43 | ASEAN Unicorns
Some people use statistics as a drunk man uses lamp-posts—for support rather than for illumination.
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G’day galahs. Something a little different this week. Picking three sources, but going deeper on summarizing and compressing. Not as much breadth, but more depth. A quote from Andrew Lang to start:
Some people use statistics as a drunk man uses lamp-posts—for support rather than for illumination.
Here’s the format of today’s email:
Part 1: ASEAN Unicorns
Part 2: A glimpse into Southeast Asia’s Golden Age
Part 3: ASEAN Investment Report
Part 4: Bonus Quirky Content - Something to Read, Watch, and Listen
ASEAN Unicorns [Link]
I did a Twitter thread on this paper last week but wanted to go a little deeper and provide more context here. Before we start, if you’re wondering “what the flying fudgesticle is a unicorn”, issa a privately held startup company with a value of over $1 billion. So what’s the go with Unicorns within ASEAN? (If ya wondering who ASEAN includes, it’s Indonesia, Philippines, Vietnam, Thailand, Myanmar, Malaysia, Cambodia, Laos, Singapore, and Brunei)
Growth is picking up fast: Out of 35 unicorns listed in the report, 19 achieved that status in 2021. And out of those 25 unicorns, over 75% were launched in the last 10 years. Yes, the capital abundance of late is responsible for its fair share of unicorns. But as infrastructure (both investment and national) develops within ASEAN, it’s a trend I wouldn’t bet against.
Countries are concentrated: Singapore and Indonesia account for ~74% of the ASEAN Unicorns. Also, Singapore makes up less than 1% of ASEAN's population, yet >40% of all PE deal count and >40% of all unicorns. The Philippines makes up over 16% of ASEAN’s population and 3% of Unicorns. Myanmar with zero unicorns and 8% of ASEAN’s population. Of course, I don’t expect a 1:1 ratio of population to unicorns. But it’s always interesting to see which countries are punching above their weight, and what countries to be on the lookout for.
So, why the concentration? Well in Singapore’s case, it’s the financial hub. Easy for capital to get in and out. Strong and familiar (i.e English) rule of law. Compare this to Myanmar, with a recent military coup, the language barrier of Burmese, and frankly the fact no one is familiar with them. Ask 100 people from around the world where Myanmar is and I’d guess less than 5% could locate it. I’m not saying it’s fair, but it is what it is.
Sectors are diversified: Compared to the countries of origin, sector-wise things are more spread out. The Fintech sector accounts for 26% of all unicorns, eComm with 20%, logistics at 11%, and diversified internet at 8%. Most of the unicorns have consumer-led business models (B2C) with very few in the B2B space.
Growth in ASEAN is coming from multiple places: What’s not to love about ASEAN’s prospects? Favourable demographics, high smartphone penetration rates, the rising middle class, rising eCommerce penetration, plus a surge in PE flows. The rising eCommerce sector especially is in its early stages. Most countries in ASEAN have eCommerce penetration around the 10% mark. Now, this is not an apples to apples comparison, but Europe averages over 50% eCommerce penetration. ASEAN eCommerce penetration has more room to run than Kipchoge at the start of a race.
A glimpse into Southeast Asia’s Golden Age [Link]
Where is the capital flowing into? Logistics and transport, eCommerce, and fintech have received the majority of funding. And if you look at the unicorns listed in the previous section, the number of unicorns in those sectors lines up with the capital flows. Buuuuuuut (there’s always a but), if you remove Grab and Gojek’s funding from the equation, logistics and transport sectors do a Houdini and disappear completely.
Challenges facing Southeast Asia’s tech and startup ecosystem
Well, Covid is the obvious one here. Affecting overall countries GDP and consumers, but also the change in how work is conducted. Exits is an interesting one. VC’s need exits to crystallize their return and IPO’s are a key part of that. But IPO’s are fewer and further between. Sea Group is one of a few companies from the region to ever go public on the NYSE
VCs like Lim Kuo-Yi of Monk’s Hill Ventures are concerned about this record. […] Southeast Asia needs to “develop a compelling [investment thesis] vis-a-vis other options… like the US and China” to grow and attract funds.
