Funding for all

By Gabey Goh August 1, 2013

Plenty of funding for startups in e-commerce/ mobile space flowing into Asean
But don’t be afraid to go against the herd and pursue an idea based on passion

Funding for all THERE is no denying the increasing amount of money flowing our way as investors and venture capitalists look to South-East Asia for startups -- and people -- to place their bets on with cold hard cash.

One only needs to look at the behemoth that is the startup incubator Rocket Internet. It is only July, but recent reports state it has already secured more than US$1 billion (RM3.18 billion) in backing from European investors for this year.

Its e-commerce sites Zalora and Lazada got US$100 million (RM317.8 million) each from that princely mountain of funds to fuel their expansion in South-East Asia.

In fact, one could be forgiven for thinking that the bulk of foreign venture capital snaking its way into this region appears to be centred on two areas: E-commerce and mobile tech.

For example, Japan-based GMO VenturePartners, a US$12-million venture fund established in Singapore last year, has a specific focus on supporting startups in the advertising, e-commerce, payment processing and smartphone services space.

And it is not just foreign investors, with homegrown Catcha Group stating it will be investing up to US$150 million (RM476.7 million) in online businesses in the Asean region over the next five years.

Catcha group chief executive officer Patrick Grove noted that the investments will be focused on “e-commerce, media, smartphone apps and any sort of marketplace, whether horizontal or vertical."

The focus on mobile/e-commerce in our region is easy enough to understand. Asia is at the forefront of mobile innovation, enjoying the benefits of leapfrogging over mature markets with legacy wired infrastructure.

As for e-commerce, with the next wave of people getting online to come mostly from Asia, it's only natural that online transactions will soon become the norm for a tech-savvy population -- making the possibilities almost endless.

Yet these developments in the investment landscape got me thinking: “Is there enough funding out there for ideas that don’t fall into these two areas?”

I have spoken to entrepreneurs before who have told me, with varying degrees of sheepishness, that one of the rationales for their business being in a particular space was due to easier, and increased chances of, funding.

That is fine, for the art of business is nothing without a healthy streak of opportunism.

Funding for all But what’s left for those not plodding down the path of hype and buzz?

For those who settled on a venture, based on personal passions that has only a passing connection to the realms of mobile tech and e-commerce?

That got me thinking.

So, to answer the question of whether some poor startups cannot get the funds to get their eccentric idea going, I reached out to a few industry personalities for their thoughts.

Cradle Fund chief executive officer Nazrin Hassan offered the explosion of mobile technology as one explanation for the interest and funding being skewed toward that space.

“It is also a product or venture that is the cheapest to develop. If you do not have much in terms of funds, a mobile app would be your most likely thing. To attempt anything else would require a heck of a lot more money,” he said.

Dhakshinamoorthy Balakrishnan, president of the Technopreneurs Association of Malaysia (TeAM), pointed out that ventures in the mobile and e-commerce space have proven themselves to be easily scalable.

“No other business is able to show this as well as those operating in these two spaces. And that success dominates mindshare, which makes for great case studies for others to learn from and be inspired by,” he said.

Entrepreneurial coaching and talent development company Proficeo Consultants chief evangelist Dr V.Sivapalan noted that investors tend to seek out the investments that they believe are “hot” and show strong exit potential, hence the current focus on e-commerce and mobile startups.

“This has always been the case. In the late 1990s and before the dotcom bust, it was software, then B2B (business-to-business), then B2C (business-to-consumer)and lately it was social networks; and now e-commerce,” he said.

But he assured me that despite the lopsided attention, many different types of companies were formed during all those times and some were still funded.

“There will always be some funds that will not follow the herd -- yes, venture capitalists can be like herds too -- and will take contrarian strategies.

“So even with the attention surrounding some areas, I do not think it will hurt other sectors because there will always be other investors who don’t want to follow the herd,” he added.

Nazrin said he does not think there is insufficient funding for startups of almost any stripe.

“I have not heard any complaints to that effect. The most common thing I hear is there are not enough venture capitalists looking at Malaysia, or startups are still too young for regional investors to consider at the moment,” he said.

He pointed to the Malaysian Government’s own investment, alongside venture capital company QuestMark Asset Management, in Sekhar Research Innovations, a clean-tech company that has developed a feasible method of recycling rubber from used tyres.

“It is not the most typical of startups that you’d hear about but there is funding out there for such ventures,” he added.

If there is one point of contention, Nazrin admitted it would have to be the biotech sector, which does not receive as much love and attention as other sectors currently.

Entrepreneurs themselves are not exempt from this herd mentality, with Sivapalan noting that if founders think the money is in e-commerce or mobile tech, some will start these type of companies because of the potential for funding and exits.

“But I don’t think it will stop others from starting other types of startups because the idea for a startup comes not from following the herd, but from something you are passionate about or your personal experiences or because you see a gap or opportunity,” he added.

Dhakshinamoorthy agreed that the higher visibility of one area of business will not dampen the formation of startups looking to fill a need in another niche.

“Entrepreneurs will learn to ride the cycle of innovation. They should be fired by passion not just by funding.”

So what’s the message of today’s column?

Well, it should be this: You can follow the herd to water, but only the outliers will stumble upon truly unexplored terrain.

So don’t be afraid to go off the beaten track in search of a venture meaningful to you. There should be sources of water to sustain you along the way.

This column originally appeared in the Metro Biz section of The Star and is reprinted here with its kind permission.