On the Rise: Venture Capital Spurring Thai Startup Growth
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.
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.
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.
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.
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.
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.