VCs give us their predictions for startups and tech in Southeast Asia in 2019

The new year is well underway and, before January is out, we polled VCs in Southeast Asia to get their thoughts on what to expect in 2019.

The number of VCs in the region has increased massively in recent years, in no small part due to forecasts of growth in the tech space as internet access continues to shoot up among Southeast Asia’s cumulative population of more than 600 million consumers.

There are other factors, including economic growth and emerging middle classes, but with more than 3.8 million people becoming first-time internet users each month — thanks to smartphones — Southeast Asia’s ‘digital economy’ is tipped to more than triple to reach $240 billion by 2025. That leaves plenty of opportunity for tech and online businesses and, by extension, venture capitalists.

With a VC corpus that now numbers dozens of investment firms, TechCrunch asked the people who write the checks what is on the horizon for 2019.

The only rule was no more than three predictions — below, in no particular order, is what they told us.


Alberty Shyy, Burda

Funds will continue to invest aggressively in Southeast Asia in the first half of this year but capital will tighten up by Q4 as funds and companies prepare for a possible recession. I think we will see a lot of companies opportunistically go out to fundraise in Q1/Q2 to take advantage of a bull market.

We will see two to three newly-minted unicorns from the region this year, after a relative lull last year.

This will (finally) be the year that we start to see some consolidation in the e-commerce scene


Dmitry Levit, Centro

A significant portion of capital returned by upcoming U.S. IPOs to institutional investors will be directed to growth markets outside of China, with India and Southeast Asia being the likeliest beneficiaries. Alternative assets such as venture and subsets of private equity in emerging markets will enter their golden age.

The withdrawal of Chinese strategic players held back by weakened domestic economy, prudent M&A by local strategics and ongoing caution among Japanese, Korean and global corporates, combined with ongoing valuations exuberance by late-stage investors allocating funds to Southeast Asia, will continue holding back large liquidity events. Save perhaps for a roll-up of a local champion or two into a global IPO. Fundraising will get more troublesome for some of Southeast Asia’s larger unprofitable market leaders. Lack of marquee liquidity events and curtailed access to late-stage capital for some will lead to a few visible failures (our money is on the subsidy-heavy wallets!) and a temporary burst of short-term skepticism around Southeast Asia as an investment destination towards the end of 2019.

The trend towards the emergence of value-chain specific funds and fund managers will continue, as digitalization is reaching ever further into numerous industry sectors and as Southeast Asia hosts an increasing portion of global supply chains. We foresee at least dozen new venture firms and vehicles emerging in 2019 with clear sector-led investment thesis around the place of Southeast Asian economies in the global value chains of fashion industry, agriculture and food; labour, healthcare services; manufacturing, construction tech and so on, with investment teams that have the necessary expertise to unravel this increasing complexity.


Willson Cuaca, East Ventures

Jakarta becomes Southeast Asia’s startup capital surpassing Singapore in terms of the number of deals and investment amount.

As Indonesia’s startup scene heats up, regional seed and series A funds move away from Indonesia and target Vietnam, Malaysia, Thailand and the Philippines (in market priority order).

Southeast gets two new unicorns.


Rachel Lau, RHL Ventures

North Asian companies will provide well-needed liquidity as they withdraw capital from developed American and European markets due to the Federal Reserve’s actions. The FED raised interest rates and reduced the size of its balance sheet (by not replacing the bonds that were maturing at a rate of $50 billion a month). This has been seen in the recent fundraising exercise by Southeast Asian unicorns. Grab has recently seen an impressive list of North Asian investors such as Mirae, Toyota and Yamaha . A recent stat stated that 85 percent of the funding of Southeast Asia startups have gone to billion dollar unicorn such as Grab and Gojek, bypassing the early stage startups that are more in need for funding, this trend is expected to continue. Therefore, we will see early-stage companies and venture capitalists becoming more focused on generating cash flow from operating operations instead as fundraising activities become more difficult.

A growth in urbanization in Southeast will create new job opportunities in small/medium businesses, as evident in China. Currently, only 12 percent of Asia’s urban population live in megacities, while four percent live in towns of fewer than 300,000 inhabitants. New companies will see the blurred lines between brick and mortar businesses vs pure online businesses. In the past year or so, we have seen more and more offline businesses going online and more online businesses going offline.

