Shunwei Capital’s name is derived from a Chinese idiom which means “to leverage a trend to achieve greatness.”
Speaking at DealStreetAsia’s Indonesia PE-VC Summit 2020 last week, Tuck Lye Koh, founding partner and CEO of Shunwei Capital, said his team continues to stay true to its original mission. Its investment approach continues to be deeply influenced by the boom years of China’s internet industry in the early 2000s.
“If we turn back the clock to 2010, nobody from the Internet industry in China would have believed that it was going to be so big… When we invested in India in 2015, it was a very crucial transition point. Feature phones were transitioning to smartphones, smartphone penetration was exceeding 100 million shipments every year, Reliance Jio was rolling out a 4G network,” he said.
This has led the Beijing-based venture capital firm to expand its investment scope to India and Indonesia in a bid to catch the same wave of opportunities brought about by higher mobile usage, strong internet connectivity and visionary entrepreneurs.
Shunwei’s investments in this region are close adaptations of those found in China. These include the likes of India’s ShareChat (the equivalent of Weibo), Pratilipi (like China Literature), Meesho (like Pinduoduo) and KrazyBee (the equivalent of Fengqile).
In Indonesia, Shunwei’s investments remain selective and opportunistic. It is an investor in Indonesia’s ride-hailing giant Gojek, fintech startup Akulaku, and Evermos, a social commerce startup targeting halal shoppers.
“We are strong believers that the China experience is much more relevant to India and Indonesia than the US experience. We share many similarities across these countries – densely populated cities, developing countries, and young, talented and ambitious entrepreneurs,” explained Tuck.
Today, Shunwei has over $3 billion of funds under management. It has invested in about 400 companies, of which 22 are unicorns including Xiaomi. The Chinese VC has also completed nine IPOs, with another four set to take place by the end of this year.
Tuck was confident that 2020 would still be a healthy year for exits.
“2019’s public capital market has substantially outperformed my expectations. I think we might see something similar to 2019 in 2020. It might be less bullish, but I think the IPO window should continue to exist in 2020,” he said.
Tuck was interviewed on stage by Ken Koyanagi, editor-at-large of the Nikkei Asian Review. The transcript below was edited for length and clarity.
How did you come up with the idea of founding a venture capital firm in China as a Singaporean from Singapore?
Our name Shunwei is the short-form of a Chinese idiom which means to leverage on a megatrend to achieve greatness. I have been living in China for the past 16 years. It is obviously a very huge market and all of us here know that China has grown at a phenomenal pace over the past 20 years, unseen in recent history.
In 2011, when we decided to start Shunwei, it was almost a no brainer to us. China is a huge market with 1.4 billion population and strong GDP growth. After more than 10 years of venture investing in China, the venture ecosystem in China was also flourishing. We decided that the time was ripe for a Chinese homegrown firm to become a competitive player – as competitive as mainstream players of Silicon Valley.
When we started in 2011, we raised fund one at $225 million. As of today, we are already managing fund four, with total funds under management at over $3 billion. We have invested in about 400 companies, with 22 unicorns in our portfolio, and we have had nine IPOs. If all else goes per plan, we should have four IPOs this year.
I guess you’re not particularly pessimistic about exits over the next one to two years then?
Out of the four IPOs that I mentioned, one has already been approved by the Chinese government and will list on the Shanghai Stock Exchange. We have another three listings in the US later this year. They’re all in a fairly mature stage and are engaging bankers so there should be a confidential filing sometime in the near future.
Overall I think 2019’s public capital market has substantially outperformed my expectations. I think we might see something similar to 2019 in 2020. It might be less bullish, but I think the IPO window should continue to exist in 2020.
How did Shunwei come up with the idea of expanding its investment scope outside China? When did it happen, and what made you decide to expand this scope?
I think a very important part of our business is to constantly search for new trends. We try to invest in these emerging trends as early as possible at the inflexion point of the S-curve, and we’ve been constantly doing that for the past 10 years.
We started with mobile internet, then we got into consumer IoT, smart manufacturing, deep technology. In 2015, we decided to invest in India and around 2016 or 17, we started investing in Indonesia – for various reasons.
We saw how the mobile internet developed in China over the past 10 years. If we turn back the clock and look at 2010, nobody from the Internet industry in China would have believed that it was going to be so big. Nobody expected it.
We saw similar opportunities in India and Indonesia. When we invested in India in 2015, it was a very crucial transition point. Feature phones were transitioning to smartphones, smartphone penetration was exceeding 100 million shipments every year, Reliance Jio was holding out 4G network, very similar to China in 2010.
