(Only) after pouring $72 billion into Southeast Asia, venture capitalists are hitting the reset button in Southeast Asia?
Lightspeed Ventures’ report, Southeast Asia: Resetting Expectations, has sparked discussions in our community groups for its honest take on the region’s challenges and opportunities, with some calling it “finally an honest report on Southeast Asia.”
But what does it really mean to reset expectations for this region?
Tune into this latest episode as we dive into the evolving landscape of venture capital investment in Southeast Asia, unpacking why the region’s tech growth hasn’t fully met expectations, the unique role of conglomerates, and what this reset means for future investments and founders navigating these markets.
Also available on Spotify and Apple Podcast.
Featured materials:
South-East Asia’s stodgy conglomerates are holding it back, The Economist
Southeast Asia: Resetting Expectations, Lightspeed
Southeast Asia Tech Investment, Cento
Momentum Works: A2A 3.0: Benchmarking tech platforms
Distress in Southeast Asia, and why it’s not evenly distributed, Momentum Works Impulso podcast, E67
Where has all the fintech funding gone?, Momentum Works Impulso podcast, E81
[AI-generated transcript]
Sabrina: [00:00:00] So since 2019, 70 $2 billion has gone into investments in southeast Asia tech companies, but where has all this funding gone?
Jianggan: Sabrina’s discount vouchers.
Sabrina: Yeah. Oh, my shopping and my subsidy. It’s interesting
Jianggan: that, that that’s number according to lab speed. Light speed. Yes. Live speed ventures.
Jianggan: Right. So, our friends at Central Ventures have also been highly in this number and they’ve only done that up until the first half of 2023. And the numbers we have is 45. 7 from 2019 to the first half of 2023, which is Yeah, it’s quite a big variance. I, I think they they probably define tech companies differently.
Jianggan: So for instance, Central will not define chain stores as tech tech. Let’s split my two. We don’t know exactly what’s the methodology, but still a big number
Sabrina: for big numbers, right? 45. 7 billion and 72 billions, right? And this is from of course this from a recent report that lightspeed released called southeast asia resetting expectations [00:01:00] And
Jianggan: so so this report which was how many pages?
Jianggan: 35 pages which which tells people to
Sabrina: Reset their expectations for Southeast Asia. Basically, they started with saying that there’s been a lot of funding in this region But what has happened and this is something not new to us, right? This is something we’ve spoken about before So in a previous episodes of the podcast episode 67, which we did with central ventures called distress in Southeast Asia we talked a little bit about the tech funding in the region and the tech winter, what’s next.
Sabrina: And in episode 81 with Gavin, a founder of a FinTech company in the region, where has all the FinTech funding gone? We also talked about where all the funding has gone. And this is something that we’ve, your friends have mentioned as well, right? Essentially 10 years ago, when you’re looking at all the big tech companies in the region, we have C group,
Jianggan: which was called Kareena back then, Grab and Lazada.[00:02:00]
Sabrina: Under. Okay. Lazada. Yeah. 10 years later. These are still the top three, I would say Top three tech players in the region, right? Mm mm-Hmm. Have we seen anyone? We haven’t really seen anyone new become as big as they have
Jianggan: maybe, but I mean, go, were already there back then, so it’s not it’s not anything new.
Jianggan: I think after 2015 specifically you see lots of money going to venture capital in this region. Lots of companies. Also funding and unicorns being minted. I think we even have have a, have an article called seven methods of minting a
Sabrina: unicorn in Southeast Asia.
Jianggan: So it’s kind of fun. I mean, you can link that.
Sabrina: Yeah. I will link that in the show notes below.
Jianggan: Yeah. So, so, but of course there was so much hype, so much expectation about Southeast Asia because it’s a, it’s a region of 700 million people. That’s that’s more than that’s about half of China and the GDP per capita if you look at the regional basis, it’s probably also about half of China.
Jianggan: So so you would expect the region to produce, I don’t know, [00:03:00] a quarter of China’s results, but the reality is that it hasn’t.
Sabrina: No. So in the light speed report, they said that Southeast Asians funding generally did. Resemble China, which shows that people had faith in this region, right? They thought that things would work out, but of course, looking at the value that comes can come out of this investments, only half the value is created per dollar invested in Southeast Asia compared to China.
