Category: Analysis

India welcomes two new unicorns before mid-2019

The venture ecosystem in India is off to a great start in 2019.

It’s not even mid-way into the year, and the country has already seen the addition of two internet startups achieving the much-coveted unicorn status, with another reportedly close to the billion dollar valuation milestone.

Just this Monday, BigBasket has secured a US$150 million Series F financing round led by Mirae Asset-Naver Asia Growth Fund, CDC Group, and Alibaba.

Chinese giant Alibaba is an existing backer, which had also led the Series E round in BigBasket last year. It remains the largest investor in the company, owning up to 30 percent stake.

Meanwhile, April also saw India’s first gaming unicorn Dream11. The startup reached a valuation exceeding US$1 billion, after a secondary investment by London and Hong Kong-based asset manager Steadview Capital.

“These developments proof that investment activity and the pace of growth has picked up in the Indian startup space,” said the vice president of consultancy Everest Group Yugal Joshi to Quartz India.

India’s Startups are Coming of Age

The rise of BigBasket and Dream11 are the continuous reflection of evolution in Indian internet business, following the footsteps of existing Indian unicorns like Flipkart and Ola.

“The companies that we are talking about, be it BigBasket or Dream 11, are not overnight stars,” said Sanchit Vir Gogia, the founder and CEO of Greyhound research.

2019 Unicorns in India

These startups have been working their way up quietly for some time. Eight-year-old BigBasket, for example, has been investing in the supply chain, logistics and technology for long to reach where it is now.

The online grocer sells more than 20,000 products ranging from groceries and pet foods, operating in 25 Indian cities.

“BigBasket offers a transformational and convenient experience to its consumers, which makes it a preferred grocery platform,” said Ashish Dave, the head of India Investments for Mirae Asset Global Investments.

Meanwhile, Dream11 which was co-founded by University of Pennsylvania alumni Harsh Jain and his friend Bhavit Sheth in 2008 has also been experimenting with the product-market fit before it found success.

The startup adopts a data-driven culture and strategy to reach its current 50 million registered users, which it claims is the tip of the iceberg in a market with more than 850 million cricket viewers on television.

Their success with cracking their segments was what boost global investors confidence, enough to give birth to both success stories… and the trend is likely to continue.

Eyes on India Maturing E-commerce Market

Investors see India, now at a US$2000 gross domestic product per thousand people, set for consumer-spending led acceleration in the online economy.

The country offers large opportunities for startups and ventures that bridge offline needs with online access-based supply chains.

BigBasket

Startups like BigBasket is answering exactly this, as it is reengineering the supply chain to allow for faster delivery to resellers and to reduce the time from farm to customers.

With its new funding, the company is ready to contend with competitors on multiple fronts, from the micro-delivery ventures like dairy-focused Milkbasket to food delivery venture Swiggy.

It will also be looking to expand its operations and scaling up its supply chain capabilities, against bigger competitors like Amazon and Walmart which is expanding in India.

“We have a unique opportunity to build one of the largest grocery businesses in the country in the country and we expect the capital raised in this round to continue to enable us to do just that,” VS Sudhakar, co-founder of BigBasket said.

According to analytics firm Tracxn, India’s retail market is valued at more than US$900 billion and is increasingly attracting the attention of VC funds and more than 882 operational players since 2014.

More Unicorns to Come

2018 was an eventful year for the India startups ecosystem. India added eight unicorns in 2018 alone, as compared with the nine unicorns in a span of 6 years from 2011 to 2017.

It is most likely 2019 will follow suit, as we begin seeing the host of promising startups crossing the US$1 billion valuation mark. Besides Dream11 and BigMarket, some of the investors’ top pick according to Fortune India include:

  • Online ticketing site BookMyShow
  • Health and fitness startup curefit
  • Ecommerce-focused delivery provider Delhivery
  • Eyewear retailer Lenskart
  • Digital payments company MobiKwik
  • Surface transport firm Rivigo
  • Online discount brokerage firm Zerodha

However, most likely it’s not going to be a joyride for these startups. Because with the gigantic successes in India, internet ventures today may be pressed for profits more than earlier years.

Airbnb vs Tujia: Who is Winning the Home Sharing Competition in China

Since home-sharing options have been available, hotels are no longer the only accommodation game when we go traveling across the world.

And when it comes to the home-sharing option, I’m sure for most, the first that comes to mind is definitely Airbnb.

But well, the story is a little different in China.

The home-sharing market in China is played by three major players including Tujia, XiaoZhu, and Aibiying (the Chinese branding of Airbnb).

Among these three, it is Tujia that controls nearly half of China’s home-sharing market followed by Alibaba-backed rival Xiaozhu.

