Shunwei Capital eyes social e-commerce in India, later-stage deals in Indonesia in 2019

Shunwei Capital founding partners Tuck Lye Koh (in focus) and Lei Jun (extreme left). Photo: Tuck Lye Koh's Twitter account

Tuck Lye Koh, founding partner at Chinese investor Shunwei Capital, believes his firm has found a niche space in India, backing local social media networks and internet plays in regional languages.

Tuck is of the view that India can emulate China, which has spewed out a slew of local social media unicorns and other internet giants over the last decade. The key difference, however, is that Western internet giants were banned and were absent in China, whereas India is among the largest markets in terms of users for global majors such as Google, Facebook, Twitter, Whatsapp, among others.

Founded by Xiaomi founder Lei Jun and Tuck, the venture capital firm recently raised $1.21 billion for its latest vehicle, taking its total assets under management to over $3 billion.

Shunwei has done about 16 deals in India so far, making the country its second most important base after China. Its latest $1.2-billion sixth fund will continue to focus on India (as part of its investment play outside China), and also look at Indonesia, the firm’s founder told this portal in an interaction.

“We’re very bullish on the vernacular language space for social media network in India, because of its large population and India right now is at an important transition stage from feature phones to smartphones – very similar to China back in 2010/2011. With this transition, there is a huge demand for content consumption on the smartphone. And the cost of traffic and user acquisition are low.

“If you look at China today, there are a few dominant social media network. Although India has an open border and has Facebook, WhatsApp and others, we believe that there is a huge, unfulfilled demand of vernacular language users. If we could build a dominant social media app for the vernacular language market, it would be very valuable,” Tuck explained.

He also hinted that Southeast Asia – rather Indonesia – was emerging as Shunwei’s third focus market after China and India.

“Southeast Asia has a population of 650 million, divided into multiple countries. The biggest market is Indonesia, and in terms of infrastructure and GDP per capita, Indonesia is a very attractive destination. We’ve done three investments there, and they’re in the later stage. When we invest in Indonesia, we will focus more on Series B or later,” he said.

“In terms of number of deals, we will do more in India than in Indonesia. For India, we’ve gone in as early as seed stage and Series A, and the latest we’ve done is Series C. In Indonesia, we are likely to invest in Series B or later. We expect to invest more in both countries,” he added.

Will the current investor frenzy in India’s content startups turn out to be another false start, especially considering several international investors such as  Canaan Partners, Draper Fisher Jurvetson India and Kleiner Perkins, have shied away from making new bets in the country after getting burnt during the earlier boom cycles?

“[W]e think that this time it’s different – mobile internet has brought on many first-time internet users, 4G data proliferation is very widespread and data cost is low.  The Indian government is also proactive in encouraging or helping to develop the industry infrastructure. Overall, there are challenges, but there are opportunities as well,” Tuck said.

Predictions for 2019: “We are very bullish on robotics and smart manufacturing in China as well as deep technology. In India, we have a significant exposure to social media and we’re looking to help them grow. We’re interested in social e-commerce in India, which I think will eventually be a very big space where at least one unicorn will be born in this space in India. We’re also interested to look at consumer product and transaction platform in India.

“In Southeast Asia, we’ll be talking primarily about Indonesia as we don’t have the capacity to cover so many countries. We’ll be more opportunistic in that market by investing in later stage and cutting bigger checks,” the Shunwei Capital founder added.

Edited Excerpts.

What’s your investment thesis? And what are your plans for China and outside China?

I would not go into the specific of allocations but at the high level, our investment focus has been on Internet+, deep tech, smart manufacturing, rural internet, consumption upgrade and others. Internet+ is a term coined to describe how we leverage mobile internet technology to upgrade or revolutionise traditional industries, such as fintech, healthcare and education.  For our fund, we will continue our investment strategy of investing from early stage to growth stage. So we’re stage-agnostic into these areas.

When you’re stage-agnostic, what do you bring on to the table as an investor? Because the requests of startups of various stages are very different. How do you cater to such a large portfolio of companies?

Probably we’ll have to differentiate our China and outside China investments. Specifically, on investments outside China, we’re the most active in India. Our Indian investments – the value that we can bring to these companies will be quite straightforward. We’ve seen how the mobile internet industry developed in China for the past 8 years or so. And we believe the experience we gained from these developments will be very helpful in providing guidance and mentorship to our companies.

We have seen the successes and failures [of different business models] in China. So we believe these experiences will be helpful in helping our founders outside China to navigate their development. Second, we can also be their bridge to Chinese investors and we have done this for several of our companies in India, both financial and strategic, on a deal-by-deal basis, depending on the needs of the companies and our resources. That will be the value that we can bring to our investments outside China.

For our Chinese companies, we have clear advantages in certain sectors.  In the consumer IoT space, smart manufacturing and deep tech, we have a team of experts who are very knowledgeable in these sectors, and that has been very useful to us.  In some cases, we are able to connect them to the right industry resources.

On India, you’ve been betting heavily in the market. What makes it different from Southeast Asia which has a higher smartphone penetration and higher spending power?

Both regions present very interesting and different opportunities. For us, right now we’re focusing and spending more time on India. At the same time, we do make investments in Southeast Asia, primarily in Indonesia. We have done three investments in Indonesia, and in India, it’s 16. For us, India is a larger market with 1.4 billion population, and despite its regional differences and multiple languages, it’s still a single market. And if we look at India’s whole ecosystem, it’s much more mature with more venture funds and engineering talents. Between India and China, there are many similarities but there are also differences. Considering these few factors, we think India is a very interesting place to invest in.