Sabrina: But of course, what they mentioned in the report or what they really wanted to highlight in the latest light speed report was that we can’t really use China and India as a proxy for Southeast Asia, right? So they go into more details in the reports, which we’ll link down below, but basically they talk a little bit more about Southeast Asian consumers and what makes Southeast Asia such a different market.
Sabrina: But this is something that we’ve talked about the course law, right?
Jianggan: The funny thing is that this report actually raised a lot of discussions amongst our community, both in Chinese and English, and in a community where people speak English. [00:04:00] So there are lots of people who are lucid, who are saying that, oh, this is something really new since 2017, and you needed to have the right expectations for this region.
Jianggan: The infrastructure is not there, and the markets are fragmented. Which means that which doesn’t mean that you can’t create big tech opportunities, but which means that you need to have the right expectations of, of timeline and ROI for your investment. In the Chinese community, I think the narrative is, is however, a little bit different, right?
Jianggan: People sort of benchmark China looking at, I mean, how that market took off as far as tech is concerned and why this market is not taking off. So one key. Issue that I’ve been discussing with a lot of friends from China who have been looking into Southeast Asia from investor point of view from a tech expansion point of view.
Jianggan: Is that. We look at China, I mean, in 2010, and lots of things happen at the same time. You have the infrastructure. I mean, lots of infrastructure, logistics, high speed rail payment [00:05:00] urbanization like old cities been demolished, people move to high rise. Apartment stores. I mean, all this happened pretty much at the same time, supply chain, etc.
Jianggan: So that allowed the growth to be unleashed very quickly. And during the same time, you have a lot of American investors who are willing to play with the founders back then. So, so, so that creates a perfect storm and startups, if can, if they can survive the competition, they become big.
Jianggan: Mid one by dance, et cetera, et cetera. They all started around that time, but
Sabrina: it’s very different in Southeast Asia, right? So obviously in China, technically they are one country, so everything kind of developed at the same time. But when you look at Southeast Asia, generally we look at the six key markets, so like Singapore, Malaysia, Thailand, Indonesia, Vietnam, the Philippines, and all these markets are kind of developing at.
Sabrina: Different timings, right? So the payment infrastructure is different across the market. So it’s logistic infrastructure. You look at countries like Indonesia, the Philippines, where there are so many islands, obviously the way [00:06:00] that they built their logistics infrastructure will be very different. And I think that’s something that might, that is why we can’t directly compare Southeast Asia to China.
Jianggan: So a couple of things. I mean, first we look at China. I mean, of course, China is also a diverse country and you have the coastal regions where the GDP per capita would be probably 30, 000 even more. And you have some of the Western provinces of the tier four, tier five cities. Where the capital income per month is probably less than 200.
Jianggan: So, so that that’s a huge disparity, but what you do have is, a constant network of cities, which are developed and affluent with good consumption power. And these cities are connected with very good logistic infrastructure. I think you were in Yiwu, right, with us two weeks ago. And we visited one of the large logistic sorting facilities, which processed about, what, 3.
Jianggan: million parcels a day? And you sort of scale, right? Yes,
Sabrina: [00:07:00] and it’s very efficient, like the machinery and all.
Jianggan: Yeah, I think in Southeast Asia you can build the same machinery, but the question is that, okay, Who takes the lead, right? I mean, if you, if you have the de, if a, if you build infrastructure, there’s no demand and that investment will be sitting there not making return for a long time.
Jianggan: But if you create too much demand and that the infrastructure doesn’t catch up so, so you would have a situation that demand can’t be met. So, so in China, just everything happened at the same time. Remember the businessman that we met over lunch eu, who is saying that he was previously in Chen?
Jianggan: And the reason why he moved in to you 10 years ago is very simple, right? I mean, it says him I don’t know, but that’s the event, the parcel to, to, to send parcels out of Israel across the country. And we do like hundreds of thousands of parcels a year. That’s a lot of money.
Sabrina: So I think that’s, but I think Southeast Asian consumers also something that’s different, right?
Sabrina: So something mentioned in the light speed report was that obviously due [00:08:00] to the aggressive promotions that a lot of the platforms used when they entered, consumers are very driven by discounts and promotions, but
Jianggan: of
Sabrina: course, now we see that this is something that we talked about. We have a report about it.
