E67 – The Impulso Podcast – Dmitry Levit & Boon Ping Chua on the distress in Southeast Asia, and why it’s not evenly distributed

After almost a decade, is winter finally here in Southeast Asia?

Join us in our latest podcast episode featuring special guests Dimitry Levit and Boon Ping Chua (aka BP), partners from Cento Ventures, each with over a decade of experience in venture capital, particularly in Southeast Asia.

Cento Ventures recently unveiled their Southeast Asia tech investment 2023 H1 report, and we have invited Dmitry and Bp to share further insights into their perspectives on investment in the region.

Tune in as we ask the experts: 

• Is tech & VC in Southeast Asia game over?
• Why do we even bother with Southeast Asia anyway? Why is it still exciting?
• How do they see VCs in the region deploying money in 2024?

You can check out the full episode:

Or if you prefer to listen on the go, the full episode is also available on Spotify.

Featured materials:  

Southeast Asia Tech Investment – 1H 2023, Cento Ventures

2023年上半年东南亚风险投资报告, Momentum Works 

Our investment in Doxa: Unlocking new growth within the supply chain finance, Cento ventures

 

[AI – generated transcript] 

 

[00:00:00] Sabrina

Hello, everyone, and welcome to episode 66 of the Impulso podcast. Today, we’re joined by two special guests from Cento Ventures, a venture capital firm focused on technology startups, building products and services emerging from the digital transformation of promising growth markets, particularly Southeast Asia.

So today we’re joined by Dmitry and Boon Ping, aka BP, who are partners from Cento Ventures. So Dmitry is responsible for overseeing all investment and fund activities in Southeast Asia, and he also formerly served as an advisor to several investment groups and corporations pursuing technology and media opportunities across a developing Asia.

Boon Ping, also known as BP, leads Cento’s Investment Strategy and deal origination efforts. In addition to serving as a member of Cento’s Investment Committee, he has over 20 years of extensive experience in venture capital and M& A in the technology media, as well as telecommunications sectors. 

So Cento recently launched their Southeast Asia tech investment, 2023 H1 report. And so we thought we would invite both Dmitry and Boon Ping onto today’s podcast to share a little bit more about their perspectives on investments in the region.

In this episode, we talk about tech and VC in Southeast Asia. Is it really over? Why do investors still bother with Southeast Asia and how do they see venture capitals in the region deploying money in 2024? 

So welcome Dmitry and BP to the Impulso podcast. 

 

[00:01:27] Jianggan

Just for clarification, BP doesn’t stand for British Petroleum.

 

[00:01:30] Boon Ping

I wish I did. 

 

[00:01:31] Sabrina

Maybe you want to clarify.

 

[00:01:33] Boon Ping

Yeah, my name is Boon Ping, but I’m maybe known as BP.

 

[00:01:36] Sabrina

So let’s start the discussion. 

 

[00:01:38] Jianggan

Yeah, I think both of you have been investors in Southeast Asia for a very, very long time.

And I know that Dmitry, you had been sort of calling for this notion that winter was coming since as early as 2015. But of course the trajectory of the whole ecosystem of tech venture capital and also the large tech ecosystems in the region have evolved in very interesting ways.

And I think as of like last year, you saw the activities actually dropped quite a bit which is probably in line with what we see globally as well as what we see in China. But there’s this notion from many people I talk to that they say that, okay, there isn’t much to invest in Southeast Asia anymore.

It’s doomed. So growth stage investors have fled. Nobody looks at the secondary market anymore. What’s your sense? Is winter really here? Is tech and VC doomed in this region?

 

[00:02:29] Dmitry Levit

That’s a lot going on in that first statement. Hi, good morning. Name is Dmitry. Good to be here with you. I file an objection.

I wasn’t calling for winter to come. I was just a big fan of the Game of Thrones, but I was expecting it to arrive very misguidedly. As early as 2015, because of that little hiccup in Chinese capital markets, I think that started the year and it took seven years longer than I expected. I would probably start by getting a bit more nuanced. There is more than one ecosystem in Southeast Asia. There is more than one flow of capital. So I would say we do see a slowdown of activity, quite a significant slowdown of activity coming from a global investors that were once upon a time, much more interested in Southeast Asia than they are now, but we don’t see nearly as big a drop in activity as I expected to see and as the media would have see n in the series seed A, B, and C across Southeast Asian ecosystem. We are still doing a bit of data crunching to publish our full year report. People actually calling me now say, Hey, where is the report? Chop, chop, do it quickly. It’s like, ah, not enough time.

But from what we can see from internal numbers. Series A and series seed, no seed in 2023 was actually at all times high, like bar none series A and series B all times high, except for the crazy years of 20 21, 20 22. So that part of the ecosystem, the one driven by Southeast Asia focused players, seems to be doing actually just fine despite all appearance to the contrary but to the deeper question, you are asking Jianggan , if the game is over for Southeast Asia, there is nothing else. to invest into. I really wanted to go with a casino metaphor, but haven’t been inside a casino for a while. Can’t remember names of all the games. I’ll just go with chess as in checkers. 

 So I was just coming back to Jianggan’s question on whether the game in Southeast Asia is over as we know it. And I was making a point that probably there are at least two games in town. It’s a game of chess where founders and VCs together try to play against reality, figuring out how value chains are to be fixed.

And then there’s a game of checkers where stakeholders, sometimes together and sometimes against each other, try to figure out how to get to that big late stage round and how to get to those secondaries. That second game is off for now because of distinct lack of enthusiasm from late stage capital globally. 

BP, anything you would like to add 

 

[00:04:59] Boon Ping

Well, I guess it’s useful to take a perspective, right? Having the privilege to be involved in the VC industry for 30 years. I guess if you look at a different time zone and I think what we have in Southeast Asia the last five years was a bit of anomaly, right?

