Singapore-based gaming, mobile and internet company, Garena may seek an initial public offering (IPO) in the United States in the next several years if the time and market are right for it.
Group president Nick Nash said, the group will be ready to go public in the coming years, but will only pursue the exercise if the timing and market is right. An IPO, he said, would be a milestone for Garena in building a sustainable business.
“There are a lot of things about the markets that are out of our control. But at the end of the day, great companies can always go public and our goal is to build a great company,” he told DEALSTREETASIA.
“An IPO is a prudent thing to consider to build a sustainable business. At some point, we will consider going down that path, but at the time that makes sense for the business and the shareholders. Not a single one of our shareholders have asked us to go public; they’ve asked us to take our time,” Nash said.
Garena, founded in September 2009 by Forrest Li and some friends, started its existence as a chat company which then evolved into digital content, in particular online games. It now has a payments business called AirPay as well as a marketplace e-commerce outfit, Shopee.
In March, Garena made headlines with its $170 million Series D funding led by Khazanah Nasional. The Wall Street Journal reported that the investment valued Garena at about $3.75 billion.
“We’ve never taken on a shareholder we didn’t deeply respect, and hand on heart, Khazanah has some of the smartest investors we’ve met. They are also some of the most humble and low profile investors we know and we love that even more about them. They are great people to have as mentors,” Nash told DEALSTREETASIA.
“We love them for the investments they have made, particularly for the very selective investments they have made outside Malaysia,” he said, referring to Khazanah’s previous investments in big tech names like Uber and Alibaba.
When it comes to capital budgeting, Garena deploys the funds it has the way a venture capital firm (VC) would commit investments, with eyes on the internal rate of return (IRR).
“If a VC puts $5 million into a startup, they hope to get $50 million back, a 10x return. Every single dollar we spend, we measure against that test. If we have good uses for things or organic growth or product extension that can have a 50 to 60 per cent IRR going forward, we would do those things,” he said.
A large portion of Garena’s recent funding will go into Shopee, its mobile-centric marketplace for shoppers and sellers. Garena’s vision is to be the top player in the marketplace e-commerce segment.
“I think we are well into the mid-game of the chess game in Asean e-commerce; the opening move was three to five years ago. The real profitability comes at the end-game so winning the mid-game is crucial,” he said.
Nash believes organic growth is the right strategy to growth Shopee as the cash-on-cash return for putting money into the e-commerce marketplace is very attractive.
Garena did not raised any venture capital in its early years. Its first financial investor is private equity firm General Atlantic where Nash was formerly the head of Southeast Asia at. Garena’s other investors include Tovio Annus, a co-founder of Skype.
Last year, it raised an undisclosed round from the Ontario Teachers’ Pension Plan (OTPP), a deal which the Financial Times reported valued Garena at over $2.5 billion.
“It’s a nice place to be (not having the need to raise venture capital) but it is tough to identify high quality business models with strong network effects. Of the many business models that exist on the internet, we came up with, one three or four could only a small subset get to profitability quickly and have exceptional returns on capital,” he shared.
Demystifying Garena Ventures
While there is an entity registered as Garena Ventures under the group, Garena does not formally have a venture capital fund that pursues deals, Nash clarified.
The total amount that the group has invested thus far in venture capital is about two per cent of its equity value, typically for deals in the seed and Series A stage.
“The primary strategy for us is to back great talents, giving them capital to prove that their model works really well. Really, we’ve just felt an obligation to be helpful and supportive of other very talented, committed and passionate entrepreneurs in the region,” Nash said.
He pointed out a well-established technology company like Garena sharing with and backing good startups is good for the ecosystem.
“I would really like to be in a Southeast Asia where there is efficient capital market for startups but there isn’t yet. So this is part of our responsibility,” he said.
Garena invests across sectors, not only in those it has businesses in, believing that at the early stage, VC investments are more about business models and talent than deep industrial knowledge.
Garena has invested in three startups in Indonesia, two in Vietnam, two in Singapore and is scouting for talented entrepreneurs to invest in in Malaysia, Philippines and Myanmar.
Commenting on whether there is a bubble in startup funding, Nash noted that later stage funding was not experiencing that.
“We do not see a bubble at the Series C and D stage globally at the moment because typically companies at that level have well-defined business models and paths to profitability, and frankly it becomes more a private equity investment than a venture capital investment,” he shared.
Also read:
Garena raises $170m in Series D led by Malaysian state fund Khazanah
Malaysia: Khazanah leads $160m Series B round in Chinese fintech WeLab
Malaysia: Khazanah among investors commiting $192m in Skyscanner
India’s Yepme raises $75m, led by Malaysia’s Khazanah
Malaysia: Khazanah to hike exposure in China, EU, India; step up investments in tech, innovation