Fertility rates in the Philippines, Laos, Cambodia, Indonesia and Vietnam exceed 2.1 births per woman — the level that sustains a population — but rates below 1.5 in Singapore and Thailand mean their populations will decline without immigration. As we see more startup activities coming to Southeast Asian countries, we expect to see more qualified foreign talent moving to the region vs staying in low growth American and European countries.


Kay-Mok Ku, Gobi Ventures

First Chinese “Seaward” Unicorn in Southeast Asia. In recent years, a growing number of Chinese startups are targeting overseas markets from the get go (known as Chuhai 出海 or “Seaward”). These Chinese entrepreneurs typically bring with them best practices in consumer marketing and product development honed by a hyper-competitive home market, supported by strong, dedicated technical team based out of China and increasingly capitalized by Chinese VCs which have raised billion-dollar funds.

Consolidation among ASEAN Unicorns. While ASEAN now boasts 10 unicorns, they are duplicative in the sense that more than one exists in a particular category, which is unsustainable for winner-takes-all markets. For example, in the ASEAN ride-hailing space, while one unicorn is busy with regional geographic expansion, the other simply co-exists by staying focused on scope expansion within its home market. This will never happen in a single country market like China but now that the ASEAN ride hailing unicorns are finally locking horns, the stage may be set for a Didi-Kuadi like scenario to unfold.

ASEAN jumps on Chinese 5G bandwagon. The tech world in the future will likely bifurcate into American and Chinese-led platforms. As it is, emerging markets are adopting Chinese business models based on bite-sized payment and have embraced Chinese mobile apps often bundled with cheap Chinese smartphones. Looking ahead, 5G will be a game changer as its impact goes beyond smartphones to generic IoT devices, having strategic implications for industries such as autonomous driving. As a result, the US-China Trade War will likely evolve into a Tech War and ASEAN will be forced to choose side.


Darren Tan, Golden Equator Capital

We are excited by growth in the AI and deep tech sectors. The focus has generally been on consumer-focused tech in Southeast Asia as an emerging market, but we are starting to see proprietary solutions emerge for industries such as medtech and fintech. AI also has great applicability across a wide range of consumer sectors in reducing reliance on manpower and creating cost savings.

Data analytics to uncover organizational efficiencies and customer trends will continue to be even more widely used, but there will also be greater emphasis on securing such data especially confidential information in light of multiple high-profile data breaches in 2018. Tools enabling the collection, storage, safe-keeping and analysis of data will be essential.

We are seeing the emergence of more institutional funds from North Asia. So far it has predominantly been Chinese tech giants like Tencent and Alibaba, now we are starting to see Korean and Japanese institutions placing greater emphasis on investment in the Southeast Asian region.


Vinnie Lauria, Golden Gate Ventures

Even more capital flowing from U.S. and China into Southeast Asia, with VCs from both locations soon to open offices in the region

A fresh wave of Series A investments into Vietnam.

Ten exits over $100 million.

 


Amit Anand, Jungle Ventures

The emergence of a financial services super app, think the Meituan or WeChat but only for financial services: The Southeast Asian millennial is one of the most underserved customer from a financial services perspective whether it is payments, consumer goods loans, personal loans, personal finance management, investments or other financial services. We will see the emergence of digital platforms that will aggregate all these related services and provide a one stop financial services shop for this digitally native consumer.

Digitisation of SMEs will be new fintech: Southeast Asia is home to over 100 million SMEs that are at the cusp of digital transformation. Generational change in ownership, local governments push for digitization and increased globalization have created a perfect storm for these SMEs to adopt cloud and other digital technologies at neck-breaking pace. Startups focussing on this segment will get mainstream attention from the venture community over the next few years as they look for new industries that are getting enabled or disrupted by technology.


Kuo-Yi Lim and Peng Ong, Monk’s Hill Ventures

Lyft and Uber go public and show the path to profitability for other rideshare businesses. This has positive effect for the regional rideshare players but also puts pressure on them to demonstrate the same economics in ridesharing. Regional rideshare players double down on super-app positioning instead, to demonstrate value in other ways as rideshare business alone may not reach profitability — ever.

