Singapore-headquartered Trax recently emerged as the region’s latest unicorn after a $125-million funding round led by China’s Boyu Capital. The company, which provides computer vision solutions for retail, had last year secured funding from Warburg Pincus.
And to think of it, it all began with a chance meeting between its two co-founders, Joel Bar-El and Dror Feldheim, at a kindergarten in Singapore attended by their daughters. And the rest, as the cliché goes, is history.
Today, the startup has offices in Asia Pacific, Europe, Middle East, North America and South America, and counts brands such as Coca-Cola, Heineken, Nestle and Henkel among its clients.
Trax is now contemplating a public listing in the next 24 months in the US, where most of its customers are based. However, it is in no hurry to list. “We feel that at this moment, the public market can’t appreciate companies with high growth – which is something with the magnitude of 30-40 per cent growth year on year… So our entrance into the public market can wait if we are growing this fast,” said Bar-El.
Also on the radar is accelerating its growth in China, where it expects backer Boyu Capital to help open some doors. “We plan to grow China so that it generates 25 per cent of our revenue in the next three to five years. I think the Chinese market has huge potential and can be as big as the North American market for Trax,” said Feldheim.
Interestingly, Trax has not had a single customer in home base Singapore. “We’ve never had a client in Singapore, and we still don’t today. We just happened to be living in Singapore, and it turned out to be the natural place for us to start the business,” said Bar-El.
Trax co-founder and CEO Joel Bar-El will be speaking at the Asia PE-VC Summit 2018, offering the founder’s perspective on building a unicorn. He will be joined by Philippine unicorn Revolution Precrafted’s founder and CEO Robbie Antonio.
Edited excerpts of an interview with Trax co-founders Joel Bar-El and Dror Feldheim:
Where did your initial capital come from when you first started Trax? Did you use your own capital?
Dror: Joel and I invested the initial capital of the company. Soon after our initial investment, we brought in another executive who was very active in the first two years – she also invested some. But we invested the initial amount.
How challenging was it for you to start Trax from Singapore? You would probably have had to expand quickly from a really early stage.
Joel: We knew from day one that Trax was going to be a global company. So the location of where we were based was less significant. We’ve never had a client in Singapore, and we still don’t today. We just happened to be living in Singapore, and it turned out to be the natural place for us to start the business.
From our first day at Trax, we were targeting global manufacturers and started looking at big FMCGs and big brand owners. Our first engagement was out of Singapore, not out of the US. With every manufacturer that we spoke with, it was always someone outside of the US, first in Europe and then Asia.
Do you have any plans to move out of Singapore, given that most of your clients and partners are not even based here?
Dror: The company has morphed quite a bit since we started. We have seven subsidiaries covering the entire globe. So we don’t operate from any single location per se, although in the last one to two years, we have hired senior executives in the US. Our chief product officer and chief financial officer, for instance, are all based in the US.
Joel and I, however, will continue to operate from Singapore. We see it as an advantage being here. Opening the company from here was one of the best decisions we’ve made for Trax.
Why did you choose to have your tech centre based in Israel? Was this a strategic move, considering that there are lower cost tech centres in Asia?
Joel: The technology that Trax produces is rare and very difficult to master. We are the only company in the world that has managed to create a working computer-vision platform that works in real time at the speed and scale that we are experiencing. We are currently analysing over a quarter of a billion images every month.
It is not about the number of headcount in specific tech areas. It’s really about the expertise that we need around deep learning and AI. This is not replaceable talent that you can find easily, and we didn’t think we could find it readily in Singapore or its surrounding countries.
How defensible is this technology? What are the chances of this technology being replicated by other global retail or commerce giants like Alibaba and Amazon?
Joel: There is a difference between some of those companies and the vendors. When it comes to the retail giants, the Alibabas and Amazons are trying to do the same thing. So far both of them have been unsuccessful. We have had some discussions with them on the technology, but at the moment we are the only ones who possess it.
During our meetings with Alibaba and Amazon, they have said to have found our capabilities to be unique. It is worth noting that we are also working with companies like Google.
Have any of these global retailers or e-commerce giants offered to buy you out while you were growing because they saw value in what you did?
Joel: Trax has received several offers from various global vendors, not retailers, but we cannot disclose who they are. Some proposals were received, but we declined them.
What made you decline these proposals?
Joel: I think there will always be a price for something at any given moment of time. So the price at that time didn’t match our expectations. Our expectations reflected a high growth potential for Trax.
Those proposals came during different stages of the company, from our early days even until recent times. We still believe that Trax has a very high growth potential, and we will continue to live up to that standard.
What got a company like Warburg Pincus interested in you?
