This episode is co-hosted by my colleague Dimitra Taslim. Dimi looks at investments in India and Southeast Asia for GGV Capital.
In today’s episode for Southeast Asia, we have GGV’s managing partners Jenny Lee and Jixun Foo. They shared one thing that excites them as investors about the region, what we learned from being an early investor of Grab, the role of China’s tech giants for this fast-growing market, and the implications it has for local founders. We’ve been getting a lot of questions about Southeast Asia. While we believe the talent to build great companies can come from anywhere, this episode is about Southeast Asia, home to 360 million internet users.
Much has been written on the growth potential of the region. If you don’t have the time to dig deeper, here’re some quick facts. A third of the population is under 30. 90% of the internet users are primarily on mobile. They are young, connected, and madly in love with social media. The average users in China and the US spend 6.5 hours online per day. The average Indonesian and Filipinos are online for 9 hours per day.
Some say if you missed the China train ten years ago, you could not miss this one. Others are more skeptical given the different stages of socio-economic development among various countries in the region.
As a firm, we have done ten deals in the region. More than half of that comes in the last 2.5 years. We are an early investor of Southeast’s leading Super App Grab. We reopened our Singapore office early this year and started spending more time on the ground. My colleague Dimi, who’s also the co-host for this episode, is from Indonesia and looks at investments in Southeast Asia.
Hans: Hey, Jixun and Jenny, welcome to the show. Both of you are from Singapore. Yet over time, you choose to spend more time in China and the US. How are you thinking about Southeast Asia now versus where it has been before?
Jixun: I did spend a good part of my life growing up in Singapore. I was educated here, went to the National University of Singapore. I started my career at Hewlett-Packard, spent some time in the US, and later joined the Singapore Government for a couple of years before getting into the venture capital business.
Southeast Asia has benefited for the first 30 or 40 years. Singapore, in particular, with manufacturing and FDIs became one of the four dragons and five tigers in the rising Asian economies. But having said that, I always thought that looking beyond the MNC approach to growth, many of the Asian economies will have to figure out their innovation paths going forward. And the internet brought about a new paradigm. So that was when I first set foot into China. The internet was at the beginning of its penetration in 2000.
I joined DFJ and my first investment in China was Baidu. At that time though, the entire internet ad spend in China was only about $30 million. And back in 2001, post-internet bubble crash, the combined market cap of Soho, Neteast, and Sina, the major portals of China at that time, was probably less than $200 million. Today is an entirely different market. And you’ve seen how the giants have grown, the first generation portals have risen. I had the benefit of being part of the Baidu and witness part of the Baidu transformation and growth. GGV also had the privilege of invest in Alibaba at an early stage. So we have seen how innovation evolved from PC internet to mobile internet for China. A new generation of tech giants emerge, unicorns emerge. You have the TMD, the Toutiao, the Meituan, and Didi. If you look at Southeast Asia, what’s interesting is that the mobile internet is now starting to evolve in this market. And as Hans, Jenny, and I look around this market for this next billion mobile users, and having seen how mobile internet and later mobile internet transformed China, we think the same phenomenon could happen in these markets, Southeast Asian and India. So looking forward, I think we’re going to see a lot more transformation.
Back in 2013, Hans has just joined us. We were at a Starbucks in Singapore, meeting Anthony from Grab. Anthony came in and pitched his story. He was still in KL. The first version of Grab was called Mytaxi is called Mytaxi in Malaysia before it became GrabTaxi and then became Grab. Now it’s more encompassing and not just for ride-hailing. So that was the first instance where we start to see a lot of the things that we saw in China are now being replicated or adapted into the market here, and mobile internet made it possible. Mobile internet penetration makes ride-hailing to happen. We made our first bet in Grab at a reasonably early stage. Now Grab is a $12 billion company. So I think we have seen how the transformation happen. And we are seeing more and more of these opportunities in Vietnam from Indonesia and the likes.
