An article published in November 2017’s SVCA newsletter
Dmitry Levit, Founder and General Partner at Cento Ventures, takes time off his hectic schedule to give us his take on VC activities in Southeast Asia.
Thank you for the award, and for recognising the outstanding performance of 2C2P, our portfolio company in question. Having operated in Southeast Asia for the past 6 years, we have given a fair bit of thought to the strategies that make digital companies in this region successful. We are a firm designed to help startup founders pull together disparate geographies, assets, and pieces of value chains to build a business capable of operating in Southeast Asia’s famously fragmented markets. We found the word ‘cento’ to be helpful in reflecting the notions of both completeness, think “100%”, and de-fragmentation, one of the older meanings of the term ‘cento’ being a patchwork. The new name is also a reminder that our results are the product of hard work by the founders and the teams we backed; as yet another meaning of the word ‘cento’ refers to the technique of assembling a poem from excerpts of other authors’ writings.
When thinking about investment, we prefer to look at different sectors of the economy and how they react to improving connectivity of consumers and businesses. In each area of economic activity, from entertainment to transportation and from advertising to retail, we see a number of opportunities to address consumer needs, as well as a plethora of upstream business models that will help the various players in the value chain align better. Jirnexu, a Malaysia-based financial services company we have backed, is a good example. While operating a consumer-facing financial product portal, Jirnexu also enables and automates some of the upstream business functions that allow banks to serve consumers better.
Since the job of applying digital technology to industry sector value chains across Southeast Asia only started barely a decade ago, it is hard to say that any particular sector is over-invested. A few categories have seen more activity and investment than others. Retail and local transportation services, for example, have absorbed a significant amount of capital lately which, according to our in-house research, is 70% of all VC financing in 2016, and more than half of all VC financing in 2017 to date. However, most of Southeast Asia’s economic activity continues to be transacted offline. From our point of view, plenty of investment opportunities still exist across all sectors.
There is usually a logic to how a certain industry goes through a digital transformation, whether it is gradual or disruptive. For example, in advertising, it is hard to build sophisticated data management platforms when publishers have yet to deploy advertisement servers. In payments, it is premature to expect consumers to use advanced wallets where cash-over-the-counter facilities are lacking, and blockchain based know-your-customer (KYC) systems for banks may struggle when banks’ call centres are not yet performing. In our opinion, in any investment climate, it is important to get the timing of sector digitalisation right, and not to invest into a business model whose time is quite some way from arriving yet.
The current surge of financing has been directed primarily at a few late-stage digital companies, most recently Grab, Go-jek, Traveloka, and Sea Limited. According to our research report, about more than 80% of all venture capital going to Southeast Asia is absorbed by late-stage funding rounds. Financing for other deals has increased as well but is far from filling the ecosystem with enough players for us all to start competing for the growing number of opportunities. The accumulated ‘technical debt’ of the region is such that opportunities to invest in smart entrepreneurs applying digital technology in large potential markets, at least across Series A and B, will likely continue to outstrip the available capital for the foreseeable future.
Of course, startup founders should and sometimes will hold discussions with multiple investors but more often rather than competing, we find ourselves in discussion with the entrepreneur about combining our participation in the company’s financing round with contributions from strategic investors, who can add critical assets on the ground, other VCs with different and complementary networks, or even individual contributors with the experience and gravitas to serve as solid advisors to the founder. Our role then is to align everyone’s interests and incentives.
The arrival of later stage players is very welcome. These investors are a source of liquidity to earlier-stage investors and sustain their portfolio companies through subsequent stages of growth. They rarely find it economically viable to move into earlier stages of financing, which means there is little that should worry VC funds who focus on these stages. IPOs are still not a common option for Southeast Asia liquidity, despite a few one-off listings which are exceptions that prove the rule. Global markets still lack a good understanding of this region’s digital opportunity, as much of the limelight remains on China.
As digitalisation occurs across more industry sectors in which Southeast Asia has an edge, we’re excited to see what innovation and start-up creation takes place. A trend we hope to see continue is for technology companies that play specifically to the strengths of the region, rather than replicating something invented elsewhere. We hope to see more cases of business models born in Southeast Asia that go on to succeed in global emerging markets.