Dror: I think Warburg liked a few things about us. Firstly, we are disrupting a huge market. Trax is a game-changer to the world of retail, and it can transform the way the entire industry works. I think they also liked the uniqueness of our technology. Most of our clients are blue chip, global organisations. There are no companies who can do what we do. Lastly, I think they also liked our management team.
What timelines have you set for your IPO? You raised at a $1 billion post-money valuation from your last round. Do you foresee a jump when you go public?
Joel: We actually don’t know when exactly we are going public yet. It depends on many factors. In short, we’re giving consideration to approaching the public markets in the next 24 months, and in terms of a valuation, it’s hard to predict that too. We just closed at about a $1-billion valuation. For an IPO, we plan to have a multi-billion valuation but in terms of how many multiples, that’s still unknown.
Can we refer to your most recent round as a pre-IPO round? Or do you see yourself raising more capital before you list?
Joel: No, not really, and we are not planning additional rounds at the moment. We have multiple investors approaching us all the time. We get additional shareholders from time to time without conducting official rounds too. We are about to have another new investor onboard soon, but we cannot disclose the name of that investor.
Why did you choose the US to be the location for your IPO listing? Would you consider other markets in Asia?
Joel: There are a few reasons. First, we find that the US market tends to appreciate technology and can value tech companies better. Another reason is that we believe Trax has the potential to be a multi-billion company in the future and we believe there is no glass ceiling in the US market. Lastly, most of our clients’ headquarters currently are in the US, so being close to our clients is another consideration.
Sounds like you’re not really in a rush to list. Why?
Joel: You are right – we’re not in a hurry to list. It is one option, among others, and at the appropriate time we will evaluate all those options — but it is not currently a path we are focused on. The reason for not being in a rush to go public is that Trax is still growing very fast. We are anywhere between doubling and tripling the revenue year over year. We feel that at this moment, the public market can’t appreciate companies with high growth – which is something with the magnitude of 30-40 per cent growth year on year. Anything above 40 per cent is not appreciated by the market. If we go further above — 60 per cent, 100 per cent or 200 per cent — the market multiples will reflect in the yields.
This is the opposite in the private market. In the private market, you can find investors who can appreciate this kind of growth. So our entrance into the public market can wait if we are growing this fast.
Who would be a good investor for you at this stage of Trax’s growth?
Joel: We are looking at investors who can add value in a public-listing scenario. Either a crossover fund who can invest in the company both as a private or public entity, and companies with investors with high profile and credibility who can add global credibility and gravitas to our shareholder base.
Are you profitable already?
Joel: We can’t comment if we are profitable or not because we are still a private company. However, I can share that our investors are liking what they see.
How big is the Chinese market for Trax currently?
Dror: China today is about 10 per cent of our revenue. We plan to grow China so that it generates 25 per cent of our revenue in the next three to five years. I think the Chinese market has huge potential and can be as big as the North American market for Trax. We are putting a lot of focus and emphasis on China with the help of Boyu’s investment.
But Trax has been in China for a couple of years already. How will Boyu’s capital really change things for Trax?
Dror: Yes, we have been in China for the last two and a half years but mainly working with global brands. We never went deep into the local Chinese market, which is something we’re only beginning to do now. We are also starting discussions on local partnerships, which is much easier to do thanks to the support of Boyu Capital.
Boyu Capital has a very intimate knowledge of the Chinese market. We believe they can help us make the right talent recruitment, open doors to new companies, and work with the Chinese government as and when we need it.
China has taken the lead in innovation compared to many countries in the world of retail. What specific aspects do you think the rest of the world is lagging behind in?
Dror: Yes, this is something that we want to leverage. When a consumer makes an order in China today, he expects to get it in 30 minutes. He also expects the full order, with the best service and the best quality. This is something that markets like Europe and the US are still lagging behind in.
The in-store shopping experience is also far more innovative in China. Everything from the technology used to support payment, to customer engagement and marketing, is seamless, swift and easy.
In the US or Europe, you have “click-and-collect”, which refers to a customer making a purchase and then collecting it from a point of distribution. The West is still not at the level of quick and immediate delivery and quality.
There is some innovation in China that Trax can definitely leverage. We are already speaking with a number of Chinese retailers to install some of our IOT tech into their stores. We are also speaking with a number of their brands to support us in our journey.
Most global companies who have tried to go into China have found the country difficult to navigate. Where do you see your future in China?
Joel: It’s too early to say. We have some proposals ready. We have our own company in China, one office in Shanghai and another office soon to open in Beijing. It’s hard to say how we’re going to evolve but right now we are relying on ourselves, and we plan to have the market penetration done using our own forces.