuine commercial value beyond funding, will be best placed to exploit any major market developments.

For this reason, at Telstra Ventures, we have reviewed more than 4000 opportunities and have invested more than A$300 million in a portfolio of more than 45 technology companies from across the United States, Australia and Asia, and we are applying the Strategic Growth Investor approach.

Having generated more than A$200 million in additional revenue for our investment companies by using and reselling their products, we believe this approach is paying off for both Telstra and our portfolio companies.

Corporate venture capital is being promoted as a source of capital for startups. Given your background with institutional venture capital, what are the downsides and upsides of corporate backing, as compared to traditional institutional VCs?

In Telstra Ventures’ Strategic Growth Investing report, we projected that direct corporate and CVC investing will grow to account for 35 per cent of total VC funding by 2025. Through CVC activity, large corporations gain access to the talent and innovation of smaller, more agile firms. From the point of view of these corporations, CVC tends to be largely beneficial.

Within the VC landscape, however, CVC has often been criticized as slow and lumbering. This is certainly true in some cases, where VC inexperience leads to slow decision-making or a lack of deep networks to support the needs of startups. CVC also tends to depend on the changing financial health or strategic interests of the corporate parent. When companies move in and out of the market at will, startups also suffer.

However, we believe that these issues are well known and that CVC is becoming more professional and proactive in solving these problems. When CVC is done right, startups stand to gain from the deep expertise and networks of large corporations.

This comes in the form of revenue growth opportunities. Compared to institutional VCs, CVCs have numerous channels to potential customers. Startups may leverage the existing consumer and enterprise customer base of the corporate parent, or even the owned and social channels to connect with potential customers.

Sometimes, CVCs themselves become buyers of the investee’s product or service, which is an undeniable endorsement of the investee’s offerings. In terms of talent, CVCs tend to use entrepreneurs-in-residence (EIRs) to evaluate investments and source new opportunities. These companies also have the skills and means to hire in key functions – engineering, product, marketing and marketing communications.

Finally, when it comes to matters of governance and strategy, CVC groups have substantial expertise in their respective fields and are thus able to provide strategic guidance to investees. Some groups also organise conferences for startups to share ideas, learn best practices, or simply to network.

How are valuations in this region (Southeast Asia) compared to the other regions that you invest in?

Southeast Asia has long been an area of interest for business, especially with the region’s ‘internet economy’ expected to increase more than six-fold and be worth US$200 billion by 2025.

Valuations in the region will continue rising as large companies go from scouting the region to actively owning parts of it – for example, Alibaba’s investment in Lazada and investments in financial services startups through Ant Financial, as well as Tencent’s investments in Thailand-based companies Sanook and Ookbee.

Recently, we’ve also seen insurance technology (insurtech) startup Singapore Life raise US$50 million in Series A funding, said to be the largest such sum for a Singapore-based insurtech company.

While valuations may not be as high as in China or India, there is an active and growing investment appetite for viable startups in Southeast Asia. The region is emerging as a major untapped market and is one of the most exciting to invest in.

The theme of the past few years has seen Indonesia as the centre of attention due to its size and potential. What’s your take on Indonesia?

Indonesia is a region we are definitely very excited about. Other than its size, the country is showing strong numbers on mobile, smartphone and internet usage. Even more promising is the willingness of Indonesian consumers to engage in e-commerce through consumer/mobile apps and online marketplaces.

We’re very keen to ride this growth potential curve while it is in its nascent stages, which explains several of our strategic moves in the region so far. Besides the recent MOU with Telkom Indonesia’s CVC arm, PT Metra Digital Investama, Telstra also has a joint venture, Telkomtelstra, which will help our international network applications and service (NAS) business.

Telstra has said before that we’re reluctant to move into other countries to serve domestic enterprises, so it’s significant that we’ve made an exception for Indonesia.

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