The trade war between China and the US reaches a truce, but a general sense of uncertainty lingers. This is now the new norm — things are less certain and companies have to plan for more adverse scenarios. In the short term, Southeast Asia benefits. Companies — Chinese, American etc — see Southeast Asia as the neutral ground. Investment pours in, creating jobs across industries. Acquisition of local champions intensifies as foreign players jostle for the lead positions.

“Solve the problem” – tech companies will become more prominent… tech companies that are real-estate brokers, recruiters, healthcare providers, food suppliers, logistics… why: many industries are very inefficient.


Hian Goh, Openspace Ventures

Fight to quality will happen. Fundraising across all stages from seed to Series C and beyond will be challenging if you don’t have the metrics. Investors will want to see a path to profitability, or an ability to turn profitable if the environment becomes worse. This will mean Saas companies with stable cash flows, vertical e-commerce with strong metrics will be attractive investment opportunities.

Investor selection will become critical, as investors take a wait and see approach. Existing or new investors into companies will be judged upon their dry powder in their funds and their ability to fund further rounds

The regulatory risk for fintech lenders will be higher this year, rising compliance cost and uncertainty on licensing, which would lead to consolidation in the market.


Heang Chhor, Qualgro

Southeast Asia: an intensifying battlefield for tech investments

There has never been so much VC money in Southeast Asia chasing interesting startups, at all life cycle stages. The 10 most active local and regional VCs have raised their second or third funds recently, amassing at least two times more money than a few years ago, probably reaching a total amount close to $1 billion. In addition, international VCs have also doubled down on their allocation into the region, while top Chinese VCs have visibly stated their intent not to miss the dynamic momentum. Several growth funds have recently built a local presence in order to target Southeast Asia tech companies at Series C and beyond. Not counting the amount going to the unicorns, there might be now more than $3-4 billion available for seed to growth stages, which may be 3-4 times the amount of three years ago. There are, of course, many more good startups coming up to invest into. But the most promising startups will be in a very favorable position to negotiate higher valuation and better terms. However, they should not forget that, eventually, what creates value is how they make a difference with their tech capabilities or their business model, how they acquire and retain the best talent, with the funds raised, not only how much money they will be able to raise. Most local and regional corporate VCs are likely to lose in this more intense investment game.

Significant VC money investing into so-called ‘AI-based startups’, but are there really much (deep) Artificial Intelligence capabilities around?

A good portion of the SEA startups claim they have ‘something-AI’. Investors are overwhelmed, if not confused, by the ‘AI claim’ that they find in most startup pitches. While there is no doubt that Southeast Asia will grow its own strong AI-competence pool in the future, unfortunately today most ‘AI-based’ business models from the region would still be just ‘good algorithms or machine learning’ that can process some amount of data to come up with good-enough outcomes, that do not always generate substantial business value to users/customers. The significant budget that some of the very-well-funded Southeast Asia unicorns are putting into their ‘AI-based apps’ or ‘AI platform’ is unlikely to make a real difference for the consumers, for lack of deep AI competences in the region. 2019 may be another year of AI-promise, not realized. Hopefully, public and private research labs, universities and startups will continue to be (much more) strongly supported (especially by governments) to significantly build bigger AI talent pool, which means growing and attracting AI talent into the region.

Bigger Series A and Series B rounds to fuel more convincing growth trajectory, towards growth-stage fundraising.

Although situations vary a lot: typical Series A in Southeast Asia used to be around $5 million, and Series B around $10-15 million. Investors tended to accept that normally companies would raise money after 18 months or so, between A and B, and between B and C. There has been an increasing number of larger raises at A and B recently, and very likely this trend will accelerate. The fact that VCs now have much more money to deploy into each investment will contribute to this trend. However, the required milestones for raising Series C have become much more around: minimum scale and very solid growth (and profit) drivers. Therefore, entrepreneurs will have to look for getting as much funding reserve as possible, irrespective of time between raises, to build growth engines that take their companies past the milestones of the next Series, be it B or C. In the future, we will see more Series A of $10 million and more Series B of well-above $20 million. Compelling businesses will not have too much difficulties for doing so, but most Southeast Asia entrepreneurs would be wise to learn to more effectively master fundraising skills for capturing much bigger amounts than in the past. Of course, this assumes that their businesses are compelling enough in the eyes of investors.


