The Venture Capital Opportunity in Asia - Tedx / Affin Hwang Capital (@adjblog)

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alexander-jarvis
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  • The Venture Capital Opportunity in South East Asia Affin Hwang Capital Conference Series 2015 Navigating Through Turbulent Times
  • Hi! I’m Alexander Jarvis
  • • Partner at Jungle responsible for SEA investments • Helped build some $1bn+ companies • Financial Institutions M&A (London) Some of my Previous Experience
  • There’s a lot of money to be made in Venture Capital
  • But the US has Given it a Bad Rap Around the Bubble of 1999
  • “The average VC fund barely returns investor capital after fees” Source: Cambridge Associates, 2010 Benchmark Report, vintage year 1990–2009 funds
  • All attributed to US investor Mark Suster from Upfront Ventures presentation “It’s morning in VC.” Read it!
  • The .com Boom Attracted Too Much LP Capital Commitments from LPs to USA Tech VC funds ($b) 0 12.5 25 37.5 50 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $13 $6 $8 $26 $50 $31 $12 $7 $5$3 Source: Prequin. Includes all LP investment into US VC funds with IT & Digital Media focus. Excludes funds with hardware & nanotech focus, non-$USD funds, funds with undisclosed amounts, & funds without first close
  • This Caused too Many VCs to Set up Shop # of VC funds raised by USA Tech VC firms 0 45 90 135 180 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 68 49 67 90 163 109 77 66 3833 Source: Prequin. Includes all LP investment into US VC funds with IT & Digital Media focus. Excludes funds with hardware & nanotech focus, non-$USD funds, funds with undisclosed amounts, & funds without first close
  • Resulting in Over-Capitalised Environment Backing Bad Ideas First institutional money raised by Internet companies ($m) 0 3000 6000 9000 12000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $482$400$328 $1,150 $11,232 $7,465 $1,435 $628$550$250 Source: PWC/NVCA MoneyTree Report
  • Over-Investment was Coupled with Proportionally Less Exits Exit values of VC backed companies ($b) 0 45 90 135 180 1997 1999 2001 2003 $92 $38$32 $40 $142 $178 $27 $42 M&A + IPO # VC backed company exits 0 175 350 525 700 1997 1999 2001 2003 503 369 392404 537 611 268273 M&A + IPO Source: Thomson Reuters
  • • More LP money to be invested • More VCs competing for deals • More # and $ investment • Less exits by # and $ • Under-performing asset class (1999-2007) The Obvious Consequence was Bad Returns =
  • LPs ?
  • Not Exactly… So What Changed?
  • 66x More Internet Users Today (41% of World Population) 2,908 2015 41% 66x World Internet Users 0 750 1500 2250 3000 1995 2000 2005 2010 2015 Sources: U.S. Bureau of the Census, World Bank, WeAreSocial
  • Internet Speed is 180x FASTER 1995 2014 56 Kbps modems 10.5 Mbps average USA internet connection speed Source: Akamai ‘s State of the Internet Q1 2014 Tried shopping online with 10 second page load?!
  • Everyone is Mobile on Smartphones • Personal • Location aware • At point of purchase 164m • USA smartphone users 119m • USA tablet users Source: 2014 Statista forecasts
  • Everyone is Connected Driving Viral Growth Rates • 1.3b+ monthly active users • 255m monthly active users • 300m+ global registered members • 6b+ hours of video watched each month by 1b+ users
  • Credit Cards are Now on File with One Click Shopping 1 billion Digital shoppers worldwide $1.5 trillion Global ecom spend The Apple app ecosystem alone estimated to be $25b in 2014 (from $0 in 2008) Sources: eMarketer, WSJ
  • Less VCs Competing Deals Commitments from LPs to USA Tech VC funds ($b) 0 12.5 25 37.5 50 1995 2000 2005 2010 2012 $16 $9 $16 $50 $3 # of funds raised by USA Tech VC firms 0 45 90 135 180 1995 2000 2005 2010 2012 $65 $50 $74 $163 $33 Source: Prequin. Includes all LP investment into US VC funds with IT & Digital Media focus. Excludes funds with hardware & nanotech focus, non-$USD funds, funds with undisclosed amounts, & funds without first close
  • • 66x users, 180x internet speed, 6x time online • Mobile and social • Card ready to spend online • Less LP money and VCs • Time to make money again! (2010 - 2020) The Consequence is Simple, You Can Actually Make Money this Time =
  • That’s America, but what About Here?
  • The Same Dynamics are Already Evident in Asia, but we will Grow Faster
  • SEA is Bigger Than the USA in Many Respects Source: Social, Digital & Mobile in APAC, WeAreSocial, 2014 SEA USA 2x 70% 90% 2x
  • Social Media Penetration on Par Source: US Census Bureau, CNNIC, Tencent, Facebook USA: 56%
  • In Fact, Internet Traffic in APAC Will be Double the USA in 2015 2012 2013 2014 2015 2016 2017 CAGR ’12-17 By Geography (PB per Month) Asia Pacific 310 614 1,168 2,053 3,377 5,257 76% North America 222 380 632 993 1,466 2,087 56% Western Europe 181 276 426 655 976 1,384 50% Middle East and Africa 50 96 182 333 559 861 77% CEE 66 116 211 365 577 845 66% Latin America 55 97 179 304 481 723 67% Total (PB per Month) Mobile data and internet 884 1,579 2,798 4,703 7,436 11,157 65% Source: CISCO VNI, 2013
  • APAC ecommerce is set to be 41% larger than USA in 2016 2.2%! Asia-Pacific! North America! Western Europe ! Eastern Europe! Latin America ! Middle East & Africa! 2.1%! 27.9%! 35.9%! 28%! 3.6%! 3.1%! 1.6%! 2011! 30.5%! 33.5%! 26.9%! 3.8%! 3.4%! 1.9%! 2012! 33.4%! 31.5%! 25.7%! 3.9%! 3.5%!2013! 36.2%! 29.7%! 24.3%! 3.9%! 3.6%!2014! 2015! 2016! 2.3%! 38.2%! 28.8%! 23.4%!3.8%! 3.6%! 2.3%! 39.7%! 28.2%! 22.6%!3.7%! 3.5%! Source: eMarketer, 2013 B2C Ecommerce Sales Share Worldwide, by Region, 2011-2016 - % of total
  • China Has Proven You Can Build Bigger Than in America
  • India is Making Progress too and has 4+ Consumer Unicorns
  • So What Does SEA Have Going for it?