Airbnb which had entered the Chinese market since 2016, is still struggling with a 7% market share.

Despite that, the home-sharing giant is still optimistic with China, noting that it expects China to be its largest market by 2020.

It expects revenue from its Chinese division to increase and represent 4% to 5% of the company’s overall revenue.

Market share and number of listings

For these home sharing giants, so far their market share has correlated with the number of listings.

Chinese home sharing

The top is Tujia who claims to have more than 1.4 million global listings. Xiaozhu, on the other hand, claimed over 500,000 active listings across 710 cities in January.

While for Airbnb as of August 2018, over 8.6 million Chinese tourists had used the platform, which had about 150,000 listings in China.

Yet, this is just one of the contributing factor to this distribution of market share. Another reason is that Aibiying failed its localization strategy.

Aibiying: Airbnb’s new name in China

Aibiying

People hated Airbnb’s Chinese name when it was adopted.

Although the three characters 爱, 彼 and 迎 each carry positive meanings of love, each other, and welcome.

When combined, it sounds awkward and translates to “love to fulfill requests” (爱必应) and some even associated it to a brand that sells adult toys.

However, it’s not just naming, Tujia is leveraging on local knowledge and tailor-made services.

In China, the people renting out places to live are not accustomed to Do-It-Yourself traveling. Hence Tujia’s approach of curating, managing, and providing only high-quality services are much valued by Chinese tourists.

For example, when it comes to properties, Tujia only picks properties such as villas that fulfill the expectations of Chinese travelers, who usually travel with their family members and prefer their rentals to include kitchens.

Tujia also targets business people who need high-class furnishings for meetings, parties and holidays. This differs from Airbnb which has a broader range of clientele.

Big-Name Investors and Backers

China’s Ctrip.com To Buy Skyscanner In US$1.74 Billion Deal

Another reason why Tujia controls the majority of the Chinese home-sharing market share is that it is backed by Ctrip, China’s largest online travel operator,

The Chinese home-sharing platform raised US$300 million in October 2017 by Ctrip, at the time it claimed to have 650,000 listings on its platform.

Tujia also acquired Mayi.com, a smaller rival compared to Xiaozhu in 2016, and the homestay businesses of both Ctrip and Qunar in 2017. The company also has forayed into the overseas market like Japan. This series of movements are huge investments.

As a Chinese company, Tujia says it’s more adept at knowing when to push and when to hold back. It says it has closer connections with government officials and people working with police departments, local and federal governments.

Meanwhile, Xiao Zhu in October 2018, also raised US$300 million in its Series F round led by Advantech Capital and from Jack Ma’s Yunfeng Capital. The startup is also working on AI devices with Alibaba.

Its latest big data report shows a sinking trend for many Tier 3 and Tier 4 cities are listed in the most popular fifty cities including Leshan, Liangshan, Zhangjiajie, which are well-known sightseeing locations in China

On the other hand, the advantage of China’s Airbnb lies overseas – it has 6 million listings worldwide, which is an overwhelming number that beats all the contender.

In 2017, China’s home-sharing market was worth RMB 14.5 billion (USD 2.1 billion), up nearly 71% year-on-year, according to China’s State Information Center, which projects revenues to reach RMB 50 million in 2020.

The competition for the market share in Chinese home sharing would most likely continue. but before that Tujia and Airbnb will be prepping for an upcoming IPO.

Tujia is aiming for profitability in 2019 as it prepares for IPO. Similarly, Airbnb, the pioneer of home-sharing is about to go public in 2019 and it was profitable for a second consecutive year on an adjusted basis.

Bike-Sharing firms are hitting a dead-end in Asian Markets

The heyday for bike-sharing is over.

First Gbikes, then Ofo and oBike. Dockless bike-sharing startups are hitting the breaks and pulling out of markets in Asia.

The latest is Chinese dockless bike-sharing startup Mobike that announced its withdrawal from several Asian countries on March 11, to re-evaluate its unit in other overseas markets.

“The decision is part of a plan to rationalize Mobike’s operations in Southeast Asia. We’re tremendously proud of what we achieved in Singapore, and would like to thank everyone who both rode with us and worked for us,” said Mobike in a statement.

Mobike is the largest player in the Singapore bike-sharing scene, with a license to operate 25,000 bicycles. Its planned exit follows the wide-scale contraction in the market, on top of the bankruptcy of top competitor Ofo.

oBike abruptly quit the Singapore market in June last year and is currently in liquidation. According to its liquidators, it owes $8.9 million to more than 220,000 deposit holders.

Mobike is similarly facing financial burden at a deficit of 681 million Chinese yuan (about US$101.7 million) before being acquired by Meituan Dianping, the Chinese online food delivery to ticketing firm.