Jenny: The common thread that brought all three of us to China was growth, market, and innovation. I still remember at the time, I was thinking should I be in Singapore? Having graduated, worked in back in Singapore. That’s the universe we know. Southeast Asia is the universe we know. But when you look across a global basis, the one thing that I always thought represents GGV is our partners have a constant hunger to find the next big exciting market, whether it’s Hans in Southeast Asia, Taiwan, US, looking at China. Jixun, looking at China’s investment from Singapore or myself, coming from a tech background, trying to decide if I should break my scholarship bond. I think the one thing that drove us was China back then was growth, market and the innovation. And I think in the last 19 to 20 years, we have been fortunate to be part of China’s growth, fortunate to be able to invest in the likes of Alibaba, DiDi, and Bytedance. The fact that we are sitting here now in Singapore, on a not a balmy Sunday, but a polluted Sunday. The pollution has followed South, so has innovation, so has the talent, so has the growth. So as we look at Southeast Asia, we’re very excited. I think it’s an up and coming market for us.
We see similar budding talent entrepreneurs here who are now more diversified. 10 or 20 years ago, they may be all local guys. But today, the startups that we meet and see they have a mix of talent from different countries and backgrounds. That’s one. Two, I think the business models that we have seen are exciting. I spend a bit more time on the Fintech side, in terms of companies that are trying to change or update the payment infrastructure on the back end for financial services. Also, look at companies in the tech or smart city areas. The rest of Asia is similar and different to China. It’s an ancient region. A lot of the countries have old infrastructures that are prime for the next update. Governments, enterprises are also looking at Smart City solutions, and how technology can now bring us to a different Asia. I think that’s also where we see US and Chinese business models and technology have a chance to penetrate the Southeast Asian market. That’s another reason we feel that the learnings we have from you know, around the US and China markets, can put GGV in a good position to find that next unicorn with this next billion users’ growth as well.
Dimi: Jixun, being an early investor of Grab, what have you learned about the region from Grab’s growth story?
Jixun: The one challenge Southeast Asia has is the fragmentation of the market. It is multicultural. There are many borders in that sense. One of the challenges is how you scale business across different markets, from Malaysia to Indonesia, to Thailand, to the Philippines, etc. One question I tried to understand when talking to Anthony, is how does he do that? With his family background and Harvard education, he was able to assemble a multicultural team. They have team members who are Vietnamese, Filipinos, and Indonesians to be on the ground and help operationalize business. As Grab scale up his business, another challenge we face is engineering. It was hard to find engineering talent in this region. It was okay for us to go from 20 to 40 to 100. But it was tough to get from 100 to 400 to 1000. So Anthony went on to build centers outside of Southeast Asia. So he had centers in Beijing, India, and Seattle. So to assemble talent, so I think entrepreneurs here have to be able to figure out ways to address these. I mean, yes, they are obstacles, but if you can do it, then that’s the entry barrier in itself. To be able to assemble teams from different backgrounds to be ready to gather resources in different regions to help build business.
Dimi: So, Jenny, you are very early in China, you saw that China took the world’s factory approach to economic development. And we’ve seen that India has taken the world’s back-office approach to economic growth. In both these approaches, we see technology diffusion and productivity gains. But in Southeast Asia, for example, in Indonesia, is neither the world’s back office nada was factory. With a country like Indonesia and the rest of Southeast Asia, what alternative paths to economic development are there?
Jenny：Well, I think that’s a question for the Indonesian government. I do know that a common mistake that investors or even entrepreneurs in Southeast Asia make is that they look at this as one region, and it’s not one region. Unlike China or India, which is homogeneous to a certain extent. In terms of government policies and culture, We called it Southeast Asia, but it’s not one country. It’s multiple countries, different regulations, cultures, and backgrounds, not to mention different GDPs and spending power. So I do not think that Southeast Asia will emerge as the backwater, or we are the outsourcing capital in the next five to 10 years.
What gets investors and entrepreneurs excited is that we see this region has a consumer consumption-driven market. These countries have a big population. People are young, in the early late in the teens to 20s. When they first get their first mobile phone, what do they do? It is likely to be games and start playing. And then once they get used to in entertainment, online consumption of content online, the next thing to do is to shop online. So we’ve also seen in the last five to 10 years, the rise of e-commerce, maybe in different forms, whether it’s in physical goods, and then in the case of services will be in the form of investments or at least trying to do financing for the smartphone that they just bought.