Sabrina: Actually, our FOS to FOS report, where we talk a little bit about the incentives. And how these platforms account for their incentives, but essentially we’ve also, what we also mentioned is that platforms are kind of shifting away from this because they’re trying to grow in a more sustainable way. I think
Jianggan: there’s one issue.
Jianggan: I mean, there are two issues with incentives. I mean, first is I mean, I think this is also mentioning extensively in the light speed report, which, which, by the way, many friends are saying that there’s a surprisingly honest report about the region. Is that is that the spending power of consumers?
Jianggan: So, so, so if you offer consumers a service, which is beyond their spending power. And, of course, you can give them incentives for them to try, but of course, there was no stake because it’s beyond what they can afford. And the 2nd, it will be the infrastructure. So if [00:09:00] you offer them a lot of things, with incentives to to to basically sort of.
Jianggan: Make it affordable to them, but but the infrastructure is not there. And so, so once the incentives are out, I mean, do people, are you still able to. To fulfill all this demand in a way that’s sustainable. So, so I think 1 example we look at is, say grab right after so many years, I think now they have what 40 million.
Jianggan: Monthly transaction users. That’s, 5 percent 6 percent of the region. I
Sabrina: think 5 percent the last time we calculated.
Jianggan: Of the region’s population. So Meituan has I think about 200 million active transacting users. That’s about 15 to 20 percent of the China’s population. So, so you see, you see there’s a difference.
Jianggan: And I think lots of things about The income disparity and there are lots of things about the infrastructure and spending power, which take companies alone. I mean, they can do to a certain extent, but I mean, they can’t build [00:10:00] highways.
Sabrina: Everybody has to, I mean, a lot of it is so, an interesting thing about this report is that one of the co founders of Gojek was actually the authors of this report, right?
Sabrina: So
Jianggan: I think he, he, he left Gojek to join as a venture partner. Oh, by the way, lots of people in Southeast Asia do not seem to know the difference between a partner and a venture partner in a VC firm. A partner is someone who works full time there. A venture partner is someone who is actually external, but who helps out.
Jianggan: So
Sabrina: he’s a venture partner. He’s
Jianggan: a venture partner.
Sabrina: So basically he was one of the authors of this report and he also did a LinkedIn post. So basically what he mentioned in the LinkedIn post was that obviously the narrative that Southeast Asian consumer class will be the next China or India. Was at best decades early or did wrong.
Sabrina: And he also mentioned that he wished this was something that he knew back when he was at Gojek, right? Because obviously I think when they started this work kind of, when your investors invest in you with the [00:11:00] perception that you would have the same growth trajectory as those in China, they would probably be disappointed if you’re not performing at the same level.
Jianggan: I think his assessment is damn right. But but I’m just curious whether he didn’t know about this, right? In 2017 or before or whether he knew about it, but because of all the people around him, right? Investors were pushing pushing him and there are lots of expectations that it becomes difficult for you to to stay lucid and actually actually push a message around.
Jianggan: Right? Because. We under like so much pressure from so many stakeholders that, okay, you need to grow and this is the expectation IPO into whatever, whatever. So it’s, it’s, it’s hard for you to say that. No, I don’t think this market is ready yet. Let me do things according to my speed. I think it’s very, very harsh.
Jianggan: To withstand that kind of pressure.
Sabrina: And I think it’s not just investors pressure, right? So obviously, like you mentioned, the pressure to go IPO, A couple of these Southeast Asian tech [00:12:00] companies like Gojek, grab C have all gone public in the past few years. But according to the report at Lightspeed, almost all of them have lost value after going public as compared to so according to the report.
Sabrina: C was actually the only one who gained market capitalization.
Jianggan: That’s since 2017 ipo. Right. And they had a high point of 2021, which their share price reached like 370, and now it’s dropped to about a hundred. So, so still, I think I think people’s expectations were very high about this company and now they realized that, that it probably takes a longer time.
Jianggan: That said not always bad. So there’s this company, a fintech company in Singapore called iFast, which probably not many people know about, which is listed in Singapore Stock Exchange, which not many people are excited about. That is one
Sabrina: of the ways to become a unicorn, from our heart, a unicorn in South Korea.