Southeast Asia has a population of 650 million, divided into multiple countries.  The biggest market is Indonesia, and in terms of infrastructure and GDP per capita, Indonesia is a very attractive destination. We’ve done three investments there, and they’re in the later stage. When we invest in Indonesia, we will focus more on Series B or later.

Do you see yourself doing more deals in Indonesia then, especially in the consumer internet space? 

In terms of number deals, we will do more in India than in Indonesia. For India, we’ve gone in as early as seed stage and Series A, and the latest we’ve done is Series C. In Indonesia, we are likely to invest in Series B or later. We expect to invest more in both countries.

How do you view valuations in Southeast Asia since you’ve been investing in later stage companies in Indonesia?

For the top companies, valuations have been expensive across the world. If investors are willing to pay a high price, they must see value in the investment and potential to at least triple their money. In the internet space, it’s a winner-takes-all model and people are willing to pay a high premium for category leaders. The key is whether we are making the right investment call.

You’ve bet on social media companies in India, especially those that are running on vernacular languages. Does your belief in vernacular language social network come from the what you’ve seen in China?

We’re very bullish on the vernacular language space for social media network in India, because of its large population and India right now is at an important transition stage from feature phones to smartphones – very similar to China back in 2010/2011. With this transition, there is a huge demand for content consumption on the smartphone. And the cost of traffic and user acquisition are low. If you look at China today, there are a few dominant social media network. Although India has an open border and has Facebook, WhatsApp and others, we believe that there is a huge, unfulfilled demand of vernacular language users. If we could build a dominant social media app for the vernacular language market, it would be very valuable.

But Indonesia also offers a similar opportunity for local language social network. Your thoughts? 

Frankly, I haven’t spent much time in this space in Indonesia. But in terms of the potential number of users, India has 1.4 billion population and Indonesia is a fraction of that, so I could see much more clearly for an Indian social network business to cross 100 million daily active users mark.

You are betting big on India, but how sure are you of the current cycle? We’ve seen multiple cycles in the past – VCs rushed in and did large funding round, followed by downturns and downrounds? Some of the large US VCs have shied away from India and have not done new deals there for a bit now as they’ve got burnt in the past. As an investor, how do you get the timing and cycle in India right? 

Yes, I’m aware of the challenges of investing in India. The two key challenges are: when a startup wants to raise $10 million or more, it’s so much harder for them to do so unless they’re a category leader. Most of them would need to rely on external funding when they’re raising Series C and later.

Second is monetization. The current average value per user is very low relative to more developed mobile internet economies. But we think that this time it’s different – mobile internet has brought on many first-time internet users, 4G data proliferation is very widespread and data cost is low.  The Indian government is also proactive in encouraging or helping to develop the industry infrastructure. Overall, there are challenges, but there are opportunities as well.

Southeast Asia is becoming a battleground for ride-hailing startups like Go-Jek and Grab. How do you view the battle that is going on?

Honestly, each of them has their own advantages. And everybody is watching. I think at the end of the day, it depends on their execution and fundraising capabilities.

In your view, how does this battle impact VCs in Southeast Asia as these two startups are expanding their services into various verticals in their attempt to build a super app? If say a Grab or Go-Jek moves into a space that has a seen a lot of VC investments, will it impact startups in that sector because suddenly these companies are competing against unicorns?

I think to be a super app, the usage time and frequency would be important. Which is why players like Go-Jek and Grab are constantly adding new features to their apps to provide more value. If you look at Go-Jek today, it’s not just ride-hailing, you can make payments and order food etc., so it’s a high-frequency usage app. They’re going in the right direction. Grab is also doing similar things in Indonesia, so we will see how both execute their strategies.

You are from Singapore. What got you so entrenched in the Chinese ecosystem instead of Southeast Asia?

I’ve been in China for over 15 years now and am pretty localised. For venture investors, we need to be constantly searching for alphas and that is what we have done in China. We’ve invested in mobile internet in 2011, in consumer IoT in 2014, and rural internet in 2015 – all these have achieved very good returns for us. In India, we believe it’s still in the early phase of mobile internet and by investing in India in these few years, some of these startups will become unicorns in the next five to 10 years.

On China, how do you see the current fundraising slowdown? Data shows that LPs commitments to funds have come back significantly off late – do you think such situations only impacts smaller and newer funds or is it across the board?

Yes, there’s been a slowdown. I think the top-tiered funds will continue to raise funds – it’s very similar to the internet industry where the top players will continue to thrive. In this environment, it will be very difficult for new funds that are starting out.

What are your predictions for 2019? What are the sectors that you will continue to bet on?

We are very bullish on robotics and smart manufacturing in China as well as deep technology. In India, we have a significant exposure to social media and we’re looking to help them grow. We’re interested in social e-commerce in India, which I think will eventually be a very big space where at least one unicorn will be born in this space in India. We’re also interested to look at consumer product and transaction platform in India.

In Southeast Asia, we’ll be talking primarily about Indonesia as we don’t have the capacity to cover so many countries. We’ll be more opportunistic in that market by investing in later stage and cutting bigger checks.

There are many unicorns in your portfolio. But there are a lot of global uncertainties including the US-China trade war. The markets have performed badly too this year – in this context, are you concerned about exit strategies/IPOs come 2019?

I expect the capital market to be trading sideways in 2019. There could be some short-term negative or positive stimuli, but over the longer-term, I think the market would be trading sideways. For us, IPO of our portfolio is an important liquidity event but we focus more on their underlying business fundamentals. If the underlying business fundamental is strong, then it doesn’t matter what the short-term trading price is.

 

Also Read:

E-commerce startup Meesho raises $50m from China’s Shunwei, DST, others

China’s Shunwei Capital announces close of new funds at $1.21b

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.