Problems and Issues with Bike Sharing

Although this new twist on an old form of transportation had sparked a positive outlook back when it first started, the optimism has died down as a fair share of inconvenience has arisen, including problems like indiscriminate parking by users and abuse of bicycles.

The method, in turn, is also inflicting harm to the environment with an oversupply of shared bicycles. Land Transport Authority (LTA) in Singapore complained last year that nearly half of the 100,000 bikes allocated in Singapore were not in active use.

Bicycle graveyard

In fact, this bike wastage has accelerated to a more pressing matter as bikes are abandoned in the outskirts of Chinese cities in infamous bicycle graveyards, waiting around to die. A really tragic end to its initial aim of optimizing city resources and saving public space.

Another problem for the bike-sharing industry is that it has also has been an extremely difficult business, to begin with.

It is a highly competitive landscape with very low margins, and high capital expenditure, on top of strict regulations administered in certain countries.

Bike-sharing companies are embroiled in expensive turf wars among rivals of both the same industry as well as ride-hailing players like Didi, Kuaidi, and Uber.

An Unexpected End to China’s Great Bike-Sharing Boom

Looking at the industry’s decline, this presents a sharp contrast to the promising start many investors had placed on bike-sharing.

Previously, the Asia Pacific bike-sharing sector has enjoyed an influx of investment to expand quickly to other markets, allowing as many as 60 platforms to build up bike fleets and subsidize rides in an effort to outbid competitors.

China’s largest platforms Ofo and Mobike raised nearly US$2 billion in 2017 alone, in order to expand quickly to other markets.

Chen Lin, an assistant professor at the China-Europe International Business School in Shanghai told the Financial Times, “Their purpose was to chase after growth and give their investors the growth story they wanted, but we quickly saw problems in their overseas expansion.”

It seems that shared bike providers now face a dilemma as their glory days come to an end, and they must now focus on where to they can recoup and concentrate on a long-term busisness model.

Southeast Asia seen as best investment destination this year

A poll at the Asian Financial Forum revealed that 39 percent believe Southeast Asia to be the best investment prospect in 2019, favored over other choices like China (35 percent) and the United States (16 percent).

This vote took place during the 12th Asian Financial Forum held on January 14 and 15 in Hong Kong and respondents of the poll view Southeast Asia to have the best potential investment returns, as businesses are shifting production out of China to countries in the region.

At the same time, another poll for Chief Executives at Asia-Pacific companies by PwC identified Vietnam as the hotspot among Southeast Asian countries.

“We surveyed CEOs across the region where they wanted to put their money in the next 12 months. For two years in a row, Vietnam has come out on top,” said Raymond Chao, the Chairman for PwC in the Asia Pacific and Greater China.

He added that this has much to do with what is happening around the world, and some CEOs are making adjustments to their supply chain in response to the ongoing trade war between the United States and China.

Victor Fung Kwok-king, Chairman of the Fung Group and moderator of the event panel, said his companies are seeking to find a new base for manufacturing outside China.

“We really need to think twice before finishing your products in China and attaching the ‘Made in China’ label, which will have tremendous duty problem in the US,” explained Fung.

However, he also pointed out that the manufacturing sector in Vietnam has capacity constraints which may cause some manufacturers to max out their production capabilities.

“Then the question becomes, which country is the one you would pick after Vietnam. Eventually, this could be countries within the ‘Belt and Road’ region,” said Fung. Southeast Asia is included in this extension.

Other factors also play a role in driving investor interest in the region, which includes an emerging middle class and economic growth.

Thanks to smartphones, increasing internet users has pushed the forecast for Southeast Asia’s digital economy to reach US$240 billion by 2025.

This leaves plenty of opportunities for tech and online businesses, and by extension investment and venture capitalists. In fact, investors have already taken action.

A look at the report by Cento Ventures on 2018 Southeast Asia tech investment revealed that there is a sustainable growth momentum for technology funding in the country, with last year record crossing US$11 billion.

Venture capital deals in Southeast Asia

Source: Cento Research

This amount almost doubles the US$5.8 billion investment in 2017 and suggests a healthy and growing interest in the investment and innovation space for Southeast Asia. For 2019, Cento Ventures predicts that that internet technology-related startups like Grab, Go-Jek, Tokopedia, and Traveloka will continue to attract capital this year.

In fact, it is these five companies which accounted for 70 percent of that total – Grab (US$3 billion), Lazada (US$2 billion), Go-Jek (US$1.5 billion), Tokopedia (US$1.1 billion), and the SEA Group (formerly known as Garena) which raised a US$575 million convertible note offering.

