How the pandemic is surfacing new opportunities in Southeast Asia’s start-up and venture capital scene
Camels, not Unicorns,
in Southeast Asia:
ovid-19 has wreaked havoc on the start-up scene, with funding in many sectors grinding to a halt and deal flow drying up. In just one week last spring, more than $10 billion in deals around the world were cancelled in response to the pandemic. But it’s not all doom and
C
That’s one of ways in which the pandemic has demonstrated which start-ups have what it takes to be a camel. “We will all learn what technology is truly mission-critical and what is not,” says Raj Ganguly, who launched investment house B Capital Group alongside Facebook co-founder Eduardo Saverin. Mr. Ganguly says the start-ups that will survive COVID-19 and thrive in the years ahead will be those that offer services critical to the growing digitalization of everyday life. Cybersecurity is one example. Another is companies that address shortcomings exposed by the pandemic, such as online health services or the ability to get new drugs quickly to the market.
“Despite significant challenges this year, the long-term outlook for Southeast Asia’s internet economy is more robust than ever. ”
gloom. Savvy founders are adapting their strategies, aiming to be more like camels than unicorns, while investors are working harder than ever to find bona fide diamonds in the rough.
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“When you think about it, it’s not that surprising—traveling field engineers for cell phone towers who are going from city to city by car or motorcycle have to stay somewhere,” says Mr. Nash. “And without their hard work, all those Zoom calls and YouTube videos to smartphones wouldn’t be possible.” That has been a boon for Singapore-based budget travel booking platform RedDoorz, which saw its revenues quintuple in the course of a year, with even more growth expected ahead. “They’re providing an essential service to get livelihoods and economies back on track, and at an affordable price,” says Mr. Nash.
E-commerce adoption has accelerated by several years in Southeast Asia,” says Asia Partners co-founder Nick Nash. He points to one of his investees, online tutoring service Snapask, which saw exponential growth from students stuck at home in 2020. Perhaps more surprising is what Mr. Nash describes as “the rapid bounce-back” of industries that suffered early blows from the pandemic, including budget travel, which has roared back to life even as luxury travel remains on life support.
The pandemic has surfaced new opportunities by forcing through structural changes that would have otherwise taken years to happen. 70% of Southeast Asia’s population—about 400 million people—is now online, according to the e-Conomy report. That’s 40 million new users in 2020 alone, a rate of growth nearly double that of previous years. The report underlines how much opportunity this creates for companies and VCs looking to capture this ascendant market.
Why camels? Because, unlike unicorns—which are privately-held startups valued at more than $1 billion and of which Southeast Asia now boasts 12—camels are companies with the resources and knowledge necessary to traverse hostile conditions. Nowhere is this more apparent than in Southeast Asia, where unicorns are rare and camels abound—and whose soaring economic potential has been only lightly hit by the pandemic. Private equity firm Asia Partners has called the years to come “Southeast Asia’s golden age,” while the 2020 e-Conomy SEA report by Google, Temasek, and Bain & Company underlines the region’s resilience in the face of a global pandemic and projects its robust internet economy to top $300 billion by 2025.
That’s one of ways in which the pandemic has demonstrated which start-ups have what it takes to be a camel. “We will all learn what technology is truly mission-critical and what is not,” says Raj Ganguly, who launched investment house B Capital Group alongside Facebook co-founder Eduardo Saverin. Mr. Ganguly says the start-ups that will survive COVID-19 and thrive in the years ahead will be those that offer services critical to the growing digitalization of everyday life. Cybersecurity is one example. Another is companies that address shortcomings exposed by the pandemic, such as online health services or the ability to get new drugs quickly to the market.
Based on the disruption of the past year, analysts have identified a number of sectors likely to shine in the near future. Budget hospitality, educational technology, vertical e-commerce, e-commerce enablement and healthcare technology are good bets for growth, especially because they are based around mobile internet—use of which has surged since the beginning of the pandemic.
