What are the challenges and opportunities for Southeast Asian startups? e27′s Editor puts down his 5 takeaways from the Asia Leaders Summit 2014
Two pitching sessions and more than 30 pitches made throughout the day, the Incubate Fund – Asia Leaders Summit 2014, held in Singapore on last Saturday, showcased that the startup scenario in the region is quite vibrant. Though many of the ideas were a copy-paste job from the West, but what the heck, we are not complaining. We don’t need to reinvent the wheel. The ideas are as much applicable in the region and someone needs to replicate them here too. Here are my five takeaways from the Summit. While the takeaways are much of challenges, many of the speakers — both investors and entrepreneurs — see opportunity in the challenges.
1. Southeast Asia means Indonesia and Singapore
What makes Southeast Asia so attractive to investors? The 600 million population, says Willson Cuaca, Co-founder and Managing Partner at East Ventures. The figures make for a nice presentation. Yet, through all talks through-out the day, one got a perception that investors actually were catering to a population of about 250 million — population of both, Indonesia (about 247 million) and Singapore (about 5 million) combined.
Investors were found skirting the question — Why they are not so bullish about Malaysia? But it is not hard to understand the dilemma of investors when the population of Malaysia is just about one-tenth of Indonesia. The answer to the question could be found in Kuo-Yi Lim‘s (former CEO, Infocomm Investments) statement when he says that Indonesia and Singapore are about size, and the Philippines is about talent and culture.
Even if Southeast Asia means Indonesia and Singapore only, the market has its own set of challenges, which are more cultural in nature, rather than infrastructural, when it comes to winning the confidence of investors. Lim says that Japanese investors are very cautious and it may take them up to two years to gain confidence and make an investment. He feels that it is easier to work with US investors where, “You go for a beer and say ‘That’s OK’, and the deal is done.”
Cuaca puts the onus on Indonesians when he says that culturally, Indonesian founders are “secretive” and “not transparent”. “You have to make guesses” about the underlying meaning in their statements, which makes it difficult for investors to make quick decisions.
2. Talent remains an issue
Roger E Egan, Co-founder and CEO, RedMart, is an exception who says that his company has had “no problems with talent”. For the rest, talent remains a challenge. If talent is not a challenge for Egan, “manpower” is. As an e-commerce player, where distribution plays an important role in the business model, it’s been hard to find “reliable drivers”. Operating a business in a country like Singapore, where employment is 100 per cent, people “do not value their jobs”.
For Cuaca, finding good talent is one of the biggest problems. According to him, there are no experienced entrepreneurs in the region. Nobuaki Kitagawa‘s (Managing Director and CEO, CyberAgent Ventures China) preferred market for investment is China. He feels that “There are more seniors in China, with experience in big companies. In Southeast Asia, the entrepreneurs are young and have no or little experience.”
Paul Srivorakul, Co-founder and Executive Chairman, Ardent Capital, too laments about talent in the startup ecosystem, which he says is hard to come by. But there is ray of hope, as he says that he has noticed senior people from big companies such as Google and Microsoft joining startups, who bring along with them management skills, contacts and leadership abilities.
3. Series A funding hard to come by
It’s easy to get a seed fund. It’s also easy to get Series C and D funds, but it’s really difficult to get Series A funding. Darius Cheung, Co-founder of 99.co, and Founder and former CEO of tenCube says, “There is a lack of Series A funding.” He feels, “The funding model is not encouraging in the region.”
Speaking in another session, Lim too highlighted the issue, saying that seed funding has been strong in Singapore for the past five to six years. “Lately, there’s been a Series A crunch. But it is not as severe… But if you are a Series A funder, professionally, there is a sense that there are not too many companies ready for Series A.” He feels that investors are in the service business, where startups are like clients. “The clients have to be ready before the investors come in,” he adds.
4. Infrastructure: Another obstacle
On being asked, which sectors investors are bullish on, in the digital world — some preferred gaming and apps, however, largely the interest has been on e-commerce. The biggest hurdle for e-commerce to grow is the lack of or the penetration of payment gateways. According to Acmad Zaky, Co-founder and CEO, Bukalapak, “Eighty per cent of the transactions in Indonesia still happen through bank transfers.”
People do not have credit cards and herein lies an opportunity for mobile payment gateway players like Coda Payments that would allow charging purchases to mobile users’ pre-paid and post-paid mobile accounts.
Teruhide Sato, President and CEO, netprice.com, states that in e-commerce, the marketplace is the king, and payment is the queen. He adds that affiliate networks are the princes. Sato is bullish about India, which he says has infrastructure problems, which are quite similar to countries in Southeast Asia (barring Singapore). Some of these problems are electricity outages, slow internet speeds and payment gateways. That said, the issues also encourage innovations. The surge in group buying online in India is one best example where multiple people buy products in bulk through a single payment and also manage to get deals.
5. SEA: Not yet ready for the global market
One of the highlights of the day was comparison of Southeast Asia with China. Most of the speakers felt that Southeast Asia is like China of 2009. In the next four years, it will be what China is today. Unlike China, which is competitive at the global level, can Southeast Asia be a global player? Owing to the scale of market in China, it has its own challenges. Companies, for the fact that they are big in the domestic market, get global attention. That said, companies also face stiff competition from local players. However, when they go abroad, it could become a challenge to adopt strategies and focus synergies while trying to protect home turf.
The same may not be true for Japanese companies who face tamer competition back home.
Lim prefers to make investments in startups that “think local and who can scale and work global”. Srivorakul of Ardent Capital too prefers to invest in “hyperlocal strategies” and businesses that the likes of Google can’t match.
On the other hand, Hironao Kunimitsu, Founder and CEO, gumi, feels that Singapore has an advantage over Japanese founders, for whom Silicon Valley is a tough nut to crack because of the language barrier. “Singapore has an opportunity to tap the Western countries. You can speak English. And you can tap the Chinese market too,” he tell the audience.
6. Bonus: Room for marriage portals
OK. There were supposed to be just five takeaways. Just because, you read the article so far, here’s a bonus takeaway for you. Rather, it’s a bonus tip, which stems from the jokes Kunimitsu and Swimmy Minami, CEO, BizReach cracked during a session moderated by Masahiko Honma, Co-founder and General Partner, Incubate Fund. Honma when asked the panellists, what their priorities were for the year, Minami and Kunimitsu said marriage was on their priority list and they were looking for a perfect match.
That set me thinking that while there are a plenty dating apps for the market, there was no matrimonial site (or I am not aware of) catering to the region, unlike India, which has plenty. I wanted to tell both the speakers that they could invest into a matrimonial portal to find a good match. My thought process was validated by an Editor of a tech website in Malaysia, with whom during a tea-break, I raised the point. She agreed and said, “That’s interesting. Come to think of it, we people (Southeast Asians) too have the same pressures of getting married, much like the Indians; and there is no matrimonial site for us.”