Unicorn asides, late-stage companies in the region are also raising larger rounds and inching towards a billion dollar valuation, with some of the notable deals being:

  • PropertyGuru US$145 million Series D funding round in 2018 which placed its valuation at more than US$368 million
  • Ninja Van’s US$85 million funding backed by DPDgroup
  • Carousell US$85 million Series C funding co-led by Rakuten Ventures and EDBI

Besides, follow-on Series B funding round is also gradually growing as various startups move into a more mature ecosystem.

Surprisingly, looking at last year accounts — Indonesia takes up more than 70% of the capital invested in Southeast Asia.

“Jakarta becomes Southeast Asia’s startup capital surpassing Singapore in terms of the number of deals and investment amount,” Wilson Cuaca from East Ventures told TechCrunch.

The early stage investor further predicts that as Indonesia’s startup scene heats up, regional seed and series A funds will move away from Indonesia and target Vietnam, Malaysia, Thailand, and the Philippines.

In 2018, the distribution of deals had illustrated activity across the region. By deal count, allocations to Singapore, Thailand, Malaysia, and Vietnam appear to be consistent with the past few years. whereas the Philippines has been cooling off in both investment amount and number of deals since 2016.

Looking ahead, Southeast Asia in 2019 remains a very attractive region for investors, as it will continue to gain the attention of institutional investors looking for growth markets outside of China and India.

With high-quality startups exits in the plan, it is likely that the year ahead will bring more successful exit stories that will help inspire more founders to start companies and attract investors in Southeast Asia.

Southeast Asia to have 10 more unicorns by 2024, says Bain & Company

Southeast Asia is expected to produce at least 10 new unicorns by 2024, according to a report released by Bain & Company.

This is given the region’s investment growth as an important catalyst amidst a maturing line of startups. Bain & Company reports that the new phase of investment growth with deal value projected to a total of US$70 billion over the next five years.

“Since 2012, 10 unicorns including Grab, Go-Jek, and Traveloka have created a combined market value of US$34 billion, ranking Southeast Asia third in the Asia Pacific (APAC) region, behind China and India,” the firm added.

Deeper integration of the Association of Southeast Asian Nations (ASEAN) markets encourages companies to expand across borders, accelerating their growth.

Bain & Company’s report drew on Grab as an example which received US$340 million in several rounds of venture funding in 2014 after moving its headquarters from Malaysia to Singapore. By adding new services, Grab expanded rapidly across eight ASEAN countries and eventually bought out rival Uber’s regional business in 2018.

“Grab is the region’s number one ride-hailing business and its biggest startup success story, with a market capitalization of US$11 billion,” Bain & Co stated.

In 2017, the number of recorded venture capital deals saw a four-fold increase to 524, as compared to 2012, and private equity deal value increase 75 percent to US$15 billion, breaking out of a decade-long phase of flat growth, the report highlighted.

A bulk of new capital went to technology companies, with deal counts rising 40 percent in 2017 from 20 percent in 2014, the report highlighted. More than 60% of Southeast Asian investors surveyed cited that technology is their main target for 2019, primarily fintech. The region also produced its first set of unicorns during this time frame.

“It’s a jarring acceleration,” Bain & Co said. “Investment in Southeast Asia over the past decade has been surprisingly low, given the region’s average economic growth of 7% a year, a burgeoning middle class and a rapidly growing pool of digital natives.”

Private equity investment in the region in the past decade hovered roughly between US$6 billion to US$9 billion, the firm added.

“The tipping point took longer to reach but years of solid economic growth, government support for startups and perseverance by private equity funds created the conditions for a rapid transition to the next phase of growth,” Bain & Co said.

The report also noted how investors are attracted by the region’s strong macroeconomic fundamentals, the chance to invest in emerging regional firms and a deepening secondary market for deals of all sizes.

Meanwhile, strong exit momentum and healthy returns are also contributing to a faster pace of investment by accelerating a healthy recycling of capital, Bain & Co. highlighted.

In 2017, exit deal value in the region rose to US$16 billion, up 86 percent from the previous five year average, the report noted.

“That virtuous investment cycle helps private equity fund managers feel more confident about raising new funds and putting capital to work,” the firm said. “And as private equity funds expand their portfolios, they broaden the potential market for secondary transactions.”

Whilst Singapore as Southeast Asia’s investment hub, the report noted that startup ecosystems are emerging across the region. A separate survey indicated that nearly 90% of investors see Indonesia and Vietnam as the ‘hottest’ Southeast Asian market outside of Singapore in 2019.

“Together, Indonesia and Vietnam generated 20 percent of the region’s private equity deal value over the past five years, and that percentage is likely to grow,” Bain & Co added.

With growth of investment in the region and a strong and healthy ecosystem in the region, another line of Grab, Go-Jek and Traveloka in the fintech industry might come to light in the next few years.

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