Sabrina: Yes, we
Jianggan: actually had that one, [00:13:00] the iFast way, right? I mean, you get to the public market early. I think they were listed in 2014. And for a long time for about, I don’t know, all the way until like 2020, the share price was stagnant at about one Singapore dollar per share. During the pandemic they had high and they dropped, but they recovered.
Jianggan: So at the moment they have a market cap of 2. 28 billion Singapore dollars, which makes them perfectly profitable unicorn level and with the P ratio of 44, which is quite reasonable. So what I’m saying here is that there are opportunities. There are examples where people have ceased to build companies, which are worth certain value and profitable.
Jianggan: So they are possible. But I think I think using China and India as benchmark to try to create this kind of like, like tens of billion dollars opportunities can be quite hard, precisely for the reasons that we mentioned, right? I mean, the infrastructure, the fragmentation, and.
Sabrina: And I think that’s something that Lightspeed also focused [00:14:00] a lot on in their report.
Sabrina: So basically they said that, obviously there’s a lot of potential in this market. So when we talk about, for example, the number of users that use Grab, right, it’s like 5 percent of the population. So there’s a huge untapped population, like
Jianggan: 20%. How
Sabrina: do you grow that? And then also of course they do in the report, they mentioned that talent in the region is increasing.
Sabrina: So that’s something that could help as well. And then I think, but it’s interesting. So there was recently an article by The Economist as well, which was published four days ago, as we’re filming this on 24th, 4th October. Basically, it says that Southeast, the article is called Southeast Asia’s stodgy conglomerates are holding it back.
Sabrina: So for those who are interested, I’ll link the full article down below. But essentially what they mentioned is that, like I mean, we know Asia has a lot of conglomerates and essentially these conglomerates have close political ties or with regulators, which as the article states, could be hindering innovation in the region.
Sabrina: So, and in number that I put out from the article, as they say, [00:15:00] among the top 50 firms in Southeast Asia, Only one of them was founded in this century, which essentially was C group, and out of the other 50 15 of them are state owned enterprises, whereas the other and 14 of them are subsidiaries of the region’s conglomerates.
Jianggan: Interesting. That makes the whole number 30. So 30 is like 60%. They didn’t mention what the other 20 are.
Sabrina: No.
Jianggan: Okay.
Sabrina: Other 20 are just
Jianggan: probably some. Yeah. So. I remember last year we did, we did a little bit of a search about the, the rich list, right? The top two, the top 10 richest person in each country in Southeast Asia.
Jianggan: I think only in Singapore you have tech entrepreneurs who made it in a top 10 and all of them are migrants. Right? So, so basically you don’t have indigenous tech entrepreneurs who, who made it to the, to the super rich list. But we look at who are on the list. I mean, people who have Had monopolies or charters in sort of basic commodity trading people [00:16:00] who work on natural resources.
Jianggan: And and I think people who, who, who based around conglomerates, I mean, covering different areas. And most of this conglomerate actually started after the, the, the second world war when the whole sort of the regions economics sort of status was, was reshaped and I think one exception was Vietnam, right?
Jianggan: Where, where things came a little bit later.
Sabrina: Yeah.
Jianggan: Because many of the, the, the big conglomerates in Vietnam really started in 1990s. The richest man in Vietnam the founder of Vingroup and I think he started like instant noodle company in Ukraine during the break, break up of Soviet Union.
Jianggan: Then he went back and just, just in time for the, for the reform and open up of Vietnam. So he met Rich. But otherwise, I think the big companies are there. They have been there for like 15 years And many of them are run by the second generation or third generation. That was I think one famous investor once told me That I mean he’s from this region and but he doesn’t invest in this region.
Jianggan: He invests in latin america. I asked him why would you do that? I mean [00:17:00] this guy knows the the business models in china inside out And he gave me a very interesting reason he said Most of the region’s conglomerates are ethnic Chinese, still run by the family, as opposed to in Latin America, where many companies are a hundred years old, like run by sort of career managers, still run by the family.
Jianggan: The family knows what’s going on in China. The family probably made lots of money from China’s open up in the 1980s, 1990s. So, so good luck disrupting these guys.
Sabrina: I think that’s something that the economists kind of mentioned as well, right? That because generally, like you said, most of these conglomerates started so long ago.
