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