On the Rise: Ven­ture Cap­i­tal Spurring Thai Startup Growth

Thai-American Business (T-AB) Magazine - - Contents - Writ­ten by: Paulius Kunci­nas

For Thai tech star­tups and ris­ing stars, the news this year has been noth­ing less than ex­cit­ing. Every­one, it seems, wants to find and fund the newly- form­ing com­pa­nies in Thai­land and South­east Asia with the most po­ten­tial for rapid growth, and the amounts of money be­ing raised and com­mit­ted are enor­mous com­pared to the still rel­a­tively un­der- de­vel­oped na­tive high- tech in­dus­try.

LO­CAL SUC­CESS

Thai­land has its na­tive tech startup suc­cess sto­ries, such as As­cend Group, which is be­hind the Weloveshop­ping and WeMall e- com­merce sites. As­cend is the se­cond- big­gest e- com­merce com­pany in Thai­land af­ter Sin­ga­pore- based re­gional on­line re­tailer Lazada, re­cently ac­quired by Alibaba. As­cend also serves other South­east Asian mar­kets, and the com­pany has said it plans to spend five- sixths of its Baht 6 bil­lion ( USD 170 mil­lion) in­vest­ment bud­get for 2016 out­side Thai­land.

As­cend has also been ex­pand­ing rapidly into other tech seg­ments, in­clud­ing epay­ments, lo­gis­tics man­age­ment, pro­cure­ment and bio- phar­ma­ceu­ti­cals. De­spite its com­pe­ti­tion with Lazada, in June As­cend sold a 20% stake in its pay­ments arm As­cend Money to Ant Fi­nan­cial, an in­vest­ment firm con­trolled by Jack Ma, Alibaba’s main owner. As­cend is part of Charoen Pokp­hand, also called CP Group, Thai­land’s largest con­glom­er­ate.

BUY­ING DIG­I­TAL

To­tal e- com­merce spend­ing is seen ris­ing 18.2% a year be­tween 2016 and 2020, with the mar­ket size ex­pand­ing to over USD 5 bil­lion in that time pe­riod. Frost & Sul­li­van re­cently pre­dicted that spend­ing on the “in­ter­net of things” – net­worked elec­tron­i­cally- con­trolled de­vices – would sky­rocket in Thai­land to USD 1 bil­lion by 2020 from USD 57.7 mil­lion in 2014. Smart­phone pen­e­tra­tion is ad­vanced, with about two thirds as many ac­tive hand­sets in the coun­try as peo­ple and the av­er­age smart­phone owner us­ing it 160 min­utes per day. The in­dus­try’s growth po­ten­tial is be­ing sup­ported by large in­vest­ments in the roll­out of 4G cel­lu­lar net­works af­ter suc­cess­ful auc­tions in 2015.

But Thai­land’s high- tech in­dus­try is highly con­cen­trated in man­u­fac­tur­ing for ex­port, the main fo­cus of in­vest­ment pro­mo­tion ef­forts in re­cent decades. Most ma­jor tech firms op­er­at­ing in Thai­land are units of multi­na­tion­als pro­duc­ing com­po­nents for in­ter­na­tional pro­duc­tion chains for the global mar­ket.

VEN­TUR­ING FORTH

Now in­ter­na­tional ven­ture cap­i­tal ( VC) in­vestors and the Thai gov­ern­ment are see­ing the po­ten­tial for lo­cally- based tech star­tups. To stress that po­ten­tial, the gov­ern­ment in July re­named the for­mer Min­istry of In­for­ma­tion and Com­mu­ni­ca­tion Tech­nol­ogy to the Min­istry of the Dig­i­tal Econ­omy and So­ci­ety as part of a broader “Thai­land 4.0” high- value, high- tech eco­nomic model, dif­fer­en­ti­ated from the for­mer man­u­fac­tur­ing- fo­cused “Thai­land 3.0” model.

To start with there are the Sil­i­con Val­ley ven­ture cap­i­tal groups. The most ac­tive early- stage in­vestor in Thai­land has been 500 Star­tups, run by for­mer Paypal mar­ket­ing di­rec­tor David Mc­clure, which par­tic­i­pated in 13 out of 29 seed deals tracked by CB In­sight from June 2014 to May 2016. 500 Star­tups an­nounced in early Oc­to­ber it was “dou­bling down” in South­east Asia by launch­ing an­other USD 50 mil­lion South­east Asia VC fund in ad­di­tion to its ex­ist­ing USD 25 mil­lion re­gion­ally fo­cused fund. 500 Star­tups mainly pur­sues small deals and of­ten ex­its by sell­ing to larger, global VC funds. “South­east Asia’s GDP is way ahead of its ven­ture cap­i­tal avail­abil­ity rel­a­tive to In­dia, China and the U. S.,” 500 Cap­i­tal’s Khailee Ng wrote in a re­cent com­pany blog post. “Start- ups here can be built more cheaply, and reach more cus­tomers faster than in many de­vel­op­ing na­tions.

“Be­cause most star­tups tar­get the ( mid­dle- class) seg­ment of con­sumers, in­vest­ing in star­tups here has less to do with na­tional data, and more to do with the story of the boom­ing ur­ban pop­u­la­tion of its cities,” she added.