We came to the conclusion that investing in India as well as Indonesia, during this significant shift from feature to smartphone, huge adoption of mobile usage, would lead to many opportunities in the future. We believe many of them will be very fruitful investments in 10 years’ time.
But China was still growing very rapidly at that point. Wasn’t it a concern that investing in India and Indonesia would divert your focus away from the Chinese market?
Well, China is definitely a home ground for us. It’s our most important market. If we don’t do well in China, no matter how well we do elsewhere, it won’t matter.
As of today, we have a very strong team. I have 5 other partners, I see my role as the guy who is constantly searching for new trends. So for example, when we decided to invest in deep technology in 2014 or 2015, I was the guy to lead us to invest in that. When it came to investing in India, I was the one flying there. I still fly to India once every quarter, and it is the same for Indonesia, but I still spend at least half of my time in China.
But why exactly are you targeting these markets? Is it because you want to capture early opportunities in emerging markets? Or is it because the opportunities in China are getting mature?
Chinese tech companies have grown to a meaningful size. They are some of the biggest in the world. They want to continue growing and are searching for new growth. This would be players like Alibaba. Alibaba is very active in Indonesia and Southeast Asia, including Tencent, Xiaomi, ByteDance has been very successful with TikTok. So one big trend that we’ve observed in the past few years is that Chinese tech companies are expanding overseas.
Another trend that we observed – and we are strong believers in this – is that the China experience is much more relevant to India and Indonesia than the US experience. We share many similarities across these countries – densely populated cities, developing countries, and young, talented and ambitious entrepreneurs.
We also receive many visitors from India from Indonesia coming to China, asking us what’s new. This is very similar to when I was in China 10 years ago. I would do my annual pilgrimage to Silicon Valley to find out what’s trending. So these are all signs that we’ve observed over the past few years.
We are a fairly large fund now, our latest fund is $1.2 billion. A substantial majority of that we will invest in China and we see opportunities in India and Indonesia, where we can deploy hundreds of millions of dollars.
Let’s talk about Akulaku, one of your Indonesian portfolio companies, which is a fintech company. Akulaku’s main business is in retail and allows consumers to shop with instalments rather than cash. Did you see a successful model in China when you looked at this company?
Yes. In fact, there are already two companies that are listed with a similar model. Both today are unicorns and started with consumer financing before getting into some sort of cash lending.
Akulaku is unique in that the founding team is actually Chinese. That was another sign that we observed – that Chinese entrepreneurs are developing products for markets outside China. So Akulaku would be our first investment in a Chinese startup targeting the Indonesian market. Together with the few signs that I mentioned earlier, we came to the conclusion that there must be very good opportunities in India and Indonesia for us.
The consumer credit business is not a very new business. In fact, it’s been a very old business and they have been lending money with very, very high interest to consumers which causes a lot of problems in society. But what is the difference between those old-time consumer lending businesses and these new consumer credit businesses?
Very simply, it’s all mobile. There’s weekly mobile usage, data analytics. They’re in different countries, there is information you can procure from government-owned data sources, and through certain algorithms, you can very quickly get a credit score and decide on who to issue loans to and who not to.
Credit limits are also set at a very low level so there will be very few defaults. Is that right?
I think in the fintech lending space, different startups will have different strategies. In India, we invested in a few. Some of them target short term, small quantum loans, some of them target workers drawing a salary with a higher quantum and longer-term loans. I think different startups will have different strategies to target customers.
In the fintech space, you also have KrazyBee, a fintech company targeting students.
Yes. It’s actually expanded beyond students. KrazyBee is interesting in that it was an investment we did together with Fengqile, which is the equivalent of KrazyBee in China. Fengqile is already listed in the US and it’s a unicorn.
Krazybee is also interesting in that the CEO is Indian and the COO is Chinese, so it’s very unique. Right from day one, KrazyBee was able to learn very quickly from Fengqile about their experiences, how to build an algorithm, how to build their business, etc. Within the fintech space, I think this would be one of our most prominent investments.
You are also a believer in the possibility of new social networks in India, other than Facebook, WhatsApp and other existing players. Could you elaborate on that and who you’ve invested in? What makes you think that there that couldn’t exist other major social networks?
For people who are unfamiliar with India, most people would assume that most Indians will speak English, right? But the reality is that maybe just about 10% of Indians are fluent in English. Even though Facebook and Twitter have been present in India for a long time, most of the target audience are English speakers.
