There are voices in the market that it has become harder and harder to invest in Southeast Asia, as there are very limited amount of good companies, and the good opportunities have been taken.
We disagree with that notion. We believe that the market is still in early stages, and many opportunities are just emerging because of the improving infrastructure and increasing availability of funding.
In particular, Chinese investors are becoming more and more active in the region. Many of them put Southeast Asia as the first step of their global blueprint. Why? Geographical proximity (mostly in same or similar timezone), cultural & trade ties (and large Chinese communities in the region giving additional sense of familiarity), improving infrastructure, and the confidence in economy and demographics.
These are the few areas that Chinese investors are active in:
The Fintech market has always been a promising potential market. In addition to Softbank and Alibaba, many Chinese VC companies have been rushing to Southeast Asia.
For example, some of the leading lending platforms in Indonesia, including RupiahPlus, Dana Rupiah, Akulaku, Kredit Pintar and Tunai Kita, are all backed by Chinese capital.
All of them have much higher volume than home-grown Uang Teman.
Even with so many players competing in this field, the market is still in its early days – evidenced in the fact thats customer acquisition cost is not really growing exponentially and the penetration of fintechs is still low than that of banks.
In a word, still lots of room for growth, and competition.
We are also aware of investors actively looking for credit scoring and fintech data companies – alas for both fields it is still quite early in most countries in Southeast Asia.
In addition to Shopee and Lazada, backed by Tencent & Alibaba respectively, there are more ecommerce opportunities in the region. Chinese companies like JD (which is also backed by Tencent) and JollyChic (biggest ecommerce player in the Middle East) are active in the region. Although this year as far as investment is concerned, more attention seems to be in Middle East (For Deal etc.) and India (Club Factory etc.).
We expected big cross border activities in the region, though so far most big players are doing so through the platform instead of running their own apps/sites. There are also companies like Shenzhen Cuckoo which take an aggressive but probably not very sustainable strategy.
Social ecommerce is one area that many are actively looking to invest in – especially seen the success of Pinduoduo, While in this region there is a lot of ecommerce going on through various social platforms, a significant consolidated player has yet to emerge.
Luxury or premium ecommerce? We believe there is a market, a growing one. However, many do not share our view. Saudi Arabia is more attractive as of now (as mentioned above).
The consensus here is nobody is able to make money through mobile payment, contrary to what the likes of PayPal or MasterCard have achieved. Neither WeChat nor Alipay makes a profit through the payment function – but payment is critical for both to do many many things.
For Southeast Asia, Alipay’s strategy is probably to supplant Visa or MasterCard in the growth market, through investing in wallets and payment operators across the region. Tencent seems to take a more nuanced approach, believing the market is not yet ripe: Aside from its attempts to do payment in Malaysia, the only significant investment they made is into Go-Jek.
While there are people willing to bet on payment in the region, a good friend from a prominent fintech investor in China once told us: “We can do anything fintech, but payment. Payment is just too much hassle with no reward at all.”
With the development of Alibaba, Amazon, JD.com and other e-commerce companies in Southeast Asia, the demand for logistics has increased sharply. Deliveree, an Indonesian logistics platform, received $14.5m in A round of financing led by Gobi at the end of 2017. Flash Express, a Thailand based logistics company with hitherto very low volume, is also actively fundraising in China.
Not to mention the fast growing and omnipresent J&T Express in Indonesia.
The logistics market in Southeast Asia is still very traditional and the pie is still big enough for more players to join the fray.
Then of course, in a competitive market, whether a local equivalent of SF Express will eventually emerge, or the market will always remain fragmented, is not yet clear.
We have all seen the success of Tik Tok in Southeast Asia. In content, gaming and other businesses, Chinese investors seem to believe that the right way to do it is product development in China and content operations locally. Rarely have they invested in local content teams – especially in recent years.
That said, the catch is mainly on growth tactics – if there are local teams achieving phenomenal user growth, they can attract the attention of Chinese investors.
Fundamentally, we do believe in the potential of the Southeast Asian market and its population of more than 600 million. It might take a while for entrepreneurs to mature, and real opportunities to emerge (and be seized) – but it is just a matter of time.
Under the requests of some investors from China as well as some LPs from the US, we are finalising a product which aims to make it easier for them to assess the opportunities in this market. Watch this space!
Thanks for reading The Low Down, insight and inside knowledge from the team at Momentum Works. If you’d like to get in touch with us about any issues discussed on our blog, please drop us an email at [email protected] and let us know how we can help.