Upcoming sectors and markets for VC investments

Upcoming sectors and markets for VC investments

By Raja Hamzah Abidin – Managing Partner, RHL Ventures

The completion of the two big ticket deals in Grab and Go-Jek has reinforced the technology sector’s leading role in drawing private equity and venture capital money into the region. But while investment activity is moving rapidly in the domain of ride-hailing services, FinTech (particularly e-wallets) and e-commerce platforms, RHL Ventures has been looking at other areas where disruption is imminent but may not be as visible as the sectors mentioned above.

“While Southeast Asia’s start-up ecosystem has definitely seen rapid growth, Malaysia still lags behind its regional competitors. But the space is ripe for growth; not in the least due to Malaysia holding a strategic position both geographically as well as in terms of market access to ASEAN and Asia Pacific,” said Hamzah.

“Combining that with our growing talent base and the increased government support in nurturing a start-up ecosystem, the scaling prospects for innovative tech such as artificial intelligence (AI) and robotics are massive. But while those technologies have conventionally been applied in automation and manufacturing, RHL is helping to grow businesses which are implementing them in more unconventional areas such as sports chat platforms, smart urban planning and even dating apps.
“Our nature of being sector agnostic helps us discover innovation in industries that aren’t at the top of investors’ minds, but have the capacity to foster industrial disruption – just as Grab and Go-Jek did so for Southeast Asia’s transport sector.”

 

Leveraging on extensive networks to empower innovation

With competition heating up between investors across Southeast Asia, RHL aims to distinguish itself from the pack by utilising the founders’ collective experience in regional investments and their networks to effectively grow innovative start-ups, as well as focusing on putting money into start-ups in middle-of-the-road funding stages such as Series B.

“For start-ups to thrive in a heterogenous market such as Southeast Asia, it’s important for them work with backers who have a deep understanding of the region’s markets. It’s not just about who has the money now; investors have to go further in cooperating more actively with their start-ups in a sort of mentorship role, which is what we’ve been striving to achieve at RHL from day one”, Hamzah noted.
“We also aim to stand-out from other investors by concentrating on empowering forward-thinking businesses who’ve achieved initial commercial success but have faced roadblocks when expanding regionally. This helps us circumvent the constraints of most traditional private equity and public investors – especially as we’re playing a long-term game and aren’t bogged down by short-term market performance benchmarks.”

“And when we select our portfolio companies, we conduct a bottom-up approach by determining if they can grow sustainably to help generate better margins for investors. The founders also need to be trusted and have the capacity to reach the next level, which we determine via our multi-tiered due diligence assessments”.

 

The changing landscape of exits

According to Hamzah, the exit environment in Malaysia and Southeast Asia is still a far cry from what is being seen in more mature markets. While exits on public platforms are still the norm across the region, he sees the ecosystem shifting towards trade sales – where a business (or part of it) is traded to another business – which is becoming more commonplace in Southeast Asia.
“A key development for Malaysia’s exit ecosystem is the greater involvement by the government, which last year launched the LEAP (Leading Entrepreneur Accelerator Platform) Market,” he noted. The platform, launched in mid-2017, is a new listed market on the Malaysian bourse that seeks to provide Malaysian SMEs greater access to the capital market; whilst reducing their dependency on
conventional financial institutions such as banks.

“These sorts of initiatives are important as we’re now seeing more holistic efforts to raise funding and visibility to power small yet innovative businesses. These businesses are looking to expand but are struggling to meet their capital requirements; especially if they’re not working with the right investors.

“More avenues for successful exits are needed to secure the confidence of investors and grow the region’s private equity and venture capital ecosystem – so it can fully support the region’s entrepreneurial talent.”

 
This article was originally published in the MDEC-DSA Landscape Report 2018

Malaysia ready for prominence on SEA private equity and venture capital radar

Malaysia ready for prominence on SEA private equity and venture capital radar

By Raja Hamzah Abidin – Managing Partner, RHL Ventures

The completion of the big-ticket deals in Grab and Go-Jek has reinforced the tech sector’s role in pulling in private equity and venture capital money into South-east Asia.

But while investment activity is moving rapidly within ride-hailing services, fintech (particularly e-wallets) and e-commerce platforms, we at RHL Ventures are looking at other areas where disruption is imminent but may not be as visible as the aforementioned sectors.

Yet, despite the rapid growth seen in South-east Asia’s startup ecosystem, Malaysia still lags behind its regional competitors. But the space is ripe for growth; not in the least due to Malaysia holding a strategic position both geographically as well as in terms of market reach to Asean and the Asia-Pacific.

To catalyse these opportunities, the role of the private sector will need to overtake government-led efforts. On this front, corporates will need to take a more proactive position.