Too much money compressed in a very short time investing. I guess now we are back to a normal where things take a bit longer. Investors are a bit more deliberate. So I have issue with the word winter. I think deals are still being done. I just done it at a normal pace. If you look at what VC should be investing in terms of taking the time to do duty.

I think now we are back to the stage where things are bit more, you know, back to the norm. From a historical perspective. So not really winter. I think still a lot of opportunities interaction with investors. That means that they are still looking at deploying. They are just a bit more cautious.

So I would say cautiously optimistic, but not winter.

 

[00:05:57] Jianggan

You use the the chess and checker as kind of analogy, but I guess people from this part of the world, at least people from my ethnic background, we are much more familiar with casinos. So, I would very much be interested to know, I mean, how do you draw that parallel?

Because casinos are also sophisticated games that have been played.

 

[00:06:14] Dmitry Levit

I would probably say that the Baccarat tables are buzzing, but the blackjack for the moment is off the table.

 

[00:06:19] Jianggan

That makes more sense. So the chess analogy of funders and VCs maybe not the right word, including to figure out, I mean, how to get security markets or acquirers to take the value that they have, I don’t know fostered, create it inflate it, whatever.

But I think analogy for sorry, not an analogy, but for many people, I mean, the lack of gold stage capital is quite often associated with a lack of exit opportunities for them because, I mean, we invest in seed the valuation is low and you can’t think about, okay. So, I mean, you might not have made a path to see that, okay, how this could possibly exit, but you know that there’s enough time to figure out how to do it.

But for people coming with Series C, Series D, I mean, now if you look at the region, most of the public listed companies are not doing that well. And there are actually very few acquisitions happening in this part of the world. So that would that change? And if that doesn’t change, how does that impact the ecosystem, especially for entrepreneurs and investors?

 

[00:07:20] Dmitry Levit

Again, two different things going on that are frequently commingled. One is a decrease in availability of late stage capital, and one is perceived lack of exits. Let me tackle them separately. Yes, there is less late stage growth capital available to the ecosystem, and that impacts one particular early stage player.

An early stage player that is oriented towards secondaries. 

So if the investment thesis is to build up enough velocity to attract the late stage investor and then sell into their round, then yes, that game is temporarily over. It will start again. It’s inevitable, but for now it’s over. But there are other kinds of strategies in early stage and not all of them are all about secondary sales and some of them are distinctly opposed to raising a late stage growth capital.

And those are strategies that are oriented towards those very same exits that you say a few. Let me even split these two topics. Are there a few exits in Southeast Asia? Not true. There are a few very large exits in Southeast Asia that have produced credible outcomes denominated in convertible currency. So yes, IPOs that we saw last year, mostly malfunctioned with a notable exception of a couple of Malaysian ones, a last couple of years. And that doesn’t mean the trade sales have been few. They are just right sized for the region. Half a billion dollar outcome in the region happens every now and again.

250 million exits happen quite frequently, 100 million exits happen all the time.

The trick with those numbers is they do not allow for a mega deal and a 100 million dollar raise. So, to summarize it all exits do happen,

but one needs to be very cautious about capital trajectory, not to glide past the exit point.

And if one watches out for that, this ecosystem is quite friendly. If one tries to get to 10 billion outcome, this ecosystem is extremely hostile. 

 

[00:09:19] Jianggan

So, the rise, as you mean, is 100 to 250 million kind of exits. That’s what people should be expecting. That’s when people raise funds in this region.

And this kind of outcomes that are, I mean, in normal circumstances, as you mentioned that we’re gearing back towards the normal. This is what kind of results people should be expecting. 

 

[00:09:39] Dmitry Levit

That’s not me saying that’s Mr. Market. So a strategic that sits elsewhere and looks at Southeast Asian presence and wants to buy a footprint rather than building a footprint appears to be willing to spare 50 to 100 mil easily 250 mil for a very good company and half a bill for an exceptional company.

We only have one outlier outside of this pattern, and that was a while back with Alibaba and Lazada. And even that started with that magic half a billion number first. 

 

[00:10:08] Jianggan

Well, Lazada operated in a very, very large prominence of e commerce platforms for the whole region. It was acquired by the Alibaba in 2016.

And before that they raised how much 700 million dollars of capital. So that was sold for 1. 5 billion. I think still decent return for early investors. But I think for that, I mean, it was timing was the sector. And do you think that we do not have that kind of large check outcomes in this region anymore?

Because now there are, Still quite a number of the unicorns, which are waiting to, I don’t know. Not the right idea to go to the slaughterhouse, but what’s the right idea to go for the exit. 

 

[00:10:45] Dmitry Levit

I think you’re thinking glue factory that’s closer to the unicorn horse team. I would stick by my assessment that a really, really exceptional outcome for Southeast Asia is half a bill to seven, 800 mil going forward.

But obviously the trick is to get there without raising 700 mil along the way. Ideal amount of capital raised. For the company of that size would be a 50, 60, 70 mil at most across three at most four rounds. Again, the ecosystem math right now does not allow for mega deals for mega rounds at all. 

 

[00:11:18] Jianggan

Let me switch to BP a little bit.

So you said you have been in ecosystem for 20 years and the last five years have been the anomaly. And as a veteran, how do you feel in the last five years? Because you must know the market better than some of the new players. Which joined in the last five years, but quite often it’s the new players which are making most of the noise.

 

[00:11:38] Boon Ping

Yeah, I guess it has been a bit of formal in the market in the last few years where I think some of the investors have been pressured to deploy quickly. And hence you know, in terms of the due diligence, in terms of the understanding of the value chain, understanding of the opportunity has been compressed in terms of the pace of investment.

