We are in the Unicorn Zone: Why Investors Should Prep for Big Opportunities and Growth in Southeast Asia
The article below first appeared in Techsauce
As the economies in Southeast Asia continue to grow, more and more opportunities are being presented to investors. Called as the “Unicorn Zone”, the region’s rapid growth is the perfect time for investors to leverage on. Local startups are creating innovative solutions that will surely open up the investment space in the region.
In 2009, Garena was founded as an online gaming platform, gradually consolidating its service offerings with an e-commerce platform and a mobile payment service. In 2017, the startup renamed into a holdings company, Sea (whilst retaining Garena as a brand), and it had a US$ 884 million initial public offering at the New York Stock Exchange.
Sea is now just one of Southeast Asia’s so-called Unicorns, and the environment for startups and investments in the region is just ripe for more such success stories. We are currently in a decade-long stretch that is considered to be the “Unicorn Zone” — which is an ideal combination of growth in consumer wealth and demand for goods and services.
The Unicorn Zone
“The Unicorn Zone is described as the period wherein a country’s or region’s per-capita GDP doubles from around US$ 3,500 to US$ 7,000,” says Kenny Au, Founder at Elevate Ventures and Advisory. “Southeast Asia entered into this level of income in 2010, and this trend is seen to continue for a decade, well into 2020.”
Au adds that developed countries in Asia encountered rapid growth during similar periods in their history: “For instance, 68 percent of China’s current tech market cap went public during its unicorn zone from 2003 to 2015. Thirty percent of Japan’s current tech market cap had their IPO from 1950 to 1960. Same with South Korea: 62 percent of its current tech market cap IPO’d from 1985 to 1996.”
It was during these times that their respective economies were met with an IPO boom, and this is the same thing we are encountering now in Southeast Asia.
Jeffrey Paine, Founding Managing Partner at Golden Gate Ventures, agrees with this observation: “Yes, it is consistent as the political situations stabilize and overall GDP growth is on track, consumer consumption will grow just like China did in 2006.”
Regional Thinking
There are challenges and opportunities to look for, and the most important is how we can leverage the local network effect among startups in Southeast Asia. We can perhaps cite Garena’s success in this field, particularly how it focused on the regional market, where it had much expertise.
Saemin Ahn, Managing Partner at Rakuten Ventures, says it is a perfect time for investors who want to leverage the current growth in the region: “100% they should consider Southeast Asia as a hub and great harbor for investment. With incoming macroeconomic headwinds that are expected to have lasting, negative impact on developed markets, Southeast Asian countries are a hub for productive credit consumption, job creation and a demographic gold mine for growth.”
There is a trend in the region with the so-called “super tools” like Go-Jek, Grab, and other Southeast Asia startups providing a consolidated offering under one brand. Paine explains this trend as a result of such startups having a deeper knowledge of the market. “[Y]ou will see the rise of local startups just because they execute better locally.”
For instance, such tools include digital payments, ride-sharing, e-commerce, and even food services right within one mobile app. “The consolidation is inevitable as platforms with funding dominate and users are incentivized to shop and frequent their favorite apps,” says Amarit Charoenphan, Executive Chairman and Cofounder, Hubba Thailand.
Charoenphan adds that this can be a double-edged sword: “This leads to monopolistic behavior. If there is only one dominant app like when Uber exited the SEA Market [in favor of] Grab. Luckily, each country has more than one platform.”
He sees consolidation as potentially favorable to both startups and consumers when prices can be brought down, however: “Many startups have become successful or acquired by leveraging these platforms and integrating on the super apps. Consumers may benefit from more ease and convenience and startups can avoid spending costly amounts on marketing. “
Opportunities Ahead
Ahn offers some advice to potential investors looking for growth opportunities in Southeast Asia:
“We’ve already seen the likes of Alibaba group acquire majority stakes in Southeast Asia e-commerce groups such as Lazada, Redmart and the like, while we see Tencent fully manifesting their portfolio strategy through platforms such as Shopee and Go-jek,” he says.
“Investors, on the whole, should prepare to come with an open mind. As mentioned, there are many thematic similarities to how China became an incubator for innovative tech companies, but there should be also a keen sense of awareness that the 600–800 million demographic are split into relatively disparate cultures, economies and financial evolutionary stages. Case in point, although cashless was one of the main thesis points of a mobile-first economy for the region, we still see a strong reliance on cash throughout the business cycles while in China the conversion into a 80% cashless share was done with strong support from the government and a unified regulatory body.”
Paine agrees on putting focus on the different characteristics of each market in Southeast Asia.
“Investors should be clear on which country they are investing in. Southeast Asia is a region, but it is vastly different from country to country, timing of what and when to invest is key. Be local and understand what local family conglomerates and funds are doing and looking at, working together usually benefits more than harm a foreign investor.”
Charoenphan concludes that the top funds and founders that stood out today have learned the ropes from abroad and are applying their knowledge in local markets that are ripe for explosive growth.
His advice to investors and startups: ”To be the next Sequoia or Unicorn, founders need to execute and think regionally from Day 1 as being boxed into a single market may dampen investors appetite, be great at fundraising and selling the vision and story of not just your company but the region, be resourceful in working with young and relatively inexperienced talent while trying to attract global superstars talent and most importantly persistent for the long game and many political, regulatory and tax obstacles.”
Featured in the story
Jeffrey Paine — Golden Gate Ventures
Jeffrey Paine is an entrepreneur and venture capitalist. He is the Managing Partner at Golden Gate Ventures, an early stage technology incubator based in Singapore. Jeff started and manages the Founder Institute in Singapore where he is currently overseeing its expansion in Southeast Asia. Since 2010 the Founder Institute in Singapore has graduated over 60 companies. He is also a director at Battle Ventures, a venture advisory firm.
Sae Min Ahn (Rakuten Ventures)
Sae Min Ahn is the Managing Partner of Rakuten Ventures, which has Japan’s internet giant, Rakuten, as its mother company. He is responsible for leading and evaluating investments, conducting due diligence and analyzing deal structure. Prior to Rakuten Ventures, Sae was at Google for 5 years from 2009 to 2013 managing Sales and Business Development for Asia. He has extensive experience in Brand Management and Content Distribution with his time at Hyundai Card and Animal Studio, an animation startup.
Amarit Charoenphan (Hubba Thailand)
Amarit Charoenphan is best known for being the Co-founder and Former CEO of HUBBA, Thailand’s first coworking space and community that is the only Google for Startups Partner Hub in Thailand. He is also Chief International Officer and Cofounder of Techsauce, one of Southeast Asia’s leading technology media and events companies. Amarit is currently the ASEAN Director of Impact Collective (IC), a community-driven investment & acceleration project for impact-driven startups focusing on opportunities in Asia.
Kenny Au (Elevate Ventures)
Kenny Au is the founder of Elevate Ventures. Elevate Ventures is a Technology Ventures and Advisory firm.. The team at Elevate Ventures has extensive experience in fintech and blockchain sectors focused in South East Asia and China.