Vicknesh Pillay, TNB Aura

Out-sized valuations will be less commonplace in 2019 as Southeast Asian investors learn from experience and become more sophisticated. Therefore, we do see opportunities at Series A/B for undervalued deals due to lack of early-stage funding while we expect to continue to see the trend of the majority of venture capital investments going into later stage companies (Series C and beyond) due to lower risk appetite and ‘herd’ mentality.

2018 has also seen the rapid emergence of many corporate venture capital funds and innovation programs. But, 2019 will see large corporations cutting back on their allocation towards startup investing which would be the easiest option for them in case of adverse news to the jittery public markets in 2019.

With the growth of AI, the need for API connections and increased thought leadership to embrace tech, Southeast Asia is going to see an upsurge in SaaS startups and existing startups moving to a Saas business model. Hence, we expect increased investments into Saas companies focused on IoT and cybersecurity as hardware data and software are moved onto the cloud.


Chua Kee Lock, Vertex Ventures

Southeast Asia VC investment pace has grown steadily and significantly since 2010 where it started from less than $100 million in VC investment in the region. For the first eight months of 2018, the region’s VC investment was over $5.4 billion. For the whole of 2018, it will likely end around $8 billion. For 2019, we expect the VC investment pace to surpass 2018 level and record between $9-10 billion. Southeast Asia will continue to attract more VC investments because:

(1) Governments in Southeast Asia, especially ASEAN, continue their support policy to encourage startups.

(2) young demographics and the fast technology adoption in Southeast Asia give rise to more innovative and disruptive ideas.

(3) global investors looking for a better return and will naturally focus on growing emerging market like Southeast Asia.

The trend towards gig economy will begin to have an impact in the region. In developed economies like the U.S, gig economy is expected to reach over 40 percent by 2020. The young population will look for more freelance opportunities as a way to increase income levels while still maintaining flexibility. This will include white-collar work like computer programming, accounting, customer service, etc. and also blue-collar work like delivery services, ride-sharing, home services, etc. We believe that the gig economy will grow to over 15 percent in Southeast Asia by 2019.

AI-heavy or -driven startups will begin to make inroads into Southeast Asia.


Victor Chua, Vynn Capital

The BIG convergence — there will more integration between industries and sectors. Traveloka went into car rental, Blibli went into travel business and these are only some examples. There is a lot of synergistic value between travel startups and food startups or between property startups and automotive startups. Imagine a future where you travel to a city where you stay in an apartment you rented through a marketplace (like Travelio, my portfolio company), and when you need to book a restaurant you can make the reservation through a platform that is integrated with the property manager, and when you need to move around you go down to the car park to drive a car you rent from an automotive marketplace. There is clear synergy between selective industries and this leads to an overall convergence between companies, between industries.

More channels to raise Series B/C, early-stage companies find fundraising more challenging — We have seen a number of VC funds raising or already raised growth funds, this means that there are now more channels for Series A or B companies to raise growth rounds. As the market matures, there will be more competition for investments amongst growth funds as there is considerably more growth in the number of growth funds than companies that are raising at growth-stage. On the flip side, the feel is that there is a consistent growth in the number of early-stage companies, yet the amount of capital in early-stage funds is not growing as much as more VCs prefer bigger and later stages, due to the maturity of their existing portfolio companies.

Newcomers gaining weight — there will be at least 10 companies that will hit a valuation of at least $100 million. These valuations will not be based on a single market exposure. Companies that raise larger rounds will need to show that they are regional.


Thanks to all the VCs who took part, I certainly felt like the class teacher collecting assignments.

Google launches clean energy project in Taiwan, its first in Asia

Google has launched its first clean energy project in Asia. The company announced today that it struck a long-term agreement to buy the output of a 10-megawatt solar array in Tainan City, Taiwan, about 100 km south of its data center in the country. Google already has solar and wind projects across North and South America, as well as Europe.

The agreement is a collaboration between Google, several Taiwanese energy companies, and the country’s government, which recently revised Taiwan’s Electricity Act to enable non-utility companies to purchase renewable energy directly. The revisions are part of Taiwan’s new energy policy, aimed at phasing out nuclear energy by 2025 and increasing the share of electricity generated from renewable sources to 20 percent.

Google is the first corporate power buyers to take advantage of the revised law. Its development partners are Diode Ventures, Taiyen Green Energy, J&V Energy, and New Green Power.