Figures quoted by Dmitry can be found here
Over the years we’ve had an on-again, off-again debate about our company name ‘Digital Media Partners’ and whether it accurately conveys what we do as an organisation. While no particular issues exist around it, we do get a number of recurring bits of feedback when we talk to people. The word ‘media’ is quite often misinterpreted to mean we focus specifically on media companies, including those in traditional media such as print, TV, and radio. We don’t, we look at technology companies, and our scope of interest is much wider than the media sector alone. Another persistent one is “does the D stand for Dmitry” – our founder. It doesn’t. A further source of mild confusion arose from the emergence of Data Management Platforms, which are often referred to as ‘DMPs’.
Our search for a new name has produced ‘Cento Ventures’. ‘Cento’ means one hundred (in Italian), and is part of ‘percent’ (English / Latin). Percentages have great relevance to our day-to-day jobs since they serve as a way to measure growth, probabilities, and returns. Finding ‘one in a hundred’ alludes to the process we go through when looking for investments. More generally, achieving 100% of something is considered a success.
More obscurely, the word ‘Cento’ also means:
In different ways, each of these meanings has significance to our work:
Naturally, we now expect to hear a few jokes about cents-on-a-dollar and counting every percent-o.
We are proud to announce our new fund. Start Today Ventures is one of Southeast Asia’s first venture funds to focus specifically on one industry sector (and a topic we have a great interest in): online fashion. The fund will seek out ambitious founders who are using disruptive technology to build winners in this exciting segment. To help realise this, we have partnered with Start Today, the US$10B company behind Japan’s leading online branded fashion retailer Zozotown, to bring their valuable expertise to startups in Southeast Asia.
Fashion in Southeast Asia is a US$40 billion sector, which is growing rapidly in both the mass-market unbranded segment and higher-end branded segments. Home-grown fashion brands have started to emerge, boosting choice in the market and creating new opportunities for retailers. Digitalization adds an interesting upside to the market, enabling brands and retailers to grow faster and reach customers beyond the malls in major cities. As the sector shifts online, a variety of associated opportunities for B2B services are developing as technology gets applied throughout the supply chain.
We’ll apply lessons learned from Cento’s six years of investing in Southeast Asia startups that have achieved product-market fit and are ready to scale regionally. You can read more about the thesis that guides all investment decisions we make here. Raising a targeted fund of this type is a validation of the rapid development of Southeast Asian technology, and Cento’s approach to supporting founders as they address some of the large opportunities present across the ASEAN region. The partnership with Start Today adds additional upside in the form of their in-depth expertise of building one of Asia’s largest fashion eCommerce companies.
The fund will be led by Reina Nakamura. She comments “I’m very excited to be leading this new fund for Cento and Start Today. The fashion space in Southeast Asia is ready for rapid digital growth and Start Today Ventures has already built a strong pipeline of companies we are keen to invest in. Over the coming months, I’ll be spending more time meeting ambitious founders who are using technology to change the fashion industry and to see if we can partner with them, whether they are running a company focused on eCommerce, manufacturing, media, or price comparison”.
We’re excited that Start Today Ventures gives us a chance to dive deep into the digital fashion segment and to partner with even more exceptional founders. For founders looking to raise funds, they can now talk to a specialist investor who has a deep understanding of the needs of their sector, and who can back their companies at the point they are ready to go scale up, and throughout their journey.
Cento Ventures’ investment process follows a structured and rigorous approach which is designed to align us well with the teams we invest in. All early-stage investment blends hard data with an amount of intuition. Our evaluation of new deals digs into information provided by the company, validates it to the extent possible, and also considers less tangible factors such as team dynamics.
As part of our evaluating any investment, we spend a considerable amount of time looking into:
Market and business model
Market potential is about more than academic approaches to sizing. Identifying a hypothetical need for a technology product or service is not the same as having validation that people or companies are prepared to pay for it. We generally ask for proof in terms of actual, and repeatable, sales that grow consistently each month and exceed $50K per month.