An­other Sil­i­con Val­ley group ac­tive in South­east Asia is B Cap­i­tal Group, run by Ed­uardo Saverin, a na­tive of Brazil who co- founded Face­book. B Cap­i­tal closed a new USD 143 mil­lion VC fund in May, and has one of its three of­fices in Sin­ga­pore, from where it plans to in­vest a large part of the fund across South­east Asia.

RE­GIONAL CAP­I­TAL

Then there are the re­gion­ally based ven­ture cap­i­tal groups, such as In­done­sia’s Ven­turra Cap­i­tal, which is run by for­mer Google coun­try man­ager Ste­fan Jung with back­ing from lo­cal con­glom­er­ate Lippo Group, a leader in In­done­sian on­line re­tail. Ven­turra an­nounced in early Oc­to­ber it was launch­ing a USD 150 mil­lion re­gional VC fund.

An­other re­gion­ally based VC fund is Golden Gate Ven­tures, founded by Amer­i­can ex­pa­tri­ates in Sin­ga­pore with back­ing from the coun­try’s sov­er­eign wealth fund and global in­vestors. Golden Gate an­nounced in July that it had raised USD 35 mil­lion to­wards its se­cond USD 50 mil­lion South­east Asian VC fund. And in Septem­ber 2015, a USD 100 mil­lion VC fund tar­get­ing South­east and South Asia was launched by Jun­gle Ven­tures, run by Amit Anand, who moved to VC in­vest­ing in Sin­ga­pore af­ter found­ing an In­dian an­i­ma­tion and gam­ing stu­dio.

Ger­many’s Rocket In­ter­net is us­ing a dif­fer­ent model by form­ing its own sub­sidiary star­tups in tar­get mar­kets. Rocket re­cently launched a Thai ver­sion of its price com­par­i­son site Pri­cepanda.

Then there’s a big pail of Chi­nese money that’s about to be poured in. E27, a news site that cov­ers South­east Asian tech ven­ture cap­i­tal, re­ported in Au­gust that Banma Cap­i­tal, a new Chi­nese VC group formed this year by Chen­chao Zhuang, the founder of on­line travel site Qu­nar and a ma­jor fig­ure in China’s tech com­mu­nity, has raised USD 350 mil­lion to in­vest in VC in South­east Asia and ex­pected to raise $ 450m more. CC Zhuang, as he’s bet­ter known, wouldn’t dis­cuss how he planned to in­vest the money, but the scale sug­gest he will be tar­get­ing se­cond- stage and big­ger deals in all ma­jor South­east Asian mar­kets.

GOV­ERN­MENT PUSH

Amidst all this pri­vate fund- rais­ing, the Thai gov­ern­ment an­nounced in April it would give high- tech star­tups a big push by al­lo­cat­ing USD 570 mil­lion to its own VC fund, with a tar­get of mak­ing in­vest­ments in 2,500 com­pa­nies. The gov­ern­ment re­it­er­ated the com­mit­ment in Septem­ber at a con­fer­ence in Phuket ti­tled “Start- up Thai­land and Dig­i­tal Thai­land 2016,” where Prayuth Chan- ocha, the prime min­is­ter, chimed in with the per­ma­nent sec­re­tary of the Min­istry of Dig­i­tal Econ­omy and So­ci­ety, Song­porn Ko­mol­suradej, to un­der­line the im­por­tance to the gov­ern­ment of sup­port­ing high- tech star­tups.

The gov­ern­ment’s fo­cus on tech star­tups comes as a con­sen­sus has crys­tal­ized that Thai­land had be­come stuck in “mid­dle in­come trap” and needs to move into more in­no­va­tive, ef­fi­cient and high- value types of ac­tiv­i­ties to be­come a high- in­come na­tion. The project is broader than the usual in­dus­try def­i­ni­tion of “tech” – the gov­ern­ment fund’s re­mit ex­tends to in­no­va­tive, value- adding ven­tures in any sec­tor, in­clud­ing “smart farm­ing” ven­tures to raise the pro­duc­tiv­ity of the ru­ral sec­tor.

It re­mains un­clear how the gov­ern­ment is going to carry out such a large- scale VC op­er­a­tion, as there are few ex­pe­ri­enced VC spe­cial­ists and the an­nounced scale of the gov­ern­ment’s fund dwarfs what the pri­vate VC in­dus­try is cur­rently man­ag­ing. Last year USD 32 mil­lion was in­vested in tech star­tups in Thai­land, most of that in ecom­merce, ac­cord­ing to the Bangkok Post. The gov­ern­ment’s most am­bi­tious tar­get is the huge num­ber of com­pa­nies it plans to fund, as each VC deal, no mat­ter how small, re­quires con­sid­er­able prepa­ra­tion. Thus the gov­ern­ment fund’s VC in­vest­ments are ex­pected to ramp up grad­u­ally, but the project could al­ready be mak­ing a big dif­fer­ence to the amount of funds avail­able to Thai star­tups within a year or two.

In any case, the pace of pri­vate fundrais­ing sug­gests the pace of deal- mak­ing will be ac­cel­er­at­ing rapidly over the next two years as VC man­agers do their due dili­gence and place their bets.

Paulius Kunci­nas is Man­ag­ing Ed­i­tor at Ox­ford Busi­ness Group. He can be con­tacted at pkunci­nas@ ox­ford­busi­ness­group. com.

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