“We like to say that we don’t have enough C- and D-sized batteries in Southeast Asia, but we’ve got plenty of A batteries and car batteries,” says Mr. Nash, referring to the stages of venture fundraising. Because larger pots of capital are scarcer in Southeast Asia, it forces companies to do more with less, unlike other parts of the world flush in capital that can be used to disguise operational shortcomings. “It makes us a natural laboratory for finding camels and rhinos here,” says Mr. Nash. “You can really see who is playing the hand they’re dealt well rather than getting dealt a great hand.”
The terminology may be novel, but the fundamental concept isn’t. According to Asia Partners’ research, almost 70% of the world’s successful software and internet companies could be defined as camels or rhinos rather than unicorns, meaning they required less than $100 million to become cash flow positive. That’s good news for Southeast Asia, where one persistent problem has been a lack of capital for companies that grow beyond a certain size.
Mr. Nash says he prefers another animal analogy: the rhino. “We define a rhino as a company that gets to a billion-dollar valuation but on a true price-to-net income multiple rather than a multiple of revenue or more top-of-the-funnel metrics,” he says. “Camels and rhinos are siblings—a camel consumes very little capital, and a rhino, by definition, gets to profitability by being capital and cost-efficient.”
Whatever the nature of their business, it’s companies that are lean and efficient that will outlast the present upheaval. “Companies that were gaining traction in a very expensive way will be exposed,” says Mr. Ganguly. Hence the idea that companies will need to be more like camels than unicorns, a turn of phrase coined by Alex Lazarow in his recent book Out-Innovate: How Global Entrepreneurs—from Delhi to Detroit—Are Rewriting the Rules of Silicon Valley.
According to Rohit Sipahimalani, Chief Investment Strategist and Head of Southeast Asia at investment company Temasek, those changes are here to stay. “Behavioral changes seen during the pandemic are likely to be sustained,” he says. Shifts in the economy that were expected to take years have occurred in the space of mere months. “Despite significant challenges this year,” says Mr. Sipahimalani, “the long-term outlook for Southeast Asia's internet economy is more robust than ever.” The weather is terrible, the terrain is tough—but the camels will make it through the desert.
“When you think about it, it’s not that surprising—traveling field engineers for cell phone towers who are going from city to city by car or motorcycle have to stay somewhere,” says Mr. Nash. “And without their hard work, all those Zoom calls and YouTube videos to smartphones wouldn’t be possible.” That has been a boon for Singapore-based budget travel booking platform RedDoorz, which saw its revenues quintuple in the course of a year, with even more growth expected ahead. “They’re providing an essential service to get livelihoods and economies back on track, and at an affordable price,” says Mr. Nash.
E-commerce adoption has accelerated by several years in Southeast Asia,” says Asia Partners co-founder Nick Nash. He points to one of his investees, online tutoring service Snapask, which saw exponential growth from students stuck at home in 2020. Perhaps more surprising is what Mr. Nash describes as “the rapid bounce-back” of industries that suffered early blows from the pandemic, including budget travel, which has roared back to life even as luxury travel remains on life support.
The pandemic has surfaced new opportunities by forcing through structural changes that would have otherwise taken years to happen. 70% of Southeast Asia’s population—about 400 million people—is now online, according to the e-Conomy report. That’s 40 million new users in 2020 alone, a rate of growth nearly double that of previous years. The report underlines how much opportunity this creates for companies and VCs looking to capture this ascendant market.
Why camels? Because, unlike unicorns—which are privately-held startups valued at more than $1 billion and of which Southeast Asia now boasts 12—camels are companies with the resources and knowledge necessary to traverse hostile conditions. Nowhere is this more apparent than in Southeast Asia, where unicorns are rare and camels abound—and whose soaring economic potential has been only lightly hit by the pandemic. Private equity firm Asia Partners has called the years to come “Southeast Asia’s golden age,” while the 2020 e-Conomy SEA report by Google, Temasek, and Bain & Company underlines the region’s resilience in the face of a global pandemic and projects its robust internet economy to top $300 billion by 2025.