So we believe there’s a huge opportunity for the 90% of the Indian population who speak local languages, and there are over 20 local languages in India. We believe there are huge untapped opportunities still untapped by Facebook or Twitter today, which could be tapped by emerging startups in India. That was one of the rationales for investing in ShareChat which focuses on vernacular languages.
Do you see localization efforts by big players like Facebook or Google as insufficient or not appealing to those who speak local languages?
Big global companies like Google, Facebook and Twitter have been very good at building a global platform. But for certain products targeting specific markets, it’s harder for them to go deeper because they’re a global platform. Google Maps is one example. Google Maps is great, I use it all the time. But the Chinese government gives limited access to Google Maps. In fact, I think Baidu is a much better product to use. It captures many minute details, and it’s user experience and features make Baidu a much better product to use.
I totally agree. Other businesses that are very interesting are social commerce. There is a very big social commerce company called Pinduoduo in China. You invested in Meesho, which some local media have called the Pinduoduo of India. Do you agree?
To be frank, it is quite different from Pinduoduo, but Meesho has proven to be a very powerful platform.
The reseller network in India is large. Many of these resellers are housewives and they sell products to their circle of friends. This is a form of trust-based e-commerce and they have existed offline in India for decades.
What Meesho has done is essentially technology enabled them, so that these re-sellers can sell their products through Whatsapp and they don’t even have to go out to source or buy those products – Meesho enabled the supply chain as well. Every day, Meesho recommends an accumulated list of products based on previous selling records which they believe will do well when sold to their circle of friends.
So all the reseller has to do is copy and paste that link to his or her WhatsApp and share it? Is that how it works?
It’s basically to focus on the sale. All Meesho has to do is take care of the supply chain, the fulfillment and enable with technology what they can sell online rather than face to face. And he or she can earn a commission.
You’ve also invested in Evermos in Indonesia, which focuses on halal shopping by social commerce, right. It’s a very unique Indonesian model. Could you explain a little bit about how this company works?
It’s a very early stage investment done by us. This was a series A investment. Based on our China experiences and based on our experience in India, we gained the conviction that social e-commerce could be very big. And we had a very strong conviction that Indonesian social e-commerce was also going to be very big.
My team went out searching for potential investment opportunities in this space. We saw about five social e-commerce startups, and based on our evaluation, we believe that Evermos is one of the most promising ones in terms of its team and traction showed.
I noticed that you only invest in India and Indonesia, outside of China. Is that an intentional policy you have? Or are you open to other possibilities in other markets?
At this point in time, we’re only in China, India and Indonesia, because I like to be focused, partly because of my bandwidth issue. One of my friends said – why not go to Vietnam, right? You could just hire a VP or department there. But if I were to make whatever investments they propose in Vietnam, I will have to make a call, to invest or not. And if I don’t make the effort to fly to Vietnam, how can I make a good decision? So I think we need to be focused.
Do you face any regulatory hurdles when it comes to replicating Chinese models in India and Indonesia?
Not so much regulatory hurdles, but I think the information time gap is closing. There are also other Chinese funds looking into these two markets. So we have to constantly ask ourselves – how do we maintain our unique competitive advantage? Chinese technology companies are also very interested in this market. For example, TikTok has done very well in India. So I think competition has increased over time.
How do you think the big Chinese guys like TikTok, Alibaba or Ant Financial, WeChat, Tencent are approaching those markets? I have the impression that they’re limiting themselves to investors rather than operators. Do you think they will keep to this strategy?
Different companies have different strategies. Some of them have chosen investing or acquisition. Others have chosen to build by themselves. For the latter, someone has to be the one building operations in Indonesia, India. Similarly, for ByteDance and TikTok, they’ve been building their own product in India. So different companies have different strategies. I think all will find their own ways.
If Chinese portfolio companies started discussing expansion into India or Indonesia, would you support them?
It depends on what you do. We have to be very clear about what competitive advantage we have.
For example, I think for Chinese startups, their advantage would likely be that they have an established technology already. In terms of fundraising, it might be easier for them because of access to capital. It’s easy in China.
However, if they are to venture into India, then I’d say there’s no talent advantage. I think Indian entrepreneurs are as good as Chinese entrepreneurs, in terms of intelligence and morality.
The same goes for Indonesia. For a Chinese startup coming to Indonesia, what advantage do you have? Whether we fund them or not depends on whether they can convince us they have a unique advantage, competing against local players.