So some funds really have not been able to get conviction around it including myself and also I think Cento We have been very very cautious Last couple years, but now we are starting to be picking up momentum. We look at our announcement. We have just announced three deals so I think this period of rapid deployment and hence Having to see a bit of correction is actually now good for us where Other investors are trying to digest.

We are now being a bit more aggressive in terms of our deployment. 

 

[00:12:35] Jianggan

So the patience during that period you think will eventually pay off? 

 

[00:12:39] Boon Ping

Yes. I think if we go back to the first principle, right. We just have to make sure that if you see a right deal, you understand the opportunity, and then you take your time to really, You know, work out the capital trajectory that Dmitry mentioned working, making sure that we understand what’s required to have a successful exit.

That takes time. You know, you can’t rush through a due diligence in two weeks and write a check and assume that everything will work out according to plan. So I guess now everyone is going back to the first principle where things have to be done in the right way. So it’s not a fundamental, it’s just basically everyone being a bit more fundamentally driven rather than fear of missing out and just latch on to any opportunity that they see out there, especially country specific opportunities, right?

If you see a country that is big market size, and then you just decided to write a check, just to, Right on that opportunity.

 

[00:13:40] Jianggan

I do remember back in end of 2015, when I was living in Rocket internet, I attended a small forum with the first batch of Chinese investors, I mean, not really investors, but retired tech executives who were the earlier, but probably luckier ones to, to migrate to Singapore at that time.

 And they were saying that they were looking at the market. They said, okay, the market needs to go back to the business fundamentals. That was 2015. And then 2016 was probably the height of of all this new business models, the boom in China. And afterwards people find it increasingly difficult to list companies, to make business models work And of course I think that was also the peak of a number of sort of VC professionals.

And afterwards you see the market starts to be stagnant and it start to dwindle. I think a related question to this, maybe not so related is that, I mean, when that kind of anomaly happens and of course it plays or impacts the psyche of entrepreneurs as a cohort. Quite a bit. So you, I mean, you, both of you have been dealing with entrepreneurs and some of them you have been interacting with or working with for a very, very long time.

And how do we see that shift in the last five years? Because I think as investors you probably train yourself to be disciplined, but lots of time for first time or even second time entrepreneurs, it can be quite when you look at the situation where somebody is coming to you to say that, Hey here’s the check.

At, I don’t know, five times the valuation that you raised like half a year ago, it’s quite difficult for them to stay the same.

 

[00:15:13] Dmitry Levit

Well, I’ll try to start on this one. 

The easy way to answer this question would have been our due diligence is excellent. We just don’t end up with founders who will succumb to temptation. We try, but I can think of two distinct cases. In the last five years where the founder we expected to be more conservative chose a 70 million valuation over 40 chose to raise 10 million instead of five and then paid for it dearly and had to sell the company for parts or had to go back home or had to do whatever else that accompanies failed capital trajectory.

It’s incredibly painful. It causes relationships damage. It is probably one of the most tense things that one gets to experience when operating in this industry. But you know what, if a founder is good and the company they’ve built is solid, it’s not a deadly mistake. There is always a way to reorganize the cap table, fix the alignment between stakeholders, take a down round and leave to fight another day.

So I would say a lot of patience, a lot of attention, a lot of understanding, a lot of empathy is the recipe and then founders will do what they may. We are just in the service industry trying to support them. 

 

[00:16:28] Boon Ping

I just want to add that unfortunately in the VC, right? A lot of time fundraise is scorecard for a lot of founders, right?

So sometime when they see their peers raising 20 million it is quite difficult for them to accept that they only need five million to grow because then it may reflect that they may not be as aggressive. They may not be as visionary as their peers. So everyone is looking around and if big rounds are being raised, it creates that desire to raise bigger round.

So it becomes raised to the bottom. Everyone, right, asking for unrealistic valuation because the function of the amount they want to raise. And that has been a challenging time for some of the entrepreneurs to really deal with that. You know, that all the media is playing up all the big rounds, right?

You know, we have beauty of that as well. We are sharing, you know, big rounds. So to get the founders to say, look, you know, you have to be very clear that raising a big round at high valuation, if you cannot deliver, then like what Dmitry mentioned it may come back and bite you. And I think some of the companies are facing that now, right as they go up to raise their next round their growth may not catch up with the valuation and that’s why investors are also sitting on the side expecting the companies to deliver before they pull the trigger 

 

[00:17:52] Jianggan

As Dmitry just mentioned, I mean, he expects that if the founder is good, even in this kind of situation where you have to clean up a mistake that you made or you and your investors collectively made, you can still find a way out of it.

And that really depends on the quality of the founder. Which leads to the question of. I think I speak a lot with people who operated during the height of the boom in China. And of course they were talking about in each sector that people invest in, it tends to be like a few hundred companies which raised initial round and the competition would very quickly filter out which are the ones which. Work, which I was with, which don’t work. And eventually you figure out who are the better founders, and you can observe that very quick succession in this region. What happened is that, I mean, even the most competitive sectors, you probably have, like, 3 to 4 people who managed to raise a significant amount of funding.

So the competitive pressure I imagine would be quite different and theoretically, that would be easier for founders to resist the temptation. Or is that not true? 

 

[00:18:52] Dmitry Levit

Probably two things are being conflated here. First of all, I’ll again, lodge a mild objection to the notion of better founder or worse founder.

There is no such thing. Somebody is better at competing. Somebody is better at fundraising. Somebody is better at fixing their cap table if there was a mistake. But on the notion of Is Southeast Asia an easier market to operate in? No, it’s not. You’re just not competing against 100 well funded rivals.

You’re competing against reality, against massive offline conglomerates, against undigitized economy. against unclear rules, against unpredictable regulators, against fragmented six market, if not to say eight market region, and so on and so forth. That’s plenty of competition with that many friends who needs enemies.