 

LEANING ON COMPARATIVE ADVANTAGES

Malaysia’s corporates should be more active in investing in startups. This is because we have regional market leaders within areas such as glove production as well as agricultural businesses such as rice and palm oil. With greater involvement, corporates can reinforce their market leader status by investing in innovative entrepreneurs within and in support of these industries.

Combining that with Malaysia’s growing talent base and the increased government support to nurture a startup ecosystem, the scaling prospects for innovative tech such as artificial intelligence (AI) and robotics are massive. But while those technologies have conventionally been applied in automation and manufacturing, RHL is helping to grow businesses which are implementing them in less conventional areas such as sports chat platforms and even dating apps.

On top of that, our nature of being sector-agnostic helps us discover innovation in industries that aren’t at the top of investors’ minds but have the capacity to foster industrial disruption – just as Grab and Go-Jek did so for Southeast Asia’s transport sector.

In addition, there is the changing socio-political landscape in Malaysia. There’s now more willingness for our high-calibre diaspora to come back and add to the country’s talent and innovation pool.

 

THE CHANGING LANDSCAPE OF EXITS

The exit environment in Malaysia and South-east Asia is still a far cry from what is being seen in more mature markets. While exits on public platforms are still the norm across the region, the overall ecosystem is shifting towards trade sales – where a business (or part of it) is traded to another business – which is becoming more commonplace in South-east Asia.

Hence, more avenues for successful exits are needed to secure the confidence of investors and grow the region’s private equity and venture capital ecosystem – so it can fully support the region’s entrepreneurial talent.

To raise investor confidence levels, corporate partnerships will be key. We’re already seeing this trend ramping up in countries such as Indonesia and Singapore. In Malaysia, the uptake has lagged slightly but there are definitely signs that it will improve in the near future.

 

LEVERAGING EXTENSIVE NETWORKS TO EMPOWER INNOVATION

With competition heating up between investors across South-east Asia, we’re distinguishing ourselves by utilising our collective experience in regional investments and networks to effectively grow innovative startups.

For startups to thrive in a heterogenous market such as South-east Asia, it’s important for them to work with backers who have a deep understanding of the region’s markets. It’s not just about who has the money now; investors have to go further in cooperating more actively with their startups in a sort of mentorship role, which is what we’ve been striving to achieve at RHL from day one.

We also aim to stand out from other investors by concentrating on empowering forward-thinking businesses which have achieved initial commercial success but have faced roadblocks when expanding regionally. This helps us circumvent the constraints faced by most traditional private equity and institutional investors – especially as we’re playing a long-term game and aren’t bogged down by short-term market performance benchmarks.

And when we select our portfolio companies, we conduct a bottom-up approach by determining if they can grow sustainably to help generate better margins for investors. The founders also need to be trusted and have the capacity to reach the next level, which we determine via our multi-tiered due diligence assessments.

With competition heating up between investors across South-east Asia, we’re distinguishing ourselves by utilising our collective experience in regional investments and networks to grow innovative startups effectively.

This article was originally published on Business Times

Chinese investments in S-E Asia – should there be a relook?

Chinese investments in S-E Asia - should there be a relook?

By Rachel Lau – Managing Partner, RHL Ventures

WHEN Malaysia’s Prime Minister Mahathir Mohamad visited China in August, it was assumed that he would draw a line in the sand. The recently re-elected leader – whose election campaign was buttressed by calls to unload his country’s massive US$250 billion debt – was expected to adopt a less cooperative position with Beijing. This was after Dr Mahathir made a seemingly snap decision to scrap around US$22 billion worth of Chinese-backed infrastructure projects, including putting an indefinite halt to the RM81 billion (S$27 billion) East Coast Rail Link project in Malaysia’s north-east.

But his engagements with Beijing’s officials and top business leaders saw him making visits to the headquarters of tech giant Alibaba, drone maker DFJ and Geely – the controlling stakeholder in Malaysian car manufacturer Proton – in an attempt to draw more foreign direct investment (FDI) into the country.

 

REGIONAL PRESENCE

Chinese influence in South-east Asia isn’t new. After Thailand, Malaysia has the second-largest ethnic Chinese population outside of China. South-east Asia’s emerging markets are also welcoming Chinese investments because they need to accelerate much-needed infrastructure development.

However, as with all FDIs, Chinese capital has its caveats.

In Malaysia, the vast majority of funding for three Belt and Road initiatives – US$20 billion for the rail link and US$2 billion for two pipelines – has been supplied by the Export-Import Bank of China, a state-owned policy lender. But as Chinese state-owned firms are the main contractors of these three projects, there have been concerns that Malaysians are being denied jobs. There has been precedent, with this scenario having played out across Asia, Africa and South America. More recently, we have seen this in Sri Lanka, as the indebted government eventually handed over a major deep-water port to China.