The solar array will be connected to the same regional power grid at Google’s Chuanghua County data center, one of two in Asia (the other is in Singapore). The poles supporting the solar panels will be mounted into commercial fishing ponds, an arrangement that Marsden Hanna, Google’s senior lead of energy and infrastructure, said in a blog post will maximize land-use efficiency and respect the local ecology because “fish and solar panels can coexist peacefully.” Fishing pond owners will also be compensated for hosting the panels.

The agreement means Google will get a long-term, fixed electricity price for its operations in Taiwan.

“As the Taiwanese government pursues further measures to remove market barriers and reduce renewable energy costs, we’re hopeful that more companies will purchase renewable energy, driving even larger projects across Taiwan,” said Hanna.

Uber Rewards is rolling out. Here’s how the perks work

Did you blow enough money on Uber to get Diamond status? A lot of users are finding out tonight as Uber rolls out its rider loyalty Rewards program to San Francisco and a slew of other cities. The feature calculates how much you’ve spent on Uber and Uber Eats in the last six months awards you perks like no-fee cancellations if you rebook, guaranteed prices between your two favorite spots, and free car upgrades. Uber confirms to TechCrunch that Rewards will roll out to the entire US soon but now is available in 25 places across the country.

Uber Rewards is still a bit complicated to be easy enough for everyone to quickly understand, but it does a could job of offering powerful perks and a way for everyone to earn $5 rebates. The program could discourage users from checking other ride hailing apps if their Uber’s ETA or price seems too high.

Meanwhile, Lyft’s loyalty program remains unseen. The competitor tried to steal the spotlight by announcing its own rewards system just two days before Uber, yet it seems like that was vaporware as it still hasn’t launched. Uber was far from first here, as Southeast Asia’s Grab has had rewards since 2016. But Uber could flex its deep pockets and cultural cache here by using slick product design to differentiate itself in a crowded market of lookalikes.

How To Use Uber Rewards

Luckily, almost everything in Uber Rewards happens automatically. All you have to do is look out for the invitation to join at the bottom of the home screen and activate it. You’ll then see your tier and the associated perks that you’ll get to keep for the next six months.

The only non-retroactive perk is the $5 credits you get for each 500 points you earn going forward. You get 1 point per dollar spent on UberPool, Express Pool and Uber Eats;  2 points on UberX, Uber XL and Uber Select; and 3 points on Uber Black and Black SUV.  The one perk you have to configure yourself is if you’re platinum, you’ll have to choose which route to get price protection for. You probably want to pick your home and your most frequent destination or one of reasonable distance that you often travel to or from during rush hour.

Uber Rewards is now available in Boston, Dallas, Orange County, Houston, New Orleans, Kansas City, Indianapolis, LA, SF, Fort Collins, Rockies, Pittsburgh, Lehigh valley, Gettysburg, Erie, and Western Massachusetts. That’s on top of the launch cities of Miami, Denver, Tampa, New York, Washington, DC, Philadelphia, Atlanta, San Diego, and anywhere in New Jersey. Once Uber has nailed the experience in the US, it plans to roll it out to international locales.

Uber Rewards Levels

Now, here’s a breakdown of the Uber Rewards tiers, the best perks, and how much Ubering it takes to earn them (from our November post announcing the feature):

Blue: $5 credits

The only Uber perk that doesn’t reset at the end of a period is that you get $5 of Uber Cash for every 500 points earned regardless of membership level. “Even as a semi-frequent Uber Rewards member you’ll get these instant benefits,” Janakiram says. Blue lets you treat Uber like a video game where you’re trying to rack up points to earn an extra life. To earn 500 points, you’d need about 48 UberPool trips, 6 Uber Xs and 6 Uber Eats orders.

Gold: Flexible cancellations

Once you hit 500 points, you join Uber Gold and get flexible cancellations that refund your $5 cancellation fee if you rebook within 15 minutes, plus priority support Gold is for users who occasionally take Uber but stick to its more economical options. “The Gold level is all about being there when things aren’t going exactly right,” Janakiram explains. To earn 500 points in six months, you’d need to take about 2 UberPools per week, one Uber X per month and one Uber Eats order per month.

Platinum: Price protection

At 2,500 points you join Uber Platinum, which gets you the Gold benefits plus price protection on a route between two of your favorite places regardless of traffic or surge. And Platinum members get priority pickups at airports. To earn 2,500 points, you’d need to take UberX 4 times per week and order Uber Eats twice per month. It’s designed for the frequent user who might rely on Uber to get to work or play.