 

[00:19:37] Jianggan

Yeah, but that’s exactly the point, right? I mean, there’s a lot more friction in a market for you to work on and you don’t have that many like direct competitors that you are raising against. So theoretically that should make it easier for you to moderate the pace and look at what’s really fundamental, right?

 

[00:19:54] Dmitry Levit

I probably will accept your premise for the markets inside Southeast Asia that have not been too overheated. That’s your Malaysia, Thailand, Philippines, and on occasion Vietnam. I’d say pro and rural Indonesia. I would say this point no longer holds in the hot markets, quote unquote, that up until recently were Singapore and Jakarta proper.

In those two markets enough capital supply has been formed for this point not to hold. 

 

[00:20:22] Jianggan

So it’s complex. There’s lots of friction and outcome is at best half a billion. Question, why are you guys in Southeast Asia? I know for Boon Ping, you’re born here. So you have a natural sort of localizing advantage. Dmitry, you have, I’m not going to mention your passports, but you have access to probably the international markets.

But so why are you here? 

 

[00:20:44] Dmitry Levit

I don’t really think I have these many countries to run to if something goes sideways. The way I decided to stay in Southeast Asia all these years ago, and it’s been now 18 years, there was a basic assumption that this region will be overlooked. And it will be easier to compete in.

As opposed to, let’s say, China or India, especially when we started Cento 2011, right? Not a lot of competition to go around. Maybe we have a chance, was the thinking. Now for 13 years later, I would say competition is there, at least in those markets that I just mentioned, Singapore and Jakarta. But I found another reason to be here.

I realized that I really do quite like complexity. And I like disentangling complex systems and figuring out how to fix them or how to help people who are trying to fix them. I’d say that is a very rich and interesting commodity that Southeast Asia provides to the world, complex and broken value chains.

And for the additional bonus, I do quite like the notion. I am still only seeing it in a few of our investments, but I hope to see it more. I do quite like the notion that whoever cracks the code for regional presence in Southeast Asia will also be able to crack the code for global expansion across global emerging markets.

1. E. If you figure out the commonalities between Malaysia and the Philippines, if you manage to get something to work between Jakarta and Bangkok, you know what? You can spend time. You will be successful in Colombia and Argentina and maybe even Sri Lanka and maybe even Kenya. Let’s not go as enthusiastic as India and China, of course.

So that’s what keeps me going for maybe another decade. Then we shall see. 

To the very math of your question, though, half a mil exit size is not a problem. The problem is raising 700 mil on the way there. Let’s just be clear about that.

 

[00:22:27] Jianggan

Sorry, half a mil, half a bill? 

 

[00:22:29] Dmitry Levit

Half a bill. My pronunciation is bad.

Bill. With a B. 

 

[00:22:32] Jianggan

Okay. BP, why are you here? I know you have been to the San Francisco many times, and of course, One possible explanation why we’re still here is that this was probably, I mean, much safer to be here than being in San Francisco at the moment. That I hear from lots of tech executives who were choosing like the location of their global headquarters.

I mean they tried to come here, they went to San Francisco, then their cars got smashed. Then they decided to set in Singapore 

 

[00:22:59] Boon Ping

but you see, my view is that you know, entrepreneurs in Southeast Asia are equally as driven as hungry as any other tech ecosystem. And the good thing about Southeast Asia ecosystem is maturing. We have big platforms here, hiring, training people, people are leaving the ecosystem to start their own company. So there is a talent pool there. And then on the demand side, you know, 600 million population, you know young and driven to try new things. Regulatory environment is friendly for startups.

There’s opportunity. And back to the earlier point that Dmitry mentioned for VC. The exit is a function of how much capital you put in. I mean, there are a couple of examples where a startup did not raise much capital, they get acquired for 125 million, 150 million. If you are an investor in Series A, did one round, and you get that return, it is a good return, right?

I think people forget the notion that you do not need a unicorn to make money for the LP. You only need to be a unicorn if the company raised a lot of money and you need to have that uplift. to just get the 3x or 5x multiple. But if you are investing in a capital efficient company, even if they get acquired for sub 500 million, I think the return profile, the portfolio construct for a particular VC can still generate the return expected from the LPs.

 

[00:24:27] Jianggan

Outcome driven. The, the five years of anomaly do you think it’s. I mean, this is probably huge conflicted question, but do you think it’s good for the ecosystem overall, or do you think it’s bad for the ecosystem overall? And of course, I mean, depending on which position you are in, in ecosystem, you probably have a different perspective.

 

[00:24:45] Boon Ping

I think that every time, and obviously on high side, being able to see that kind of 20 years of cycle, I think usually when people become very negative, the vintage one or two years after that is always a good vintage for BC because people are pessimistic. Even entrepreneurs are realistic.

You know, they come to us and say, look, I understand that a valuation needs to be adjusted.

I would say that it’s an opportunity for us, great opportunity because now we don’t have to educate the entrepreneurs to say why your valuation should be this. They are coming and say that, yes, we understand that I can’t use the 2021 valuation as a benchmark.

I’m prepared to be a bit more realistic. I am prepared to let investors take longer time to do their due diligence. I will try to manage my cashflow in a better way that I wouldn’t run out of cash after I raised this round in six months time. Right. So I think in terms of opportunity, yeah it is great when there is always a bit more negativity in the market. Because we are long term investors when people are a bit more cautious, then the brave will reap the reward. 

Yeah, 

 

[00:25:52] Dmitry Levit

I would probably again, slightly and mildly object to the notion of good and bad. But I think seven or eight years ago, Jianggan, we already had this conversation about a whole different anomaly.

