Reflections Part 2

Yesterday I wrote about things that went better than expected in the SEA start-up ecosystem over the past 10 years, including:

• Its aggregate size and impact on our daily lives
• Its impact on career opportunities and its ability to attract top talent
• Its ability to raise prodigious amounts of capital
• Its ability to operate pan-ASEAN and, in a few cases, globally

Today I’m going to talk about some aspects of the ecosystem that I think can fairly be described as disappointments - at least to me.? I’m taking a page from my friend and renowned LinkedIn master #ChrisReed… meaning that I’m going to stop being such a ‘good boy’ and state my views more bluntly.?

No offense is intended, but if the ecosystem is to thrive in the longer term, we need to be honest about our weaknesses as well as our strengths, so that we can learn.? Feel free to disagree - I welcome the exchange of ideas.

Shareholder value creation.

Have SEA start-ups, in aggregate, have done a great job of creating value for investors?? Please remember that, for the most part, the jury is still out: the true investors are not the #vcs funds holding these companies at inflated private valuation marks, but their LPs, who are patiently awaiting the return of their capital (plus a bit more please) - but only after all the VCs fees over all the years have eaten away at their IRRs and cash-on-cash returns.??

Of course, there have been some #ipos and some true (e.g. trade) sales, but the trade sales are mostly modest and few, and a number were done under water.? When we look at the IPOs, the picture is pretty rough: Grab raised $15.5 Bn and has a valuation of $12 Bn - naturally some early investors did very well indeed, but it’s hardly a track record to bask in.GoTo raised an aggregate of $8.1 Bn and has a market cap of $16 Bn. Sea group turned $8.6 Bn of funding into today’s valuation of $28.6 Bn - a far better outcome - but in all these cases remember that founders, not investors, still own a significant chunk, so the investor’s share of that $28.6 Bn is worth considerably less than the headline figure.?

Of course to do a proper analysis we need to analyze all the exits, which requires data I don’t have - but we would also need to look at the marks of all the private companies - which everyone knows have been massively inflated. In a future post I’ll talk about how all this happened, and what role the different parties had in creating this situation.?

Here’s the ultimate test: when all the LPs have finally closed out all their positions - which could take quite a few more years - will the SEA start-ups of the early years have proved to be a good risk-adjusted investment? Would love to hear your views.?

Innovation.

Building large businesses in Southeast Asia is hard - much harder than in larger, more mature Western markets - so full credit to the entrepreneurs and employees who have accomplished this. In many cases they needed to be highly creative in terms of how they built their businesses.??

But if you look at the business models themselves, the reality is that there has been very little true innovation or technology leadership. The vast majority of SEA’s start-ups over the last 10 years were copy-cat models of existing e-commerce and related businesses. That may have been a very smart move on the part of the entrepreneurs - much less risk, more likelihood of success - but now that the huge gaps in the online markets have been filled, the next gen of entrepreneurs will need to dig much deeper to build valuable companies.?

If you want to see what awesome innovation looks like, just check out the websites of any of the top #IsraeliVCs : firms like #Pitango , #GlilotCapitalPartners , #JVP , #ViolaVentures , or Singapore’s own Vertex Ventures Israel fund. The gap in the level of innovation is sobering to say the least. No coincidence that one of Singapore’s most successful deep tech companies, #TraxRetail , was founded by Israelis who happened to be living here.?

Executional Effectiveness.

I already mentioned that building businesses in SEA is hard. But we can’t talk about effective execution without talking about money. Too many of the larger start-ups in the region compensated for mediocre execution quality by simply throwing more people at the problems - which was easy to do when the money was flowing. Now that money is much tighter, they’re all learning that effective and efficient execution requires different skills - better line management, better orchestration at the top, and more accountability at all levels.?

Culture.

The truth is that company cultures are all over the map in Southeast Asia. There are a few companies with exemplary cultures, and many more with reasonably good cultures. But I think it’s fair to say that the largest and most iconic of our start-ups have been marked by cultures of “growth at all costs.” Many took the time to craft their values, but when push came to shove, the majority of them pursued growth over every other value, often with somewhat toxic consequences.

Conclusion.?

As an ecosystem, we have much to be proud of - but also much to learn.? I truly hope that the new generation of SEA founders strive for greater innovation, prioritize shareholder value creation over hyped up valuations and excessive spending, and commit to the hard work of building productive and human-centric cultures. Together these factors will help us to build lasting and respected businesses as opposed to shooting (and falling) stars.