South-East Asia comprises as many as 10 different countries, but it is a “homogeneous" region for start-up investing, argues Amit Anand, founder and managing partner of Singapore-based venture capital firm Jungle Ventures which counts Ratan Tata, chairman emeritus of Tata Sons Ltd, as a special advisor.

According to Anand, start-ups should look for homogenous market segments within South-East Asia (SEA) which are sizeable.

“Our hypothesis is that metros behave in a very similar manner in SEA in terms of supply, demand, consumer behaviour, socio-economics and infrastructure and, therefore, once a start-up figures out an expansion playbook, with some level of localization, it can replicate its growth with increasing efficiency," he said in an interview.

Edited excerpts:

Your recent report points out that SEA metros have a comparable population with 5x spending power versus India; yet, not many start-ups have been targeting the region; often for start-ups in this region, once they hit maybe two countries in SEA, their first port of expansion is the US, Japan or even HK (Hong Kong). Does the challenge of targeting SEA as a whole appear too daunting for most start-ups even in their growth phase?

A majority of the regional start-ups, especially in the past 2-3 years, which are solving real emerging world issues, remain focused on the SEA region—whether it be in travel, fashion brands, financial services, etc. Our portfolio has sufficient examples of the same as well—Iflix, Pomelo, iMoney, Mobikon and many others. The US or Japan are great enterprise software markets and we usually encourage start-ups in that space to find early customer wins in those markets.

Is SEA really a ‘homogeneous’ region for start-up investing as you are making it out be? Agreed, everyone says Asean (Association of South-East Asian Nations) is a billion, China is a billion and India is a billion—but are you not literally building out expertise in many different markets. The Philippines, Indonesia and Singapore are very different markets, with different operating models and with different cultural challenges. Indonesia is a different ball game altogether.

The way to think about this is to look for homogenous market segments within SEA which are sizeable. Our hypothesis is that metros behave in a very similar manner in SEA in terms of supply, demand, consumer behaviour, socio-economics and infrastructure and, therefore, once a start-up figures out an expansion playbook, with some level of localization, it can replicate its growth with increasing efficiency. The same way that India maybe a billion people but the online shoppers are only 40-50 million people, primarily in the eight metro cities—each of which is differing in local language, culture, infrastructure, traffic, demographics, etc. Our hypothesis says that the same is true of SEA and businesses and investors should size the opportunity accordingly.

Currently, for most global investors, their first preference remains China and India when it comes to Asia, and may be followed by Indonesia. Those who feel that they’ve missed the China bus, they focus on India first before looking at SEA. When do you see that mindset change?

The Indian Internet landscape has evolved rapidly over the past 10-15 years and, comparatively, SEA is still a young ecosystem, 5-6 years behind us. In that sense we have come a long way and exciting times lie ahead. On one end, we see increased attention to SEA by global VCs (venture capital firms), LPs (limited partners) and also tech giants; but on the other hand, we strongly believe that SEA is still undercapitalized as compared to the opportunity potential.

When you’ve seen the start-up ecosystems evolve across India and SEA, what are the similarities and what are the major differences? What are the big learnings that the ecosystem in this region can take from a market like India?

The differences are that SEA start-up ecosystem has grown with substantial early-stage investors such as angels, accelerators, corporates, incubators as well as the support of governments. In India on the other hand, angel investment activity has really kicked in substantially only in the past two years.

Second is the availability of engineering talent. Given the steady stream of talent from the top engineering schools as well as a large IT (information technology) and software industry, Indian start-ups have access to enough engineers to scale rapidly. SEA start-ups are having to be more careful and deliberate about this as a challenge.

The similarities are the market needs and problems which start-ups can solve are quite similar in India and SEA, which is infrastructure, traffic, lack of payment options, lack of quality financial products available easily, not enough local, affordable brands.

Therefore, the challenges start-ups solve for the customer needs they are addressing have played out in a similar manner. Jungle’s investment hypothesis has also been shaped by the learnings from the India market, which we see as being several years ahead of SEA from a start-up ecosystem perspective—and our portfolio companies are pioneering the solutions to these problems in SEA.

Overall, how are deal flows in this region (SEA) looking like? A common complaint is that while dry powder is available, the region is not producing requisite deal flows for deployment. Do you agree?

We used to see 200 deals a year in 2012 which is now closer to 2,500 deals annually. In the past few years at least 20-30 seed stage funds and 10-15 series A/B funds have been actively investing in the market, leading to a few hundred start-ups approaching the Series B/C/D stages now. We think this is an extremely vibrant ecosystem and continues to produce very interesting investing opportunities both at a regional level but also starting to show some global potential.

As a VC fund in Singapore, what is your take on the start-up scene here? When targeting SEA, is Singapore more of a place where you park your company—register it here as the legal system and intellectual property climate is good, and then operate and target other markets in the region?

Singapore and Jakarta are two engines of start-up activity in SEA. Singapore in particular is showing signs of developing into a good base for building solutions with global potential in areas such as deep tech, IoT (Internet of Things), SaaS (Software as a Service), AI (artificial intelligence) and fintech, among others. Also, if you are looking to hire experienced professionals, then Singapore has the deepest talent pool from different industries that have used this as a base for their regional operations for decades. Where else can you hire such senior talent in the region as you think about scaling your business?

Is Indonesia the next big bet?

As we highlighted in our report, we definitely feel Indonesia is a large opportunity in the medium to long term. However, similar to India, the number of people who are actively shopping online or have the power to spend is still small, compared with the overall population, though rapidly growing. Therefore, for network-based business models which derive their strength from a larger number of users, Indonesia is definitely a large homogenous market worth focusing on. However, for discretionary consumption-based business models, the metros of SEA also depend on a large immediately addressable target market.

You’ve hit the final close of your second fund. What is your investment thesis for this region? Any specific sectors that you are keen on and why? Also, what are your ticket sizes like?

We did the final close of our fund of $100 million which is focused on Series A and B investments in SEA and India. Our typical ticket sizes are in the range of $1-5 million as the first investment with an intent to invest $5-15 million in each key portfolio company as they scale to new levels. In terms of sectors, we are agnostic—but have been making numerous investments in the B2B (business-to-business), fintech and vertical commerce categories, and remain bullish on defensible opportunities in these spaces.

What is the pain point for this region? Is it Series B onward—say in the $10-$20-$30 million range—there are hardly any VCs in that space in South-East Asia. Specialized guys and global funds may not do small ticket deals, but even the $10-$30 million is not easily accessible here.

Later-stage investors for Series B/C/D is one of the things we are focused on finding for our portfolio companies as they scale. There are a few funds focusing on those stages in SEA and a few more are being raised now, but we definitely feel there is more scope on that front.

India has a reasonably mature venture capital space, but exits are still a problem. Are a lack of big exits hurting the ecosystem?

We see exit activity, especially M&A (mergers and acquisitions) being fairly frequent in SEA, and, therefore, are hopeful of that activity starting to pick up pace as some local start-ups become unicorns and also Chinese, US and Indian companies start to look seriously at this region. Exit activity, especially in terms of large exit outcomes, has still been low and more of those exits would definitely help with global investor confidence.

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