So I’ll probably go right back to that conversation. Remember, we spoke about Rocket Internet, good or bad for Southeast Asia. I would say my answer remains the same. Tactically very bad and strategically quite good. So probably a net positive. What I mean by tactical, okay. Last few years of exuberance, wrong muscle memory for a whole bunch of young investment professionals who think writing checks and doing deals is what VC is about.

We have half billion dollar funds deployed in the period of six months. And then, you know, founders retire in Singapore without seeing any result from the investment just yet. So bad, bad, bad across the board, tactically, but strategically, there’s a billions of dollars that have gone into digital talent and digital build out a new value chains, as opposed to just, you know, another coal mine and not the supermarket and other bank, but nobody needs.

So this amount of capital deep propel Southeast Asia forward into the future. Inefficiently though, it may have been deployed. It is still net positive because it pushed us all forward rather than backward. Same logic as I applied to developments that rocket internet brought to this region a decade ago, terrible destruction of value, a whole bunch of misrepresentation, a whole bunch of European investors burned by empty promises, a whole bunch of unqualified executives that spread across Southeast Asia and still pretend to be good, but on the net, net, net.

 It shook the established offline retailers. It boosted development of payments. It boosted development of logistics and some ex executives of Rocket. I have the pleasure of talking to right now. Not too bad. 

 

[00:27:38] Jianggan

Actually it’s interesting because in 20 12, in 20 20 13 I think I see lots of people.

I mean, they’re a bunch from Europe, but there are also a bunch from each country when people want to do things, in tech-related stuff. 

Not everybody’s like extremely inspired about funding their own staff and also have idea that they’re really committed to. So rocket internet became a good training ground for, for many.

So you’re basically operating at somebody else’s cost. And this is a question I get asked a lot, right? So especially from people in China saying, Hey, what’s your biggest reflection from rocket internet and time? I said, I mean, My response actually evolved over the years but because I’ve been reflecting about that experience.

 I mean, for me personally, a couple of things that I have gained, I mean, first obviously is. learning things at somebody else cost. That’s something I already knew. And second is making a bunch of really good friends across different continents because we’re like, you know, exchanging ideas with each other and stuff.

Especially non Germans because non Germans tend to, I mean, form a better bond because there’s, I mean, it works with any kind of life setup, right? You have, you know people from the home country, they have like everybody else becoming closer because you are sort of a different group. And the last thing is and there was this tremendous joy that when you have some money that you are just going to spend and value destruction or whatever, and that feeling was exhilarating. So, but I do see that effect. on different people who are like rocket funders or MDs. Afterwards some people I know that after that experience, they kept looking for the same drug, but they couldn’t find it. Then they become depressed. I see quite a few people like that. And a few other people would just learn a lesson.

Also try to build something on their own, adapt the same methodology. They realized that, okay, if it’s the money that you Need to be accounted for. And it is a set up that you can’t say that I handle my resignation and leave tomorrow. Then it’s a very different mindset you need to have.

 And of course at Rocket you tend to be overly aggressive, but we build your own startups. It’s a very different mindset. But I do think that back to exactly your point, right, this is something that for, each individual to figure out,

 

[00:29:48] Dmitry Levit

all I was saying is not good. There’s a whole bunch of second degree effects and third degree effects and the further away from the value destruction to get, the more positive the remote effects are. To bring things to more recent events, I mean, we all know what has become of Gojek and Tokopedia and GoTo and now, you know, GoFar, GoTogether that’s being broken into pieces. But we all have to agree the IPO and all the dancing with Indonesian flags on stage, that was pretty joyful. 

It’s a very good framework. Actually, we use it a lot. So abundance of capital accelerates flow of time, whether it’s good or bad for anybody in particular, that regardless, it just accelerates flow of time.

 

[00:30:27] Jianggan

And obviously now things are, as you say, going back to normal and we can’t say whether there will be another surge anomaly, whether it will probably be, and the magnitude is.

[00:30:37] Dmitry Levit: We can’t, there always is. 

 

[00:30:38] Jianggan

Yep. And I think for the many people I’ve mentioned just now, it basically accelerated everything.

Also the midlife crisis, right? I mean, I see people having midlife crisis in their late 20s instead of in their 40s which maybe it’s a good thing, right? Because if you can get out of it, you get out of it early. 

So the magnitude will probably be different. And I think you also mentioned that the vintage now is probably better.

 So the question is that I mean, how do people deploy money this year, 2024? 

 

[00:31:05] Dmitry Levit

Sure. There is a little bit of background. Oh, let me start. I wouldn’t be able to predict where money flows, but I can probably see already the three main themes for the year. Oh, well, the year is one third in, so it’s kind of becoming clear.

There is definitely a theme of overreaction, overcompensation. So the very same topics that we just discussed lead a lot of players in the ecosystem to very, very rapidly and radically adjust the investment filters. What yesterday was let’s go with an approximately directionally correct unit economics and fast growth straight into give me a profitable company or don’t talk to me So quite a bit of overcorrection there, not to mention the rush for DPI.

So I think that dictates quite a few decisions, at least earlier this year. We’ll see if folks chill later in 2024, then there is the topic of dislocation. Again, I suggest looking at large Indonesian companies that are right now. Separating themselves into bits, spinning things off, or as the case of Bukalapak is launching a thousand lifeboats, seeing what might they do that might work better than their core model.

That is a reflection of what’s happening across the ecosystem in our reasonably small portfolio on a monthly basis. Now, almost by weekly basis, we have a competitor coming by saying, buy us out. We don’t want to be in this market. in this particular country, or here is a product we developed that we do not have resources to sustain.

Can you please take over? So a whole lot of spin offs, acquisitions, mergers, cleanup, market optimization. I think that would be a major topic for capital deployment this year. 

And then there is just generally topic of confusion. It was really easy to think about investment teams over the course of the last five, six years, we had such good templates, for example, super app, you and I discussed it so many times, it was such a good recipe through a bunch of services into one app.