The story, however, is different for South-east Asia’s more mature economies such as Malaysia and Singapore, as China’s investments in those markets are being complemented by more independent businesses such as Alibaba and Tencent. China’s tech giant-led charge into Singapore and Malaysia is yielding strong results as the tech firms tend to adopt a longer-term, higher-value approach – hiring big teams of engineering and development talent locally as well as establishing the likes of the Huawei Innovation Hub and the Digital Free Trade Zone in Malaysia.

A cashless society – supported by a robust mobile payments and e-commerce ecosystem that enables seamless day-to-day interactions – has been long envied by the rest of the world. With rising production costs, an ageing population and shrinking investment returns, it’s clear why China’s economy has shifted from labour-intensive manufacturing to an innovation-driven paradigm in just a few years.

China’s regional tech presence no longer comprises low-quality products peddled in Shenzhen night markets. Rather than “Made in China”, Chinese technology now touts the “Created in China” model, where innovation has played a fundamental role. We have seen ample evidence of this, with Chinese firms having successfully cloned macaques from somatic cells, launched the world’s first quantum satellite and quantum experiments at space scale, as well as created the world’s fastest supercomputers – Sunway TaihuLight and Tianhe-2.

Today, Huawei is the largest telecommunications equipment manufacturer in the world and JD.com, Tencent, Alibaba and Baidu are among the world’s top 10 Internet companies in terms of revenue. These companies, and the new tech-based businesses seeking to emulate their success, have all benefited from the “innovation ecosystem” China is developing.

Recently, the RHL team met with a Chinese robotics firm that manufactures smart AI chips that can be deployed in Smart City and traffic management systems, as well as self-driving cars. While the company was a mere Series A company, it has raised over US$200 million from globally-renowned tech players such as Intel. The startup, recognising the economic potential of South-east Asia, was looking to establish business development opportunities with RHL to enter the local market. While it’s highly likely that it will face stiff competition from the BATs (likes of Baidu, Alibaba and Tencent), it’s important to highlight that some of the American tech giants have altered their strategy to not directly engage in competition with the BATs, but instead invest in smaller and promising tech newcomers who are better positioned to potentially dominate the Asian scene.

 

CAVEAT EMPTOR

Ultimately, Prime Minister Mahathir’s trip to China serves as a broader example. While he speaks only for Malaysia, his statements effectively encapsulate the investment concerns faced by South-east Asia’s economies towards what’s being called a form of neo-colonialism.

Good or bad, Dr Mahathir has wisely realised that the economic relationship need not be a largely zero-sum game. Instead, his affability towards China’s tech ambassadors shows that he’s prioritising Malaysia’s overall economic advancement, as the country seeks to move away from its middle-income trap by creating a comprehensive digital economy ecosystem.

This article was originally published on Business Times

Anatomy of an Investment

By Rachel Lau – Managing Partner, RHL Ventures

Southeast Asia’s start-ups are drawing in more money every year. Last year alone, the amount of equity funding, at USD6.5 billion, was double the figure in 2016 and involved approximately 500 deals.

While start-ups are receiving more funds than ever before, much of this is buoyed by the USD100M+ ‘mega-rounds’ led by global giant corporates and into regional unicorns like Grab, GO-JEK, Tokopedia and Traveloka.

Outside of the unicorn funding stage, start-ups are finding it difficult to secure funding at post-seed, early stages.  Crucial Series A to C funding often doesn’t materialise – creating a ‘funding barbell’ with most investments being channelled to either seed or later growth rounds.

The question remains: what about all the stages in between? The key moments for growth in start-ups life? The post-seed bottleneck is strangling many promising start-ups at a moment when Asia needs innovation-driven growth more than ever.

 

Fostering holistic change

Part of RHL’s mission is to step in during these vital middle-stages; allowing companies that have growth traction but insufficient capital, network or expertise to reach the next level.

RHL looks for innovations that solves everyday problems. What is the value proposition? Does it make people’s lives easier and better? And does it really disrupt the existing industry?

As a firm, RHL invests across industries with a focus area of agriculture, financial, property, healthcare, manufacturing and consumer. It doesn’t matter what sector you are in – what we need to know is whether the sector will keep growing and if your company has the ability disrupt and innovate the existing ways of doing business.

 

Digitalising sports talk

GameOn, a Silicon Valley company we’re working with, came up with an innovative chatbot for the sports industry. We decided to back them after their founder, Alex Beckman, approached us on how to build a stronger platform in Southeast Asia – after having already developed chatbots for the English Premier League (EPL), the National Football League (NFL) and the 2014 Olympics in Brazil (in collaboration with Sports Illustrated).

By using AI, machine-learning and Natural Landscape Processing on its cloud-based platform, GameOn links its users to their content; albeit with better context and curated to match one’s favourite sports interests.

