Exclusive: Singapore’s gaming firm Garena mulls IPO in US

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

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.