Talk a lot about cross promotion and Bob’s your uncle. You’re the winner of local services. Oh as we all know, Indonesian FMCG market is endless. So build the flow, take a cut and eventually you win. But the first one, look at the most recent IPOs. It was a false narrative. The second one, look at the state of Gudangada and Ula.

And many, many more. There was another one. How about you magically throw together 10 different D2C brands and do some financial engineering. And that will of course be a great e commerce company. Well, not so not with Tracia going bankrupt in the U S so a lot of theory, easy to understand. False narratives have not just broken down.

We long knew that they were broken. They broke down visibly and demonstrably. 

So now there is just not many points of consensus in the ecosystem. And that means it’s harder to build rounds and harder to build consortiums. The only alive thesis I see still alive is the notion of if you have strong balance sheet, you can buy things at discount, which we also know as agri tech, also known as balance sheet traders.

But even that thesis is slowly dwindling because it only works in a few very narrow spaces of commodity space. Like what works for a certain kind of fish doesn’t work for a certain kind of chicken So I would say, yeah, these three topics, there is confusion that does not allow people to focus capital in one of those spaces.

There is dislocation and a lot of exchange of assets taking place. And then there is the overreaction and people trying to find shortcuts to what usually would take years, but that’s my cheerful take on the market. BP, how would our peers deploy capital this year? 

 

[00:34:43] Boon Ping

Well, I guess there’ll be always a group of investors that will look at China, US, India and say, okay, I’ll do this for Southeast Asia, right?

And they’ll go out actively looking for companies that are similar to companies in this market that just raised or just have very successful traction in the news, etc. So there always be a group of investors. That will do that. I mean, you see that in coffee, you see that in selling businesses where they try to look at what’s proven in established tech hub, and then see whether they can replicate that in subsidization.

So that’s one. I think another group of investors may look at, you know, what are the trend. In the policy for example, in Malaysia we understand that there’ll be a digital insurance license being issued in the middle of year. There will be investors who try to anticipate how they can write on that and look for maybe a bit more insurtech setup to benefit from this change of policy.

So going forward, this will be the A few areas where investors will start to play and focus. Obviously we see a lot of investors talking about AI, but even Southeast Asia I think it’s tough to really have a deep tech AI play for now.

 

[00:36:00] Jianggan

That leads to a issue about talent. So I’m not talking about entrepreneurs because , I don’t think that’s anybody can be there to accelerate that. Unless you have I don’t know, overwhelming force like Rocket internet. Earlier, or to a matter of fact, Ant Group back in 2016 to 2018.

I mean, they sent like hundreds of engineers and dozens of architects to this region. And many of them, I think, are very, very qualified sort of individuals not necessarily entrepreneurs, but at least good C level people for companies. So that is something which I don’t think individual VCs can change or influence.

One factor I’m looking at is from the perspective of practitioners, right? I I mean, you guys have been here for a long time. You guys are still on the front line. Do you see. Is this region being big enough for a young generation of investors to actually take shape?

 

[00:36:51] Dmitry Levit

Is the market big enough to take in more young investment professionals, you ask? Yes. Yes. Oh, this is a very interesting topic because BP and myself and our partner, Ali, we’ve been looking for talent for the last half a year. There is very interesting stuff happening. I wish I could say that investment professionals are fewer, but they’re more committed and more dogged, but no, a lot of very high quality investment professionals who’ve been fighting it out for the last decade, actually leaving the industry.

To your point about heartburn, about mental fatigue, about people getting disillusioned, early onset of midlife crisis. So a lot of holes are being left in the ranks of VC firms that are otherwise perfectly capable to keep deploying and have the capital and have the story and have the stamina. So I think right now is actually a fantastic time to join our VC industry.

Unfortunately, folks mostly still do it for the wrong reasons. Fame and glory and without much expectation to stay in the industry for as long as necessary We just end the 15 years, but that’s just me having my little middle life crisis here talking BP anything to add? 

 

[00:38:02] Boon Ping

Oh, nothing really to add.

Yeah We do see that it’s a gap in most of the VC fund the decision makers or the experienced guys are still at the junior level are still very transient a lot of movement there So I think that that need to be strengthened in that area, but so there’s definitely room for enlarging that pool 

 

[00:38:23] Jianggan

Do you think the issue is that because I do know quite a number of people have been in the industry for I don’t know three four five years And their frustration, I mean, for many of them to leave the industry is quite commonly that, hey, 

I’ve been working with this fund for two and a half years, I’ve done two deals. And obviously not at the partner level. , it’s hard for them to build a resume, let’s say.

And I suppose this issue will persist, right? So having someone who have I don’t know, 10 to 15 years commitment to industry, Where how this industry will evolve probably looks very uncertain to them. It’s tough proposition. 

 

[00:38:59] Boon Ping

It is tough, but

 

[00:39:01] Dmitry Levit

what is the question there?

 

[00:39:03] Jianggan

No, I’m just making a comment. 

 

[00:39:04] Boon Ping

Ah, but it allowed me 

to, okay, go ahead. Yeah, I just want to chime in. 

You know, when you hear comment like, you know, this, where they only do two deals in the two, three years in all investment, there’s a long funnel, right?

You evaluate a lot of deals. You do a lot of due diligence. In the end, you maybe end up wanting to, this whole cycle is actually opportunity for them to learn, for them to build out their abilities, the skill set, you know, so I would not necessarily say that just because they do due diligence then it’s not something that energize them because then you are very myopic.

And not only that, after you do the deal, there’s always opportunity to manage the portfolio, to see through the whole cycle, and maybe help to exit. So if the frustration comes from doing deals, then I think they are missing the forest for the tree. Right, so. I think that is kind of how I would encourage people who are not doing enough of deals but you know, whole aspect of the deal execution the deal evaluation is part and parcel of the whole cycle.

