October 22, 2019
Southeast Asia’s tech ecosystem continues to be one of the world’s most exciting markets for venture capital and private equity investment. Scores of new investors, both from within the region and outside of it, continue to pump money into thousands of new companies. A recent report by Cento Ventures, a Singapore-based venture capital firm, reveals that Southeast Asia’s tech startups raised around US$6 billion from more than 332 deals during H1 of 2019 alone.
Singapore accounted for a quarter of all capital invested in the region, up from 13 percent over the whole of 2018. Furthermore, Bain research predicts that total deal value in Southeast Asia over the next five years will likely reach US$70 billion—double the value of the previous five years.
All of this points to the strength of Southeast Asia’s tech-driven startup ecosystem. To shed light on the unique opportunities waiting for investors in the region, we spoke to Willson Cuaca, co-founder and managing partner at East Ventures, a Jakarta, Indonesia-based venture capital firm that provides early-stage seed capital to startups in Southeast Asia, the United States, and Japan.
East Ventures’ portfolio of startups includes names like Kudo, an online-to-offline e-commerce platform in Indonesia, as well as Tokopedia and Traveloka, both of which went on to become unicorns. As the leader behind one of world’s top performing venture capital fund managers, Willson is an expert in Southeast Asia’s tech startups, and participated as a panelist at Singapore Week of Innovation and TeCHnology (SWITCH) 2018.
Willson sounded off on East Ventures’ method of choosing startups to invest in and the common challenges faced by startups in Southeast Asia. He also gave his predictions on the state of tech startups and venture capital in the region.
WHAT DO INVESTORS LOOK FOR IN STARTUPS?
Willson notes that East Ventures' process of identifying startups to fund and help scale revolves around two factors: the team and the problem statement.
“We help them scale through our expertise in identifying product/market fit and our in-depth network in Indonesia,” he says. “We then accelerate their go-to-market strategy before fundraising.”
When asked what he looks for in a startup (a question he commonly gets), Willson points out that as an early-stage investor, people is key. He looks at three qualities when evaluating a startup and its founder: “integrity, a high level of self-awareness, and a paradoxical approach to running the company.”
Integrity is arguably the most valuable asset of the business and influences one’s confidence in a startup. He adds that most of the companies in East Ventures’ portfolio are young, first-time entrepreneurs with little to no experience, which means qualities such as honesty, sincerity, and how they carry themselves when talking about the business.
Startup founders also need to be self-aware, in understanding their strengths and weaknesses. Recognising these weaknesses is the first step towards self-development or finding the right people to fill in skill-gaps in the organisation.
Finally, a startup founder must be paradoxical in their ability to be firm in their vision while being flexible at the same time. Willson notes that founders can be generalists but they must be capable of scrutinising smaller details when necessary.
As for what single X-Factor a tech startup should have, Willson admits it is actually a combination of factors instead of just one.
“You just feel it. When we invested in Traveloka it was still in the idea stage. When we invested in ShopBack, they had just started but we closed the deal the next day,” he says.
MAINTAINING SUSTAINABLE STARTUP GROWTH IN SOUTHEAST ASIA
Among the mistakes Willson has seen tech startups make, the most common involve co-founders having disagreements with one another, being in a market that did not respond to the product, and having a product that’s “a vitamin, not a painkiller.”
“With a vitamin, whether you take it or not, you won’t feel that it solves the problem,” Willson explains. “A painkiller, on the other hand, is something you take when you are in pain and will pay whatever the price for.”
“This is product/market fit,” he adds.
Another common challenge startups run into is maintaining their growth cycle safely and sustainably, which Willson explains involves scaling cautiously.
“It begins with the founder, who must build the foundation of team culture and evolve with the size of the company,” he says. “The technologist must build an agile product with a good foundation to scale alongside different problems when needed while at the same time address an immediate problem.”
“The whole company must stick with their vision, but be pragmatic with tactical changes,” Willson adds.
SHOULD UNICORN STATUS BE THE ULTIMATE STARTUP GOAL?
Since 2012, Southeast Asia has given birth to 12 unicorns—companies that rapidly achieved market valuations of at least US$1 billion. Singapore is the base of operations for six of these companies, Grab, Go-Jek, Sea, Lazada, Trax and Bigo Live, proof of the country’s importance as a tech hub in the region.
The rapid rise of these companies, paired with the boom of the region’s digital economy, has naturally generated excitement over what the next unicorn startup could be.
Willson, however, recommends that startup founders avoid growing too quickly.
“What’s important is that the startup shouldn’t aim to be a unicorn,” Willson says. “Focus on offering value to stakeholders in the industry (creating a win-win situation for everyone) and make things ten times faster and ten times cheaper though technology.”
WHAT OPPORTUNITIES AWAIT INVESTORS IN SOUTHEAST ASIA?
Willson shared that we will continue to see rapid growth in e-commerce, fintech, particularly digital/cashless payment solutions, as well as logistics and supply chain solutions.
“Look for industries that are complacent and resistant to technology. The more they stay away from tech, you know it is time to disrupt them,” he says.
Willson also encourages investors to look into emerging markets in Southeast Asia, such as Indonesia.
“Indonesia is the 4th largest country in the world. It’s a huge market, so it’s a no-brainer (for investors),” he says. “Its young population is digital savvy and willing to explore new technologies.”
To learn more from Willson Cuaca, hear him speak at this year’s Singapore FinTech Festival x Singapore Week of Innovation and TeCHnology (SFF x SWITCH) happening from 11 to 15 November in Singapore. The 3-day conference from 11 to 13 November will offer a comprehensive overview of innovative technologies across five key sectors, bringing together entrepreneurs, investors, researchers, and innovators from around the world under one roof. On 14 to 15 November, there will be an island-wide innovation lab crawl and industry events happening as well.
SWITCH 2020 will continue to take place as planned from 9 – 13 November 2020 in Singapore. The organising committee is closely monitoring the situation arising from COVID-19 outbreak and will keep the public informed of any updates. More details here.