The first wave of companies that will benefit will be those that built the infrastructure and the platform to enable and facilitate and lower the barriers to allowing more of this consumption, whether it’s physical goods or services as well. So I was asked how Southeast Asia will look like compared to the US and China. I do not think that Southeast Asia is like China 10 years ago. Southeast Asia is like China in the services o2o (online to offline) boom 5 years ago. The first wave of platform companies will be service companies. As Grab goes from ride-hailing to food delivery and financial services. They have a chance. I think there is the opportunity for that first few giants to emerge. And then after that, I think the market will be a bit more fragmented.
Different countries will see their own education companies, Fintech companies, and various tech-enabled businesses. There are a lot of opportunities on the enterprise side in a very localized manner because each country has its regulatory framework.
Hans: In these last few trips we made in Southeast Asia, investors tend to feel that you should invest in e-commerce first and then other sectors because that’s the experience of both the US and China. What’s different is e-commerce happened before the mobile internet came about in both the US and China. In China, e-commerce happened during the PC desktop internet period.
In Southeast Asia, what Jenny was referring to as O2O services, Like Grab going into GrabFood and all sorts of other services, all happen at the same time eCommerce was taking off. It also means on a B2B side given that as mobile internet penetration happening, it is now much more likely to collapse the supply chain and make the digital channel more efficient with the rise of mobile internet.
And that’s an area that Jixun, myself, Dimi and Madhu, spending time looking at both in Southeast Asia and India, looking at how the efficiencies that can be part of on the B2B side can make an impact on something like Kirana stores in India, and Indonesia and so forth. A lot of mom pops shops are likely to get benefit from the rise of mobile internet and efficiencies that apps and SaaS products can come about. And that’s quite exciting. You don’t see it in China as much until recently. You don’t see that in the US at all, except in the form of SMB tech. So I think that makes it quite interesting for founders and VCs to invest in these B2B areas in a region.
Jixun: When looking at Southeast Asia, we have to look at the market in itself. What is the existing infrastructure? What are the existing pain points? What are the current frictions of the market? For example, there’s one company Jenny can talk about, Thunes. Southeast Asia has a lot of people who work outside of their own countries and need to send money back and forth between home and where they work. Thunes is solving this kind of money flow problem, money transfer, and remittance.
To Hans’s point around the Kirana stores and the Warungs, the so-called mom and pop shop owners. They are more than just a retailer; they are community centers, they know each other so well that’s a social credit that is very hard for any big data to address. They live on social credit. So someone can walk into the shop because they know the owner, they can walk out without having to have any credit rated by any platform. The credit system is very different. So we have to recognize Southeast Asia for the market as who they are, and not try to say, overlay a US model or China model on top of it because that’s not their model. So we have to understand their way of life, work style, and provide a solution that solves pain points in those markets. That’s kind of entrepreneurs we hope to identify.
Dimi: What are your views on the role Chinese internet giants are playing here?
Jixun: I think many of the major giants are trying to replicate or extend some of their services beyond China itself. So we saw Bytedance entering the markets with Tiktok in various countries. In fact, in India, they have multiple products to address their demands. Ant Financial of Alibaba have made strategic investments, acquisitions, to build their touchpoints with local consumers. They are leveraging on is the experience and supply chain they have had in China. Increasingly we might see more investments and acquisitions from them as they build up their portfolios beyond China. For many companies in Southeast Asia, entrepreneurs and investors have to think IPO versus M&A as exits. I think of M&A as a way of exit. So when you build your company to a certain scale, you reached a certain size, you may get consolidated by a major player, such as Alibaba and Tencent. That’s not a bad thing. They are complementary to the ecosystem, and we should welcome them as part of the ecosystem.
Jenny: The giants are to be respected but not to be feared. The giants from China come with capital strength, experience strength, and in many cases, they are highly aggressive. But when you think about what they have in Southeast Asia. They haven’t had a head start. They have not amassed huge numbers of paying users to say like WeChat or Alipay or merchants. They haven’t had installed base of massive eCommerce traffic or social network.
While the advantage is huge in China, some of that translated but not enough to make them become giants in this region. Understanding local dynamics, local cultures, local user behavior, regulatory frameworks are all critical factors that the giants have to navigate.