Even for us, partners level each of us handle four to five deals, in the investment period, That is kind of the nature of the game, right? Unless you want to adopt that approach whereby you spray and pray, where you invest 20 30 and then there’s a different scenario altogether. But in terms of doing deals, building track record, you know, do deals it’s not something too shabby to factor in.

 

[00:40:30] Dmitry Levit

BP is very kind. I would probably be much more extreme on this and say that It’s a perfectly fine thing to say for an analyst in the industry that, Hey, I haven’t been given a chance to look at enough interesting businesses. I’m an analyst. That’s what I do. I analyze things. So not giving me enough information, intellectual challenge is bad for me.

That’s a perfectly fine thing to say again for an analyst, but for an investment professional to say, I have taken millions of dollars that belong to other people and I have deployed them into companies. And I treat that as a line in my resume, that would be a firing offense at center. 

So the measure of investment professionals should not be number of deals they’ve done.

It should be a number of founders who say good things about them after they exit. And that means that two to three years is nothing. The staying period in the industry must be five to seven, and that’s on the optimistic side. So, and there you have the illustration as to why some folks wash out of the industry sooner than others.

But is it a tough proposition to your comment Jianggan? Yes, of course. It’s not a very well paid job with lumpy outcomes that will spread across long years. And that’s also about being in the support role and in the second seat to the founder who actually runs the business and running services and support infrastructure around them.

So it’s not for everyone.

 

[00:41:51] Jianggan

There was this VC master in China who gave interview about generative AI two days ago, which went a bit viral. We talk about how hard it is to invest in generative AI in China, which I’ve had discussions about this with many friends in the industry of AI.

They largely agree with his conclusion, although they disagree with his reasoning for the conclusion, but anyway, so there was this line, which lots of people , were referencing during that interview. He said, in my 15 years of VC career in China I missed Bytedance which drove half of the returns. Of the whole industry, you know, in the last 10 years, I suppose he meant from 2014 till now and that. I don’t know. I maybe the interview was being dramatic. Then it was saying that, Oh, after he said that he went into deep thought. so my, I mean, not really a question, but something I throw to discussion is that, I mean, as a VC professional, you will probably face this kind of situation, right?

I mean, you, sometimes you 

really don’t know what is good. But of course now it’s probably easier because you get more time to interact with the founders so that it get a better sense back then. And for that particular investor, he had like half an hour session with Zhang Yiming, the founder of ByteDance.

He said he found him unimpressive and he gave half an hour because he was recommended by a friend. And do you think that I mean, as a professional per se, investment professional per se, this kind of right sized opportunity, this kind of like normal cycle of decision making would allow you to be, better to yourself psychologically throughout the career.

 

[00:43:21] Dmitry Levit

Oh, are you asking a mental health question? Yes. That’s a very personal question for each investment professional. I would probably turn it slightly sideways, if I may BP had his experiences of the same kind. I had his, I had mine of missing out on a fantastic deal. I used to obsess about this quite a lot in the very same terms.

Oh, this was in my previous investment firm. I had a chance to look at something that became Sea Group at the valuation and single digit, tens of millions traumatic experience. And the investment decision was not structured correctly. And we did not do the deal. Kind of shaped a lot of thoughts that I have about how to run a business.

Thinking about this in personal terms of I’ve missed the deal of a lifetime, that way madness lies. The lessons that we try to take from those experiences are best applied to how we design our VC firms. So what went wrong in that conversation? Maybe there wasn’t an allocation for experimental investments into bright founders that have no idea what they’re doing, which is what I’m given to understand Bytedance look like in the very beginning, like five pivots a minute.

Maybe too many partners were in the room and I see needs to be slimmed down. Maybe the partners were given per deal carry and fought each for their own deal and never acted as one firm. Maybe too many associates were on board who think about deals as lines in resume. What can be improved? How do you construct a better decision making machine?

I would channel this frustration to organizational design matters rather than just self destructive thoughts and confessions on podcasts. But that’s me, BP. 

 

[00:44:56] Jianggan

So who did get frustrated?

 

[00:44:59] Dmitry Levit

All humans. 

[00:45:01] Boon Ping: Yeah. I mean like any investors when you miss a good company that eventually become unicorn, you always ask yourself whether do you miss it?

But then as we all know, sometimes company change people at a point in time, when we look at a company, it could be a totally different creature. Yeah. And. Investment, there’s a bit of luck, right? When some company pivot and hit the right thing, just like, you know, Slack. It started as a different company altogether, become a huge success, but the investors who invest in the predecessor, did they know how big this is going to be, right?

So I think sometimes, Yes. We do have requests. All of us have requests. I met Tokopedia when they were like very early in the 2015. I met the winner and I met Baidu when I was in Syntec Venture. You know, it was just like, oh, it’s a Google of China. Well, China, yeah, if I wanna do that, why don’t I invest in US directly?

Yeah, we do miss all this. I think it’s important to just kind of. Look at the decision that you made that time. Was it sound? And if not, if there’s an error in your judgment, then just pick it up and learn from that.

 

[00:46:09] Dmitry Levit

The best way we’ve managed to summarize it for internal purposes at center is the purpose of a VC firm is not to do deals, not to manufacture deals.

The purpose of VC firm is to produce quality decisions, whether to invest or not 

to invest. And so every wrong decision becomes an opportunity to improve the process of making a decision for years and years and years and decades, if necessary.

 

[00:46:31] Jianggan

That’s a good summary. 

My last question you mentioned about that.

There are so many broken value chains in Southeast Asia, which makes it fascinating. And I think what the last few years you have been quite bullish about digital financial services or all the value chain around transactions. So. Why? And what do you think can be done? And also, I think maybe partially related to the question is that lots of these opportunities are in single markets.

