Digital economy enterprises can’t approach ASEAN as a single market: Charif El-Ansari, Dropsuite

Charif El-Ansari, Managing Director of Dropsuite.

Charif El-Ansari, the managing director and CEO of Singapore-based Dropsuite, believes that the ASX will continue to be an attractive platform for technology enterprises seeking a public float as digital economy businesses grapple with the challenges of growing their footprint in Southeast Asia.

The former Head of Business Development for Google Southeast Asia, El-Ansari has held sales, marketing, operations and business development roles in the US as well as China, Japan, Korea and Southeast Asia.

In 2012, he joined Dropsuite, then called Dropmysite, leading its growth activities in Europe, the Middle East and Africa (EMEA) prior to succeeding then-CEO John Fearon. In late 2016, the firm listed on the Australian Securities Exchange (ASX) through the reverse takeover of Excalibur Mining, a listed shell company.

Despite the growth of Asia’s technology sector and heightened competition amongst regional exchanges, market data suggests the ASX is ahead of regional peers such as the SGX and HKEx in this domain.

Since leaving leaving Google Southeast Asia, Charif observes that the digital economy of Southeast Asia has matured significantly.

He tells Venture Views: “There has been a massive acceleration in the last three years in Southeast Asia, fuelled by compelling electronic payment methods, smartphone proliferation with boosted connectivity, well-funded local players who know how to cater to the local communities. All of the above buttressed by a growing middle class in developing Southeast Asia.”

However, he also notes the gaps in the growing digital economy, adding, “There is still a lot of headroom to grow in “traditional” digital economy, like e-commerce, if you compare ASEAN to the USA or urban China. There are still massive untapped opportunities, like in most of the world, when it comes to using big data / AI to solve / faster connectivity to solve meaningful — and lucrative — challenges in healthcare, infrastructure, agriculture and manufacturing.”

Despite the growth of the digital economy in Southeast Asia, Dropsuite’s does not forecast further growth of its footprint in the region, though it maintains operations in both Singapore and Indonesia.

Growth of Southeast Asia’s Internet Economy. Credit: Google Inc. & Temasek Holdings

El-Ansari explains: “Dropsuite cloud backup products for small and medium businesses , while universally relevant, are sold by our reseller partners as a value-added service, a more difficult sell in emerging markets versus developed countries like the US or Australia. We learned this lesson the hard way early on in my Dropsuite journey.”

“We shifted our focus to North America, where the market is vast and users have a much higher propensity to purchase value added services, and we never looked back. Each company and/or industry has its own nuances, and for us, this is what worked.

That said, we continue looking growing our footprint in some of the largest emerging markets such as India and Brazil, with the right partner at the right time.”

For a firm with international operations like Dropsuite, El-Ansari observes that Southeast Asia remains a challenging market for digital economy businesses looking to establish themselves in the region, particularly in its emerging markets such as Vietnam, Indonesia and the Philippines.

He says, “Aside from the geopolitical angle, it would be recipe for failure to lump Southeast Asia as one challenge or one market. The differences are massive, both from a stage development point of view, but equally important, from a cultural, linguistic standpoint. You have got to localise, localise, localise.

See: SGX needs international partnerships to remain competitive: Alex Frino, University of Wollongong

ASEAN venture capital

Given his own background in leading business development at Google Southeast Asia, as well as serving as a mentor for venture builder Hatcher+, El-Ansari believes that the institutional venture capital (VC) segment in Southeast Asia region will also see strong maturation in the coming years as more funds achieve liquidity events with their portfolio rms across ASEAN.

Asked about his perspective on the growth of the VC space in ASEAN, El-Ansari shares: “It’s good to take a historical perspective on these things. Back in 2010/2011, the whole VC ecosystem was non-existent in Singapore. Really, there was nothing going on just before I left Google. Now, fast forward just two years after that and the whole scene came to life.’

“About three to four years ago, there was a problem with Series A funding. Then the problem shifted to Series B funding, That means things are shifting in the right direction and the VC scene is maturing. I left Singapore for two years and when I returned, I saw a wholly transformed scene. I think things will continue to evolve. Remember, the VC scene was started in Silicon Valley about ve decades ago. Five decades ago. In Singapore, it’s been around only for ve to six years.”

He adds, “It takes time for people to adapt. And as more and more startups get funded, the VCs will start taking a more mature view as investors and underwrite more risky prospects compared to the last few years. The third one is — and this links back to the SGX — we’d love to see more liquidity events, so people at the early stage start taking more risks and supporting further cycles of growth.”

As for the role of corporate venture capital (CVC) as an active element in the region’s venture ecosystem, given its historical role in Silicon Valley, El-Ansari is bullish on this and feels that it’ll force founders to be more strategic in their approach and drive the emergence of more refined business plans.

He argues: “It’s a way to really professionalise their business and get the support of people. In many cases, we’ve dealt with other startups and we can really advise them on how to make their company better and stronger, in terms of choosing the right technology stack and in other areas. This is the beauty of the business. In many cases, this comes with a price, whether its equity preferences or other things like that. But I don’t see the venture ecosystem thriving without the proper corporate VC support system.”