Diamond: Premium support & upgrades

At 7,500 points, you get the Gold and Platinum benefits plus premium support with a dedicated phone line and fast 24/7 responses from top customer service agents. You get complimentary upgrade surprises from UberX to Uber Black and other high-end cars. You’ll be paired with Uber’s highest-rated drivers. And you get no delivery fee on three Uber Eats orders every six months. Reaching 7,500 points would require UberX 8 times per week, Uber Eats once per week and Uber Black to the airport once per month. Diamond is meant usually for business travelers who get to expense their rides, or people who’d ditched car ownership for ridesharing.

Jupiter Networks invests $2.5M in enterprise tech accelerator Alchemist

Alchemist, which began as an experiment to better promote enterprise entrepreneurs, has morphed into a well-established Silicon Valley accelerator.

To prove it, San Francisco-based Alchemist is announcing a fresh $2.5 million investment ahead of its 20th demo day on Wednesday. Jupiter Networks, a networking and cybersecurity solutions business, has led the round, with participation from Siemens’ venture capital unit Next47.

Launched in 2012 by former Draper Fisher Jurvetson investor Ravi Belani, Alchemist provides participating teams with six months of mentorship and a $36,000 investment. Alchemist admits companies whose revenue stream comes from enterprises, not consumers, with a bent toward technical founders.

According to numbers provided by the accelerator, dubbed the “Y Combinator of Enterprise,” 115 Alchemist portfolio companies have gone on to raise $556 million across several VC deals. Another 25 have been acquired, including S4 Capital’s recent $150 million acquisition of media consultancy MightyHive, Alchemist’s largest exit to date.

Other notable alums include Rigetti Computing, LaunchDarkly, which helps startups soft-launch features and drone startup Matternet.

Alchemist has previously raised venture capital funding, including a $2 million financing in 2017 led by GE and an undisclosed investment from Salesforce.

Nineteen companies will demo products onstage tomorrow. You can live stream Alchemist’s 20th demo day here.

Watch Blue Origin’s 10th New Shepard mission launch a science-loaded capsule to space

Blue Origin, the rocket company founded by Amazon’s Jeff Bezos, is about to undertake the 10th launch of its New Shepard launch vehicle, with its capsule chock full of experiments. The launch, which was originally scheduled for a month ago but delayed for various reasons, will take place tomorrow at 6:50 AM Pacific time.

New Shepard is a sub-orbital space-visiting platform, not a satellite-launching one. But it uses a very traditional method of getting to the edge of space compared with Virgin Galactic’s rather involved mothership-spaceship combo, which scraped the very edge of space in its fourth test launch last month.

The rocket shoots straight up, as rockets do, reaches escape velocity, then pops its capsule off the top just before the Karman line that officially, if somewhat arbitrarily, delineates space from Earth’s atmosphere. The capsule, after exhausting its upward momentum, gently floats back to the surface under a parachute.

That’s the plan for Wednesday’s launch, which you can watch live here starting half an hour or so before T-0. But instead of taking a dummy load or “Mannequin Skywalker,” as the company calls its human stand-in during tests of the crew capsule, mission 10 has a whole collection of experiments on board.

There are nine experiments total, all flying through NASA’s Flight Opportunities program. They’re detailed here. Most have already been up in other vehicles or even a Blue Origin one, but obviously repetition and iteration is important to their development.

“The opportunity to re-fly our payload is helping us not only validate and compare data for different flight profiles, but also test modifications and upgrades,” said NASA’s Kathryn Hurlbert, who heads up the Suborbital Flight Experiment Monitor-2 project at Johnson Space Center.

More Flight Opportunities spots will be available on future NASA-sponsored launches, so if your lab has an experiment it would like to test on a sub-orbital rocket, get at the administrators as soon as the shutdown ends.

Iranian Christians Refuse to Renounce Christian Faith in Exchange for Freedom from Prison

Facing a final appeal hearing on Jan. 15 in Tehran, two Iranian Christians were asked by judges Hassan Babaee and Ahmad Zargar to renounce their faith, which they refused. In response, the judges told them to expect a verdict in their case soon, according to the website CSW.