And are these right sized opportunities? Or do you actually foresee that some of these companies would have to go to regional?

 

[00:47:01] Dmitry Levit

Several questions there. 

So on broken value chains here after looking at quite a few. Some can be fixed with a simple application of digitization, right? Move your records from paper to Excel. That’s the low hanging fruit. Some need to be fixed with more than that. You need to build a marketplace where there wasn’t one before.

Some can only be fixed with sophisticated software as a service, with big calculations, with generative AI, what have you. But quite a few value chains in Southeast Asia we come across are fundamentally broken because of how money flows. Whether it’s disruption in settlements and construction industry, whether it’s a lack of working capital for e commerce merchants, whether it’s payments across borders that are delayed for 10 days, the list is endless.

Don’t get me started on insurance. So we don’t see financial services as an industry or as a vertical for us to address. Although. There is much to address there. We see it as a set of tools that help build bigger, better digital companies. And to your question of single country versus multiple country, that is actually a fascinating question because the standard go to response to this question is every country is absolutely unique because every regulatory regime is absolutely unique.

Or JICA in Indonesia is nothing like bank Negara in Malaysia. And therefore the two markets could not be more different. But in practice, if you dig deep enough, you will see that the infrastructure of most banks has been built by the very same few firms. I’m looking at you, IBM. I’m looking at you, Accenture. And the reference designs for payment switches underneath the Paynows of the world, the prompt pays of the world are the very same UPI and the very same PICS, although PICS was a bit later, and the very same subsidiary of MasterCard was involved. So we are starting to realize now, 13 years in, that financial services are also this set of rails.

That actually allow you to go regional faster. Moreover, they do allow you to go global faster. If you figured out the breakdowns and the functioning of a bank in Malaysia or in Thailand, you actually do have a chance in Columbia, not in the U S probably not in Japan, never in China, but in Argentina and in Chile and in Kenya and in Egypt and in South Africa.

And the world is very large if you look at it from this perspective. So that’s what gets us excited about financial services, not for The purposes of fixing financial industry per se, but as a set of tools and instruments, just like better connectivity, just like better data centers, just like cheaper phones that help a digital company build outs, which in turn help fix those otherwise unaddressable value chains.

And I’ll hand this over to BP because he is a specialist in fixing unfixable value chains using very same financial services. We did make a couple of announcements on that lately.

 

[00:49:43] Boon Ping

Yah. So. Maybe just to add some colors say for example with a lot of business model now in place A lot of data are being generated.

Maybe I’ll just give an example of Doxa one of the company that we just recently invested Traditionally in the construction industry There’s always this dynamic between the anchor buyer which is the main contractor versus the supplier in the old days The supplier have to submit paper invoice to the finance department or construction industry, you know, there’s always Errors, there’s always fraud, you know, multiple invoices can be submitted, etc.

So banks have always been finding it very difficult to finance the construction industry, especially the long tail suppliers Now, when we talk about digital services we don’t really just restrict ourselves to just transaction, right? But here again, with this platform, whereby they connect the anchor buyer with the supplier, digitizing the invoice, we can do a three way matching.

And with that data, it’s very easy for us to then work with FI, financial institution, or digital banks, or any financier who want to partake in invoice financing, with the assurance that the invoice are legitimate, well-dated

With the pool of data that has been matched by the right bias. So these are what we mean by digital service that we are excited because we are seeing a traditional business model that’s there the longest time in the construction is well established, but now with the digitalization, they can introduce new opportunities for people to partake in the digital services.

In the past, banks would never bother to do credit scoring for small suppliers because it’s just not worth the effort. It takes up too much time, too much cost just to pass a credit committee to lend to small suppliers but now with this platform, it lowered the cost. Banks can automate the whole process. And that’s what we’re excited.

You’re looking at traditional business being digitized and how do we then pick up winners in the various sector to offer financial service based off data. We are very data driven and we’re looking for more opportunities in such arena. 

 

[00:51:45] Dmitry Levit

And what this eventually results in is a lower mortality among small companies that participate in this value chain.

Previously, you’re a small contractor that breaks big rocks into small rocks. You go bankrupt every half a year, because by the time you’re paid, you’re no longer there. So you pay your employees lower salaries, and you use shorty equipment, and you cut corners on regulation, and the buildings you build eventually go down in the nearest earthquake.

So fixing this value chain means rather a lot to employment, to SME survival, to eventually the stability of the cities that we walk the streets of. Obviously applies outside of Singapore. Singapore is obviously perfect. 

 

[00:52:24] Jianggan

Good. I think we’ve touched upon quite a number of issues on this hour.

And thank you very much for being here this morning. And yeah, so look forward to what’s happening in 2024. And I know that Dmitry has been working on the 2023 full-year investment report, which this few rounds is coming later than. So I imagine the reason is that he has too many good opportunities that he’s doing due diligence on.

Or, because otherwise it can’t be explained, right? I mean, the number of deals was obviously smaller last year compared to the previous year. So that means the workload is 

 

[00:52:57] Dmitry Levit

You’d be surprised. You’d be surprised, actually, from the first cut of data, the amount of investment in the region dropped 25percentage, but the number of deals actually went up.

Remember what I mentioned earlier, seed and series A all time high and 

series B all time high minus 2020, 2021. So it’s actually a lot of data to crunch, surprisingly. 

 

[00:53:18] Jianggan

So that means that there’s actually more work for the team to actually do this because the amount of work, the workload. 

 

[00:53:25] Dmitry Levit

Yeah, so the report will come out in April.

I’ll try.

 

[00:53:30] Jianggan

Yeah, I look forward to that. Uh, Thanks. 

 

[00:53:34] Dmitry Levit

Thank you so much.