I think when you enter a new market, especially a new region has diverse as challenging as Southeast Asia, the local founders have an advantage. When we talk to entrepreneurs or regulators here, the giants are in the known. In Chinese, we say 他们在明. So we know everything about the strength of these giants in China. If I open up my financial regulatory framework, issues licenses too fast to international players, am I going to be depriving my local founders of a chance to grow to a local champion? The awareness is very high as we talked to different countries, especially on the financial system side. That will be the natural barrier. If you’re an entrepreneur, as you grow, there’s a right time to get strategic money, there’s a right time to align yourself with the giants to gain that knowledge. But I think that’s the still natural advantage for local entrepreneurs to focus on the real value or the real pain point that you’re trying to solve.
Hans: When companies go global, there are limitations to what each could do. US companies can do better in North America, Australia, Europe, parts of Latin America, and throughout Asia. China has been hard for US companies to penetrate as Jenny was alluding to. For the older generation of Chinese Giants, Alibaba and Tencent are trying to expand beyond China. For the most part, they have gone through the route of either acquisition or more commonly strategic investments. More and more of them realize that how they become successful within China with local knowledge and local understanding. And the team that can deliver in China may not be ready to be able to gain that knowledge outside of China as quickly. So partnering with local startups seems to be the way to go there.
Of course, there are exceptions in the case of Xiaomi or Bytedance. Bytedance seems to do well with Tiktok in almost every market they entered. Xiaomi has done well in different parts of Southeast Asia and India. But having said that, we see that the younger Chinese companies are more willing to learn and adapt, even co-found companies with Southeast Asian co-founders or Indian co-founders. So we’re seeing a mosaic of startups with founders coming from different backgrounds in Asia. And that’s extremely encouraging because that’s how you can build a regional global player.
I encourage all the founders out there, when assembling your team, don’t just have people from your neighborhood even though they are essential for you to get started. Over time, think of how to build a team that’s more regional, if not global, that will help you to enter and win in multiple geographies. And that’s the exciting future we would love to be a part of.
Dimi: What is the one opportunity in the region that you’re excited about from an investor investing thesis perspective, to solidify what we have been discussing?
Jenny: In the next six months to a year, where I’m focusing on is on the financial systems. So the infrastructure and the back end infrastructure that can support better money transfer, better capital flow or payment flow. A lot that can be done there, including leveraging artificial intelligence machine learning to assure that data that’s collected in a more structured way, and therefore providing more insights to all the participants who’s trying to deliver goods and services to the end customer.
Jixun: I don’t have a particular sort of vertical or sector, but I’m excited about Indonesia and the Vietnam market. You can build something similar to the Grab model, where you can have a collection of services that transcend across multiple markets. But there are services you can go deep into one market where the market is big enough. So that selected services, for example, in real estate services, in B2B, in logistics, in warehousing, these are areas where you can go deep into one market and do it well. And that may be a way to differentiate your business because you have to leverage local knowledge and advantage to play that game.
Hans: I’m very bullish on what’s happening in India and Indonesia, especially on the B2B side, spending time with Jixun, Dimi, and Madhu, looking at roles in Indonesia and Kirana stores in India. So, we led our first investment in India by the name of Udaan, ex-Flipkart team. We invested in a second company in India known as Khatabook. And so we are going to do more in these regions that can benefit from the efficiency that we generate a mobile internet app as well as SaaS products.
The B2B2C model is quite interesting because they both can aggregate demand from the consumer side and, more importantly, improve efficiency on the supplier side to bring a lot more benefits to the participants.
One thing that we learn from investing in China is for companies to grow and generate value, they have to be in some form of nation-building. They have to figure out ways to improve efficiency. So the new economy, growth in these markets can sustain and make a huge impact on society.
When we started investing in Alibaba in 2003, China’s economic growth rate was roughly about 12-13%. It has gone down every year since that time. Now it’s about 5-6%. From the outside, if you look at a market that’s growing, less with growth, declining growth rate, it seems to be alarming. Yet if you plot out the growth of China into two buckets, old economy versus new economy. The old economy growth has stalled and declined. The new economy continues to grow at a rapid rate. Meituan-Dianping becomes profitable this quarter. Alibaba and Tencent have grown at 40, 50% year each quarter. So the kind of growth rate possible for the new economy is tremendous because the adoption and diffusion of technologies are changing the ways that suppliers and consumers behave. That kind of efficiency released can generate empowered new economic growth. And we hope to see the same in Southeast Asia in different parts of Asia as was India.