When San Francisco-based Uber Taxi drove into Singapore last month, it helped escalate the taxi app wars in the city state to a new level. But the taxi revolution in this region was underway before Uber set foot here, with GrabTaxi, perhaps the leader in the region along with Easy Taxi and other smaller competitors. Just six months prior, GrabTaxi had reportedly secured a $10 million funding from Vertex Venture Holding, subsidiary of Temasek Holdings Pte. Ltd, Singapore’s state-owned investment company.
Looking back, Vertex group president and chief executive officer (CEO) Chua Kee Lock is of the view that GrabTaxi was a ‘wild bet’ that paid off. It was among the recent gambles Vertex had taken, along with the likes of REEBONZ.com, which claims to be Asia’s largest Luxury Ecommerce platform, as well as Patsnap, that is into patent search, landscaping and analytics.
In an interaction with DEALSTREETASIA, Kee Lock said Vertex Venture Holdings plans to invest an additional $300 million over the next two to three years, in startups, and also venture capital funds that invest in such companies. At the same time, he also warned about rising valuations in Asia’s startup scene, comparing the current situation with that of 2008 prior to the Lehman Brothers collapse.
“Since 2008, we have invested about $500 million in different companies. We will be investing about $300 million more. Today, about 60% of our money is invested in China, about 10% in India and perhaps 10% in South-East Asia and Taiwan and another 10% in Singapore. Going forward, we will maintain these percentages when we invest more in these markets. On an average, we stay invested in a company for seven-eight years,” he said.
Kee Lock highlighted that for Vertxe, the returns on investment, on an average was about 20%, but in its latest fund, the figure up to 30%.
“Most of our money is direct investment—about 70-75% is put directly into companies and, approximately, about 25%, we put into VC funds. We call ourselves a “real” venture capital firm because VCs are all about creating or building great companies—that is the key to who we are. In Asia, there are many players who are very short-term in their mindset and, in the traditional sense, they cannot be considered as venture capital players,” he added.
While Vertex is readying itself for more investments ‘to fund the next emerging leaders and disruptors’, Kee Lock expressed concerns on valuations game.
“Now we are getting back into that 2008 environment all over again—too much money chasing too few start-ups and valuations have become very high across the globe and even in Asia. It is a cycle we come across every once in a while,” he said.
For Vertex, China presents a huge opportunity due to the size of the market as well as the stability it offers unlike some of the other regions in Asia, and Kee Lock share the opinion that China is also closing the gap with Silicon Valley
“Many people today compare China with Silicon Valley—it has so many start-ups, lots of companies with unique models—Chinese companies can create interesting opportunities by themselves; and in that sense, they are a lot stronger than India. But Silicon Valley is still ahead. That is where lots of innovation is still coming from. China is closing the gap—because of its large market size, they are able to create their own unique business models and capabilities,” he said.
Asked to compare China with India, the other large market in Asia, Kee Lock said that the latter was about a decade behind China regarding its startup ecosystem, and pointed out that knee-jerk reactions by Indian regulators to change rules posed a challenge to companies, as well as to startups and investors there.
He is also confident that Singapore would continue to attract startups from the region because its laws clear and well-defined laws, strong intellectual property protection measures and also the support and funding facilities provided by its government for launching new companies.
But Kee Lock also acknowledged that grants and government support for startups in Singapore, at times distorted market reality, when compared to Silicon Valley. “That is always a concern—when you have too much money chasing too little companies, even the bad companies get funded. This is something that we cannot help. In a market like this, it is bound to happen. If there is too much money chasing start-ups, it is not good, and if there is very little money chasing them, that is no good also. We need a right balance and we have to figure out this ourselves,” he added.
Yet he also favours more government funding for startups Singapore to sustain newly launched and built companies here, as large VCs shift focus to bigger markets like India and China.
“In Singapore, if you talk about incubation and start-up funding, the government has done a good job—these are well funded. But funding is not just giving companies $500,000 or $1 million—there are several rounds of funding that is required—maybe three, four or even five rounds, before companies can be successful. When it comes to additional funding or subsequent rounds of funding, be it in Singapore or South-East Asia, it is not as easy when compared with India and China. That is why I said more government support is needed here,” he explained.
On Asia’s next Alibaba, Kee Lock pointed to two Indian ecommerce companies – Flipkart and Snapdeal – having the potential, even as he cautioned against their business models. “Both (Flipkart and Snapdeal) are burning a lot of cash, whereas Alibaba was able to demonstrate very quickly that their business was profitable. Indian e-commerce companies have to find the right balance between burning money and being profitable,” he added.
Coming back the Singapore’s taxi app wars, Kee Lock said all players were trying to buy their way in by offering discounts and other freebies, but warned that the current campaigns could not be sustained for ever, by referring to the situation in China. “There were two booking taxi apps there (in China) —they were competing against each other and trying to buy customers, and after 12 months, and having spent a couple of $100 million, they realized that this kind of business will have to stop. Every player comes to the market thinking they have a unique solution—then there is a struggle to get market share, and this is a normal phenomenon and we should expect more to this,” he said.