If there’re two things we can say about people in Asia, is that we’re passionate about our games and the need to socialise. However, the platforms currently present in the region haven’t kept apace with growing demands by sports fans for a more intuitive chat interface.

Essentially, we’re working with GameOn to help stir up more fan discussions during regional sports events like the Asian Games or Arsenal games; which tend to be the one of the rarer occasions that people gather in full throng to back their respective countries.

 

Building a dating app fit for Asia

As people become more reliant on their phones for everyday interactions, we see the norms of dating evolving to be more digital. One out of four people have met their partners online. When it comes to dating apps, Tinder still rules for now. Yet, its reputation of being a hook-up platform may soon see it caught up by a slew of new alternatives that are designed to suit Asian dating trends better.

That was the motivation behind our decision to work with Coffee Meets Bagel, a dating app founded by three sisters in San Francisco. The app works differently from Tinder as the data required by members goes through an algorithm to help find matches curated to one’s interests and preferences; instead of being thrown in a random pool of strangers based on your location and orientation.

Coffee Meets Bagel focuses on developing real connections between people. As such, one’s profile on the platform needs to be more detailed than the meaningless one-liners typically presented on Tinder. It limits the number of people you can be matched in a single day; which helps users think twice before casually swiping for a match.

For us, Coffee Meets Bagel is the app designed for how we Asians date. Its data-driven process helps us narrow down better-suited matches and cut the time used to just meet someone new. It also helps to filter out inappropriate messages from dodgy matches – helping to ensure that the dating process can foster real conversations, rather than being degraded to the sharing of unwanted explicit imagery.

 

Guiding creative disruption

VCs across the world have been trying to search for the next big disruptor. But we understand that finding them may not be obvious at first. It requires the investor to go beyond just providing funds and help add value to their investees via mentoring and networking.

Disruption by technology can happen in any industry.

We know the importance of having entrepreneurs take the lead for their business’s growth, which is why we prefer to be partners, working side by side, and take equity stakes of up 30% in a firm – leaving the management rights with existing executives and owners.

We’ve outlined our philosophy as patient capital, as such as it helps to circumvent constraints put up by conventional private equity and public investors, namely conflicted interests in capital ownership and the restrictions to short-term market performances.

Our aim is to create a sustainable model to empower entrepreneurs, who in turn will be better positioned to innovate new breakthroughs.

Our goal is to create innovations that are truly global in scale and that leave no one behind.

Changing the Region via A Fund

RHL Ventures is a combination of the talents of our core partners and our extended networks and business interests. This allows us to bridge the highest levels of the private and public sector in South East Asia and establish a platform that extends beyond simple network and introductions. As millennials rooted in the region who have worked and flourished overseas, we have returned to share knowledge of global best practices and merge this knowledge with a comprehensive understanding of the local business landscape.

We apply world-class due diligence, transparency, research and risk assessment in the context of emerging markets which allows us to see opportunities others miss; undervalued assets, strong long term growth potential and businesses offering truly relevant innovation.

A key differentiator for RHL is that we view Southeast Asia as a single integrated region – not a patchwork of small and mid-sized nations – but an emerging engine of global growth with over 600 million people and an almost three trillion dollar economic area with its own political intricacy and economic nuances.

Our approach is therefore to partner with people with similar values and backgrounds to navigate through these challenging yet promising emerging markets. Our network and understanding allows us to accurately assess the potential of start-ups and SMEs in this regional context. We provide the expertise, investment and local partners that can drive local success to regional and global levels. Add to that an ability to support each company with patient capital and drive growth via linkages to supply chains, allied businesses, and markets – you have a true start-up accelerator.

Robert Kuok once said – “to understand drivers of economies, we first have to understand politics in the region.” Therefore, we work closely with governments and government agencies to advocate for key policy changes in the hope of creating an environment that will support innovation and growth. By generating such broad synergies, we ensure that our investments thrive in the current ecosystem. Crucially our roots in the region give us a much longer term perspective on our investments – which we term ‘Patient Capital’ – ensuring that our focus isn’t on short-term gains but sustainable growth that will strengthen the broader ecosystem. For us, that is the way we are giving back to the next generation of Southeast Asians.

Beyond financials, the breadth of expertise we channel allows us to evaluate and elevate the firms we invest in. For example – if a firm has developed a method for boosting the productivity of soil we can easily secure the plantations and the experts to conduct a rigorous test.

We channel the engineers, doctors, scientists, students and farmers who will be using technologies, applications and platforms allowing us to assess potential and also generate growth.

What we offer is a truly comprehensive solution from analysis to testing, funding and finding partners and sales channels. We can also structure exits via acquisitions through our network of corporates and the public market. RHL works through every aspect of a firms life cycles spurring growth, driving opportunity.

Fundamentally that is what RHL is about: transforming Southeast Asia into a region full of opportunity.