Beyond common questions of whether a particular model is sustainable and can build competitive barriers, we ask potential investees about their plans for expanding/replicating their business internationally. This is a sometimes challenging question for early stage companies – particularly when they are still grappling with all manner of challenges in their home market. However, we prefer business models that address a sector inefficiency present across multiple countries, and look for founders who think the same way.
We have a strong preference for founders who come with strong experience from the industry or category in which they are building their startup. Identifying inefficiencies often benefits from an insider’s view to figure out how to fix them. Even when we invest in younger teams, the founders should demonstrate that they know their chosen market inside out.
An additional requirement that we look for in all cases is the ability to get things done – of course it is a common characteristic among all successful entrepreneurs to achieve a lot with very limited resources – we simply value this characteristic very highly in emerging markets where often resources are even more limited and the obstacles sometimes greater.
Technology must be present in each of our investments – what we attempt to do is validate the scale and ambition of the technical component of any plan. In many cases we avoid investments that depend on development of ‘deep’ technology. This is simply a case of optimising for the resources that are available. Any startup needs massive or specialised engineering resources must explain where they will be obtained, and how they might be paid for, in a market where competition for good developers is increasingly intense. In most cases our preference is to invest once much of the core platform has been built and the company has started to focus on improving its capabilities in areas such as marketing, business development, and customer service.
We learn a great deal about how a startup views its own future by examining their financial plans and the assumptions that underpin them. Among the most critical of these is the capital trajectory. Many founders underestimate the challenges they will face in raising capital, and while one of Cento’s strengths is our ability to raise follow-on capital, we also make sure our investees hear and appreciate our view on the availability of later stage capital. On occasion this has helped founders re-think their expectations, to understand Cento’s conservative view compared to other investors, yet still choose to partner with us.
We aim to complete much of the evaluation work before we get to the point of proposing a term sheet for an investment. Once a term sheet is accepted by the company founders we proceed with full detailed due diligence which can involve many members of the Cento team as well as external advisors who can assist us with specialised skills. Our Investment Committee will then meet to review findings and make a final investment decision.
The process of investment is designed to set up channels of communication between Cento and the founding team. We try to expose founders to multiple senior members of the team, whose collective expertise they can call on in future. Post investment, each investee has both a senior and junior member of the Cento team allocated to it.
In line with the objectives we agree with founders during the investment process, we get involved with helping operational teams implement the company’s goals. The most common areas where we help are recruiting, strategy setting and adjustment, establishing scalable process in areas like marketing and sales, acquisitions, ongoing financing, and exits. In particular, we focus our help at times when a company is making its initial forays into a second or third market.
Cento Ventures (previously known as DMP) has been tracking data on digital investment activity in Southeast Asia for a number of years. In our inaugural Southeast Asia tech investment report, covering the first half of 2017, we have decided to share some of the highlights of our data. Click here to view the report.
We hope this helps establish a clearer picture of how Southeast Asia’s tech ecosystem is maturing, where investment is going, and where gaps still remain. We plan to update the report on a regular basis to show how the landscape is changing over time. In future, it would be interesting to extend the research to cover a variety of more qualitative matters, such as the availability of talent, and we look forward to working with partners who can help us achieve this.
The headline story of Southeast Asia is the continued growth in technology investment. A record amount of $2.3B was invested during the first half 2017 over more than 140 deals, compared to $2B in H2 2016 and $1.4B in H1 2017. This suggests a healthy and growing interest in the potential for Southeast Asia’s tech startups. We estimate that this amount may more than double for the second half, based on a number of large deals that were announced in July.
A closer look at the data reveals key features, some of which have been present for a while, that underlie the headline numbers:
– Concentration of capital in a few companies
2017 sees a continuation of ‘mega-deals’ as later stage companies capture ever-larger investments. Fully 81% of funding in H1 2017 was captured by just 3 investments (Go-Jek, Garena and iFlix). This trend is expected to continue for the second half of 2017. Interestingly, the earlier stages of capital raising look more stable. The number of deals in earlier stage deals seems consistent with 2016. The amount invested at each stage is also relatively stable compared to the last couple of years. Pre-Series A deals average out at US$0.5M per deal, Series A at slightly more than US$2M per deal, and Series B at US$9M per deal.