According to Rohit Sipahimalani, Chief Investment Strategist and Head of Southeast Asia at investment company Temasek, those changes are here to stay. “Behavioral changes seen during the pandemic are likely to be sustained,” he says. Shifts in the economy that were expected to take years have occurred in the space of mere months. “Despite significant challenges this year,” says Mr. Sipahimalani, “the long-term outlook for Southeast Asia's internet economy is more robust than ever.” The weather is terrible, the terrain is tough—but the camels will make it through the desert.
Based on the disruption of the past year, analysts have identified a number of sectors likely to shine in the near future. Budget hospitality, educational technology, vertical e-commerce, e-commerce enablement and healthcare technology are good bets for growth, especially because they are based around mobile internet—use of which has surged since the beginning of the pandemic.
“We like to say that we don’t have enough C- and D-sized batteries in Southeast Asia, but we’ve got plenty of A batteries and car batteries,” says Mr. Nash, referring to the stages of venture fundraising. Because larger pots of capital are scarcer in Southeast Asia, it forces companies to do more with less, unlike other parts of the world flush in capital that can be used to disguise operational shortcomings. “It makes us a natural laboratory for finding camels and rhinos here,” says Mr. Nash. “You can really see who is playing the hand they’re dealt well rather than getting dealt a great hand.”
The terminology may be novel, but the fundamental concept isn’t. According to Asia Partners’ research, almost 70% of the world’s successful software and internet companies could be defined as camels or rhinos rather than unicorns, meaning they required less than $100 million to become cash flow positive. That’s good news for Southeast Asia, where one persistent problem has been a lack of capital for companies that grow beyond a certain size.
Mr. Nash says he prefers another animal analogy: the rhino. “We define a rhino as a company that gets to a billion-dollar valuation but on a true price-to-net income multiple rather than a multiple of revenue or more top-of-the-funnel metrics,” he says. “Camels and rhinos are siblings—a camel consumes very little capital, and a rhino, by definition, gets to profitability by being capital and cost-efficient.”
Whatever the nature of their business, it’s companies that are lean and efficient that will outlast the present upheaval. “Companies that were gaining traction in a very expensive way will be exposed,” says Mr. Ganguly. Hence the idea that companies will need to be more like camels than unicorns, a turn of phrase coined by Alex Lazarow in his recent book Out-Innovate: How Global Entrepreneurs—from Delhi to Detroit—Are Rewriting the Rules of Silicon Valley.
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Tapping Southeast Asia’s
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and read our event roundup
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Why Zoom, Trip.com and Google are launching their Southeast Asian operations from Singapore
More than a Regional HQ
Wall Street Journal Custom Content is a unit of The Wall Street Journal Advertising Department.
The Wall Street Journal news organization was not involved in the creation of this content.
The Singapore Economic Development Board (EDB), a government agency under the Ministry of Trade and Industry, is responsible for strategies that enhance Singapore’s position as a global centre for business, innovation, and talent. Our mission is to create sustainable economic growth, with vibrant business and good job opportunities for Singapore.
Supported by
Wall Street Journal Custom Content is a unit of The Wall Street Journal Advertising Department.
The Wall Street Journal news organization was not involved in the creation of this content.
The Singapore Economic Development Board (EDB), a government agency under the Ministry of Trade and Industry, is responsible for strategies that enhance Singapore’s position as a global centre for business, innovation, and talent. Our mission is to create sustainable economic growth, with vibrant business and good job opportunities for Singapore.
Supported by
Read More
Tapping Southeast Asia’s
Market Potential
View the full, unabridged panel discussion
and read our event roundup
Read More
Why Zoom, Trip.com and Google are launching their Southeast Asian operations from Singapore
More than a Regional HQ
and deal flow drying up. In just one week last spring, more than $10 billion in deals around the world were cancelled in response to the pandemic. But it’s not all doom and gloom. Savvy founders are adapting their strategies, aiming to be more like camels than unicorns, while investors are working harder than ever to find bona fide diamonds in the rough.