Human capital is another challenge. I’ve heard it a tonne in the GoJek company podcast, but attracting and finding quality talent is a real pain point. Amit Anand, founding partner of Jungle Ventures has said, “Southeast Asia has a lot of talent but lacks experience”. But here’s a potential solution to the talent problem:
India’s engineering hubs are a great place to look to for a better talent model. According to a spokesperson from Sequoia Capital, there are two important factors that worked for the country. First, institutions such as the Indian Institute of Technology produce talent with “raw intellectual horsepower and engineering skills.” Second, Indian engineers often develop their skills and experiences by working first in Silicon Valley for the likes of Google, Facebook, and Amazon, which allows them to see the inner workings of leading software organizations. Upon returning to their home country, these engineers would then establish their own startups and apply the best practices they learned overseas.
ASEAN Investment Report [Link]
A 344-page behemoth thanks to The ASEAN Secretariat. This report is so in-depth it’s mind-boggling. I’m just going to focus on the foreign direct investment side of it, but it also covers the FDI policy environment in ASEAN and Industry 4.0 in ASEAN.
FDI and Corporate Investment Trends
ASEAN’s share of FDI is steadily increasing. You go Glen Coco! Now yes, total inflows dipped in the shitshow that was 2020, but their percentage share of the total still increased.
Where will these inflows go to? (and where have they gone previously)
Similar to the Unicorn report mentioned earlier, the majority is going towards Singapore, with Indonesia comfortably second.
Sector-wise though, manufacturing took a massive whack in 2020. Will be interesting to see if that’s a blip or a sign of a more permanent shift.
And lastly, who’s doing all this FDI?
I can comfortably say, not Australia. It shits me to tears we’re not on this list. We really should be a big player within ASEAN considering it’s our own backyard. I’m not mad, just disappointed. Anyway, the top 10 countries make up 75% of all FDI in ASEAN. Interesting how in 2020 how Singapore and Hong Kong’s FDI remained steady, but Japan cut their FDI but near on three quarters.
Something to read: Sea Ltd, Part 2: Shopee - The Everything Store of the Emerging Markets [Link]
Punch Card Investor doing some incredible deep dives here. His part one is well worth a read too.
Its cash burn is part of a highly effective, tightly executed and battle-tested strategy that has been designed to enter a market and build scale incredibly fast in a way that is difficult for competitors to stop. This strategy requires significant execution capability, a crystal-clear vision of Shopee’s value proposition, and an aggressive win-at-any-cost mentality that permeates through the entire business.
Further reading: Sea Limited Update [Link]
Something to listen to: Jeevan Vasagar, "Lion City: Singapore and the Invention of Modern Asia" [Apple Link]
Interesting (yet sadly a little short) chat about Singapore, its history, its leadership, and its policies. Would be super interested to hear from my Singaporean readers for their thoughts on this episode.
Something to listen to (from me): Tim Romero on Compounding Curiosity [Transcript] [Apple Link]
Different topic for me this week getting to chat about Japanese Startups! Tim was great at illustrating and explaining how the whole system works. Loved this on why Japanese startups seem to IPO earlier:
So traditionally, Japanese venture capital, the industry has been structured to deliver a fairly steady, fairly safe stream of these low, mid value IPO’s. That’s how VC was done in Japan. So the American style of more a couple of big bets, and if a lot of your portfolio goes to zero, don’t worry about it, you’ll make it… That’s a new, that’s a different style. So a lot of the traditional Japanese VCs would push their founders, say like, “Yeah, yeah, don’t worry about going global yet, just IPO. And you can worry about global expansion when you’re public,” which by the way is terrible advice. It’s so much harder to do anything after you IPO, but it’s starting to change.
I think that, for example, a lot of the foreign capital that’s come into the market, although it’s a very small amount in terms of the absolute percentage, it’s very influential because a lot of the foreign companies are willing to invest in later stage, but companies that could IPO, but still have the potential for massive growth. And we’ve seen a number of fairly high profile founders like Terada-san over at Sansan, the CEO of Free, who said that he was not going to IPO until he could do it in the first section of TSE, who have pushed back, who are embracing this growth. And so I think that it’s something we’re starting to see change.
My takeaways and lessons:
The bubble popping in Japan didn’t kill off innovation, the bubble itself did.
Culturally, the idea of startups is starting to be more accepted in Japan.
The Japanese obsession with quality is a double-edged sword. For consumers it’s great, but when building software, you need those feedback loops of having to ship unfinished work and receiving feedback.
Rabbit hole/resource to dive into: Hedgeye Investing Summit [Link]
A tonne of great guests that you might know. They’ve got Grant Williams (also highly recommend his appearance on What Got You There), Ben Hunt, Mike Green, and Kyle Bass to name a few.
Bonus links that don’t fit anywhere else:
The 2021 McKinsey Global Payments Report [Link]
Until next week, have a good one!
- K