Sabrina: They’re in either very mature or declining industries and not a couple of them have tried venturing into newer industries, but a lot of them are still in these traditional industries. And, but the economists data is that this could be hindering innovation in the country. Different from what we see in Korea, right?
Sabrina: Because we know Korea has a lot of conglomerates as well, but these are conglomerates who do compete with foreign companies in overseas markets. So for [00:18:00] example, Samsung. Yeah,
Jianggan: I think many of their products which compete globally. But also, I think, I think there’s some culture element in that. I mean, Korea is East Asian country.
Jianggan: Yes. And East Asian country, for whatever reason, has been known for for like competing unnecessarily or incessantly. Yeah. So, so Korea, Japan, China, to a certain extent, Vietnam. So it’s, it’s, it’s a similar culture, but but in other parts of Southeast Asia, once you control key industry,
Sabrina: it seems satisfied.
Jianggan: Yeah. You can, you can basically milk it for, for, for a long time. So I, I will not blame these companies. I will probably look at, I mean. The the ground where these companies thrive on and and whoever wants to do to break this who wants to like, you know, have more innovation coming in to look at. I mean, how do how do you change the regulations?
Jianggan: How do you change? Change the landscape and how do you make make the region economically more integrated? Because that’s where the opportunities are coming from, right? Because each market is by itself. As far [00:19:00] as tech is concerned, it’s too small.
Sabrina: Mm-Hmm. So you have to look at, but then again, then the countries in the region are also different. So I think it’s interesting that this article came out about the same time that the Lightspeed report came out, right? Because it really shows the different dynamics in the Southeast Asian market as compared to obviously China, India, countries which I’m sure have their own conglomerates as well.
Jianggan: I think I think people are reflecting, right? Because precisely as, as how we started, I mean so much money has gone into this and, and historically every participant has been, I mean, every person, be it VC, be it Be it consultant, be it the, the, the tech companies. Have basically felt obliged to tell a good story about this region.
Jianggan: So, so it’s actually good that light speed and his partners actually released this honest assessment operation. So that allows, I mean there’s a big debate about, I mean, what is there to be reset, but but I think, I think this is a good exercise because not everybody who is contributing sort of capital and talent to this ecosystem.
Jianggan: Is as informed as [00:20:00] as many of the sort of long term participants are so, so people need to have the right expectations. And and this is something that we have been. Talking to the companies in China as well, right? When you come to this region, do assessment of what market is, which stage market is at, then look at, okay, what kind of opportunities there is for you to tap into and where you should like spending your resources to, to achieve the highest ROI.
Jianggan: I do think that there are lots of opportunities in retail, in consumer goods and e commerce. I mean, still there, I think, I think there are many things that people can, can tap into and many, many ways people can, can create a value. The question is As somebody was, was was telling me after moving to Indonesia from China a few years ago and made some good business, he’s saying that, I mean, the first thing you need to do is to start changing yourself, not the market.
Sabrina: It’s easier to change yourself.
Jianggan: Yeah. Change your expectations and not dish your playbook, but take your playbook, look at the market to see where exactly you can, you can play your Your resources and [00:21:00] your your expertise and, and, and your funding so that it doesn’t frustrate you. It doesn’t frustrate the people you work with,
Sabrina: but it creates value. I think that’s kind of what the Lightspeed report was trying to highlight as well, right? Essentially just don’t hold Southeast Asia to the same standards as you would China or India. Yes. acknowledge that the market is different. And of course, I know it’s the fact that there is still potential in this market for growth.
Sabrina: It’s just how is it?
Jianggan: Yeah. And the question for every participant is that to, to, to, to find out what that opportunity is. So there’s something that we have been looking at because we have participated in different parts of ecosystem and something that we can use to look at. So, so happy to, to discuss about, I mean, any opportunity, I mean, debate about.
Jianggan: Things. And so hopefully we can learn one thing or two from each other.
Sabrina: So thank you guys for tuning in to another episode of the ImpulsoCodecast. I hope you enjoyed today’s episode. And if you did do do like our video and subscribe to our YouTube channel as well as subscribe to our newsletter, where we send out weekly [00:22:00] blasts of the latest news in the tech and digital economy.
Sabrina: Thank you. Bye bye. Bye.