– Diversification of capital by country
Excluding the mega-deals (since they skew the data), Indonesia and Singapore-based startups account for about half of the capital invested in Southeast Asia. This is a decline from earlier years when startups in these countries accounted for up to three-quarters of investment. The same split is reflected in the number of deals done: 50% to Indonesia and Singapore companies, 50% to the rest of the region. Of the rest, Vietnam and Malaysia appear to be experiencing stable or growing interest, while investment has cooled off in Thailand and the Philippines. However, a single half-year period does not make a trend, so we will look again once the rest of 2017 has played out.
– Diversification of capital by sector
A few familiar sectors continue attract the most capital – of course, these are the sectors in which the mega-deals are occurring. These are online retail (e-commerce and C2C) and local services (various on-demand services and urban transportation), along with ‘multi-vertical’ companies (often a mix of the other two).
Other sectors in which multiple deals are happening and significant amounts of capital flowing into include financial services, entertainment and travel. We see growing investor interest in a range of industries such as real estate, healthcare, and enterprise software, as startups emerge to address issues in many traditional, and still largely offline, parts of Southeast Asia’s economy. We expect more attention to go toward B2B models as entrepreneurs explore opportunities to apply technology throughout various industry value chains.
– Funding gaps and fund specialisation
The existence of gaps in the funding available for early-stage startups has been observed by others. It does seem to be the case that Southeast Asian startups raise Series B funding at a lower rate than those based in the US or Europe. However, we are talking about a less mature funding environment, and time will tell whether this ‘corrects’ itself over time. Certainly, we are seeing VC funds being raised that target this stage, and the availability of capital for Series B rounds will likely improve.
We also see the emergence of sector-specific funds, including our own new fund, called STV, which invests exclusively in startups within the online fashion/apparel sector. The fund will seek out ambitious founders who are using disruptive technology to build winners in this exciting segment. To help realise this, we have partnered with Start Today, the US$10B company behind Japan’s leading online branded fashion retailer Zozotown.
– Exits are by M&A
The majority of liquidity events for startups and early-stage investors continue to come from the sale of shares either to later stage investors and/or to strategic acquirers, while liquidity through IPOs remains a rarity. Despite a relatively small sample set (we don’t always know the details of exit price or percentages liquidated), it seems that a ‘very good’ exit in the region is priced somewhere in the region of US$200M. Based on 2017 so far, that may well increase by the time we have a full year’s worth of data to look at.
Acquirers generally fall into one of two buckets – either they are corporates (e.g. REA, Seek, Telenor) or larger tech companies (e.g. Alibaba, Grab, Go-jek). In both cases, their motivation for buying Southeast Asia’s startups appear to include a geographic extension (e.g. Alibaba) or acquisition of complementary technology or teams (e.g. Go-jek). Buyers are typically from within the wider APAC region, although there are isolated cases come from all parts of the world. The largest number of deals are made by Singapore-based acquirers, while Chinese buyers have spent the most.
Overall it’s been an encouraging first half to 2017, and the outlook for the full year is very healthy. Various challenges still remain: ensuring sufficient capital is available to high-quality startups based in the less invested parts of Southeast Asia, and possibly also to startups based beyond the region’s capital cities (we don’t have a breakdown of this data yet); bridging funding gaps that still remain; building more successful exit stories that help inspire more founders to start companies and attract more investors to the ASEAN region. And that’s only on the financial side of things: better connectedness within the region and to other tech hubs; more availability of talent; and more equality of opportunity are all topics that merit attention, perhaps in future editions.
The aim of this report is to show how far Southeast Asia tech has developed during the time that DMP has been investing, and perhaps to highlight some of the continuing challenges. We hope it helps everyone, whether they are startup founders, investors, or policymakers, achieve a better understanding of the landscape that we all operate within.
Access to financial services in emerging markets is inefficient. The traditional banking and insurance sector is tied to expensive branch and agent-based distribution networks, and is generally ill-equipped to maximise the use of newer digital channels. Established banks focus on a limited section of the population and have excluded, or provided poor choices to, many. As incomes rise and online access increases, more people demand better financial services. Technology can help solve both issues – making distribution more efficient for traditional banks and insurers, and enabling the creation of new financial products and, in some cases, new providers.