  • The Early Signs are Encouraging There has Been a lot of Seed Stage Activity
  • In 2012 NRF TIS Scheme in SG Created a Lot of VCs Which Drove Seed Funding
  • • Hired, trained and fired a lot of people • Many former employees set up companies • Invested incredible amounts of marketing money • Educated customers (Very costly) • Increase in ecommerce penetration % • New and existing businesses are more viable Rocket Internet Entered Market
  • Started to be More Corporate and Independent Accelerators
  • Resulting in a Lot More Startups Source: TechList. Note: This chart includes Singapore, Malaysia, Indonesia, Thailand, Philippines, Myanmar, and Vietnam. Only disclosed fundings are included in our calculations. $0 $100 $200 $300 $400 $500 $600 $700 $800 0 5 10 15 20 25 30 35 40 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 Total # deals Total disclosed funding ($m)
  • Hard Slog to Date has Rewarded the Diligent (But it took a long time to get big)
  • $11.8 billion spent acquiring Asian startups in the last 6 years $2.6 billion was on SEA startups
  • • JobStreet / Seek - A$545 • Viki / Rakuten - $200m • ZipDial / Twitter - N/A • Travelmob / HomeAway - $22m • Zopim / ZenDesk - ~$30m • SGCarMart / SPH - $48m • JobCentral / CareerBuilder - N/A • Detik / Para Group - $60m • Tarad / Rakuten - N/A There Have Been Some Decent Acquisitions Lots of brand name foreign acquirers
  • • Australia • Freelancer • iSelect • Xero • 3P Learning • OZForex • SEEK • Carsales And a Number of IPOs • Malaysia • Jobstreet • iProperty • MyEg • iCar • iBuy • MolPay • Singapore • AsiaTravel • PropertyGuru (Coming?) • India • Justdial • MakeMyTrip • InfoEdge
  • That was before, things have changed in past 2 years
  • A Key Structural Change is the Cost of Setup is Really Low Now! 1995 2005 2010 2015 $5m $500k $50k $5k Technology drivers Open Source Cloud + AWS Developers start companies 99% reduction Source: It’s Morning in VC, Upfront Ventures Asian staff are cheaper too!! Setup Cost
  • Startups are raising more money and getting bigger faster
  • • ~$500m raised • 1m active customers • 79m monthly visits • Millions of Euro per month in revenue • ~$300m raised • 1.6m customers served • 27m monthly visits • Millions of Euro per month in revenue Rocket Have Shown you can Actually Build Companies of Scale Rapidly with Capital Source: http://www.kinnevik.se/en/Investor/Kinnevik-Rocket-capital-markeys-day-2014/, and estimates
  • Local Companies are Following Suit
  • • Huge, growing online regional market • Growing exit market • Increasingly higher quality companies • But limited capital available! • Opportunity? (2015 - 2025) Logically, There is a Big Opportunity in SEA =
  • So What Does the Future Hold?
  • Investments
  • • Increased volume of structures to pump out a volume of startups • Reverse shifts in investment stage focus for early and late stage investors • More Series-A funds in SEA • Late stage VCs move to Seed stage in India to make ‘call options’ • Increased availability of early stage financing, but still limitations on investable companies Increased Early Stage Focus for Different Reasons
  • • More foreign investors enter the market • Continued foreign investment from Japan, • Chinese mobilising • Nascent interest from US and EU • Local large family conglomerates start committing more capital • More later stage funding announcements More Foreign Money and Late Stage Investments
  • Valuations and Exits
  • • Seed valuations for great companies will increase as will the investment sizes • Continue to be small exits • Messaging companies may make purchases to ‘fill in’ their ecosystems, global brands make niche acquisitions Valuations Increase Across the Board and More Small Exits
  • Operating Environment
  • • Introduction of ASEAN but no obvious benefit • Potential for more questionable regulation, particularly in ecommerce • Thailand and Indonesia? • Continued HR challenges resulting in wage inflation and importation of specialty talent Governments Get in the Way and Costs of Staff Rise
  • Startups
  • • Increased regionalization of local companies and category leader dominance • Start to see more overseas expansion of well funded EU/US companies Bigger Regional Companies and Foreign Invasion
  • • More startups in ‘hot’ verticals • Foreign entrepreneurs and Rocket grads will drive a lot of new startups • Struggling startups will complain there is a Series- A crunch More of Everything- More Startups and More Failures
  • Honestly… You Missed China You Sort of Missed India. Now is a Great Time to Access South East Asia
  • Want to know Leverage the Venture Capital Opportunity?
  • Let’s Have a Chat • www.AlexanderJarvis.com • @ADJBlog • sg.linkedin.com/in/alexanderdjarvis/
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