See: Series B gap a pain point in SE Asia from a Silicon Valley perspective: Rakuten

Listing on the ASX

Noting that a number of digital economy ventures across Southeast Asia have chosen to list on the ASX, El-Ansari elaborates: “The ASX themselves have decided that they themselves want to be able to attract micro-cap and small-cap startups to list on the ASX, and that has been happening for the last three to four years. When you look at the regional options here, they’re really limited for small and micro-cap stock in terms of liquidity, and the ASX captured the moment.”

“You see companies from across Asia, Israel and even Silicon Valley listing there. Some of them are doing very well, some have failed spectacularly like One Page. in 2016 the ASX realised they’d opened up the tap a bit too much and they’ve done a good job in terms tightening up the listing requirements, steps in the right direction.”

Data from ASX, 2017

El-Ansari notes: “However, there are two other critical factor unique to ASX and to Australia. One is that individuals can manage their own superannuation funds. So there’s a huge amount of liquidity there coupled with the appreciation of real estate in value over the last 26 years with no downturns whatsoever. The second factor — which is really interesting when applied to technology stocks — is that they’re used to mining stocks.”

“Mining stocks are a lot like tech stocks; you either make it or you don’t. And these counters have been on the stock exchange for many years. So that shift in mentality when applied to tech stocks wasn’t a big of a leap of faith”

However, given its mainboard listing and micro-cap status, El-Ansari also observes that technology enterprises and SMEs like his need to be scrappy in building and maintaining investor interest.He says, “You have to punch above your weight and ensure that you get coverage on the PR and IR front.”

Credit: ASX, 2017

“And you also have to surround yourself with a very capable board who have the right reputation and connections within the Australian market so you can eventually graduate to greater visibility and higher liquidity. You need to think about engaging with investor and shareholder community in Australia as one of your KPIs, just like how you drive revenue and product development.”

As for the transition from being a private enterprise to a publicly listed corporate? With the higher visibility and heightened compliance and reporting, El-Ansari advises. “Make sure you have the right CFO, board members and reporting capabilities in place. And make sure the executive team is comfortable with engaging the outside world and doing things like announcing the results. Basically, you’re going out and showing everyone the numbers you have. You also need to possess a longer-term view of your value and product background.”

He notes a strong board is “absolutely critical for success”, remarking: “I have a non-executive chair that was running a much bigger mid-cap ASX company who knows everything pertaining to public companies, who’s got a good reputation with institutions and workers, who can talk, who can speak well on TV,. Making sure you have all these people who support you is absolutely critical. You need to hire people who are a lot better than you on these fronts and can challenge you to do a better job.”

See: Australia bourse counts single-board structure as key to attracting overseas listings

Asian technology IPOs

Asked about his perspective on bourses like the Tokyo Stock Exchange, which provides a shortcut for startup listings and offers a robust framework in the structure of its junior markets as a destination where Southeast Asian startups can conduct small IPOs in a highly liquid market, El-Ansari comments: “The Japanese government and the Tokyo Stock Exchange are working very hard to create a compelling case to have Tokyo as an IPO destination for younger emerging companies.”

“The government has also been launching several initiatives to support the startup ecosystem in Japan, including simplifying the incorporation process, generous grants and even streamlining the foreigner employment visa process. Personally, the main hurdle is the language, not the distance.”

“Singapore and most of Southeast Asia is almost equidistant from both Tokyo and Sydney, but imagine how your IPO investor roadshow and subsequent investor presentations would look like in Japan versus Australia. That being said, I wouldn’t dismiss Tokyo as a destination, things are moving very fast there, for a change.”

Information from JPX as at October 2017.

While Japan has been seeking the return of foreign listings to its stock market since 2014, El-Ansari argues: “While I know it is a very good and successful and liquid stock market, given the language barriers there, can you imagine how cumbersome and di cult it would be to communicate your business position to investors?

As for the efforts of the SGX in developing its technology listing pipeline, especially following the public floats of Singapore-based firms Razer and Sea Group abroad? El-Ansari states: “I don’t believe there is one right answer. The SGX needs to map its full strategy and execute to it. Do they want to be local vs. regional vs. global? Who is their current main investor-base in the SGX now? And will they need to attract new investors who are more willing and keener to invest in tech?”

“Existing investor education will take a long time. The case in point is emerging tech companies listing on the ASX because the Australian investors were able to draw a parallel between tech and mining (high risk, high reward).”

Information from JPX as at October 2017.

He adds, “There are two things that should not be ignored: the growing tech startup scene in Singapore, and the need for liquidity events in the next ve years. The collaboration with IMDA is a step in the right direction; its an early mover advantage over other stock exchanges.”

As for the city-state’s investor community? El-Ansari notes that Dropsuite did not pass the SGX’s profitability test in 2015/2016. Moreover, he reckons that the investor base lacks an interest in micro-cap stocks such as his, while other stock exchanges in the region fail to meet the business needs of Dropsuite.

He comments: “For Hong Kong, we didn’t have any plans for listing there as China isn’t in our growth plan. So if you don’t have China, then you definitely don’t want to be on the Hong Kong Stock Exchange.”

See:

Crowdfunding culture a boost for M&A scene: Goh Bock Seng, Dealmakers Ltd.