Across the region, a US$30B market opportunity exists in the distribution of banking and insurance products from traditional financial institutions. In the more developed and affluent parts of Southeast Asia, namely Singapore, Thailand, and Malaysia, multiple financial products are promoted, consumer debt levels have risen quickly, and households tend to have multiple financial products. From the consumer’s point of view, banks are often still opaque when marketing their offerings and the insurance industry has barely started its transition to digital distribution. The regional opportunity is larger – 150M adults in Southeast Asia can be considered under-banked, and insurance penetration is up to 90% below developed market standards.
Based on the experience of other emerging markets, notably India (e.g. BankBazaar) and Russia (e.g. SravniSam), we expect the early stages in the development of digital financial services to be platforms that help banks and insurers manage digital distribution. Currently in Southeast Asia, few banks have sophisticated online marketing capabilities or comprehensive workflow systems that integrate their digital marketing, call centre, scoring / assessment and other efforts up to and including debt collection and other post-sale activities into a scalable, efficient process. This alone is a sizeable opportunity to but also leads to the opportunity, in due course, to supplement traditional products by capturing a superior set of consumer data and using it to build better products and services.
Jirnexu originally began as an online financial services aggregator, but has developed into an end-to-end solution for financial service providers, managing the process of customer acquisition from awareness building, through application processing to customer support. Its consumer solutions handle lead generation and application processing, through the Company’s consumer sites RinggitPlus.com in Malaysia and KreditGogo.com in Indonesia. Its B2B solutions are XpressApply, a hosted application processing process for the bank, and SORA, a specialised workflow management platform. Across the mix of business models, Jirnexu collects deep customer data sets in order to better understand demand for financial products.
The results are impressive. In a competitive market, Jirnexu has become a clear leader in Malaysia and has established a strong presence in its second market of Indonesia. To date, it has helped issue 40,000 credit cards, open 50,000 savings accounts, and disburse $30M of personal loans.
Jirnexu’s vision is to enable any customer in Southeast Asia to get any financial product they require. Matching customers to existing financial products is just the start, the ambition is to help those in the region who are currently under-banked or insured access suitable products. Cento Ventures is delighted to lead the company’s US$4.5M Series A funding round alongside NTT Docomo, Celebes Capital, Gobi Ventures, OSK and a number of influential angel investors from around Southeast Asia, many of whom have interests in the financial services industry.
The team of six founders have impressed us with their ability to understand the requirements of their markets and build products that solve the real problems that are present. The company already works with most of the large banks and insurers in Malaysia, and we are happy to support them as they continue to build on their strengths in Malaysia and beyond.
Khor Chieh Suang and Ada Yeo lead the investment from Cento Ventures, and will provide support and guidance on regional expansion and capital trajectory. Given the deep financial services experience amongst the pool of other investors, an advisory board will also be created to guide the company in operational matters, navigating industry regulation, and building the company into a regional leader.
Suppose you want to compare loans, credit cards, or insurance plans. Depending on where you live, your destination would be different: Moneysmart in Singapore, Cermati in Indonesia, or RinggitPlus in Malaysia.
Now, on the surface, RinggitPlus doesn’t stand out – except that it claims to be the number one player in Malaysia, an assertion iMoney would challenge (iMoney did not respond to Tech in Asia’s multiple requests for comment). But Jirnexu, the company behind the website, is brewing something special. It all started with a revelation.
While the company focused purely on comparing financial products in the first one-and-a-half years of its history, it found that banks lacked an efficient way of converting the leads it provided. This affected Jirnexu’s bottom line, because it collects fees from clients for every approved customer referred.
“I had an overly romantic vision of doing in Southeast Asia what Money Supermarket has done in the UK,” says Siew Yuen Tuck, co-founder and CEO.
Read the full story here
iPrice, an 18-month-old e-commerce aggregation service that’s active in seven countries in Southeast Asia, has closed a $4 million Series A funding round.
The investment was led by existing backers Asia Venture Group (AVG) and Venturra Capital, with participation from Gobi Partners, DMP, Econa and Starstrike Ventures. Malaysia-based iPrice previously raised $1.2 million one year ago, in addition to a $550,000 seed round that kicked the business off when it launched in early 2015.
The fundamental idea of the service is to be a one-stop destination to make sense of online shopping in Southeast Asia, a region that contains some large e-commerce players — Alibaba acquired a controlling stake in $2 billion-valued Lazada earlier this year, for example — but no single dominant entity. That’s unlike, say the U.S. and parts of Western Europe, where Amazon is the go-to, or China, where the likes of Alibaba and JD.com have built formidable empires. iPrice now has more than 100 staff and it works with retail partners to help them gain visibility, traffic and sales.While iPrice started out on the path of aggregator, CEO David Chmelar told TechCrunch that it has also adapted its business as it has collected data from both retailers and buyers with potential for new options in the future.
“We started with product discovery, learned it worked well and started expanding it,” Chmelar, formerly with Boston Consulting, said in an interview. “We realized that what we now own is not the front end, but a huge sorted and cleaned out database that is unique to Southeast Asia.
“We see ourselves as a meta search platform, someone who will look for the best use of that dataset for both consumers and sellers,” he added.
Read the full article here.
Southeast Asia is a strong candidate to be the world’s next major e-Commerce market, supported by the combination of a burgeoning middle class, young demographics, impressive online adoption, and continuous improvement of payment and other internet-related infrastructure. A crop of local VC-backed retail startups and digital ventures backed by local conglomerates has emerged, alongside an increased level of interest from leading global e-Commerce companies. The region’s online retailers have attracted investment totaling more than US$5B since 2013.
According to Google-Temasek 2016 research, the US$5.5B that was spent online by Southeast Asia’s consumers in 2015 still represents only 0.8% of the total retail market, lagging countries like China, US, and India, where online retail accounts for 16%, 7%, and 1.7% of retail, respectively. However e-Commerce in Southeast Asia is growing at a rapid pace, and is estimated to reach $88B by 2025, making up 6.4% of total retail spending. As the number of digital retailers continues to multiply, consumer demand for comprehensive price and product comparison becomes ever greater.
iPrice is a regional e-Commerce aggregator that offers price comparison, product discovery, and coupons across various categories including electronics, beauty and fashion, home and living, sport and outdoors. The company helps online merchants grow their audience and revenue via by combining SEO expertise with data analytics and automation. The company currently operates in seven markets: Malaysia, Indonesia, Philippines, Vietnam, Singapore, Hong Kong, and Thailand. It attracts over 11 million monthly traffic to its 160+ million products from 1,300+ partners.
The management team of David, Heinrich and Dr. Konstantin have built their experience over many years at leading companies in Europe, US, and Southeast Asia. These include BCG, Microsoft, German Aerospace Center, Zalora, and Happy Fresh. We are confident that their intense focus on product scalability, lean operation style, and attentiveness to merchant and partner support will enable them to build the winning company in this important category.
It is our great pleasure to be part of the company’s Series A round, alongside Asia Venture Group, Venturra Capital, Gobi Partners, Econa, and Starstrike Ventures. Khor Chieh Suang will lead the investment for Cento Ventures and we look forward to supporting the team as they strengthen their position as the leading online shopping destination for the Southeast Asian consumers.
CtrlShift, an audience-focused marketing solutions company, has launched its global suite of managed end-to-end solutions, r3. Short for relevance, response, results, R3 uses data, technology and human expertise to deliver smarter and more targeted digital campaigns for brands across multiple channels.
The integrated solution suite ensures high-impact campaigns are delivered with effective reach, through a dynamic process of enriching audience segments throughout the campaign, on a continuous cycle. It also offers brands a single view across all digital channels, allowing marketers to easily oversee, assess and manage different elements of their digital campaigns.Deepika Nikhilender, CEO of CtrlShift, shared, “Too many marketers think that programmatic is simply about cutting costs, but it has now evolved to be more data-driven and technologically advanced. r3 marries this evolution of programmatic and in-depth audience data, so that marketers are able to strategise, implement and measure digital campaigns that drive business goals.”
Read the full article here.