Vertex Venture CEO believes it pays to be patient

• GrabTaxi valuation not indicative of bubble
• Still a lack of large VCs in South-East Asia

THE US$250 million (RM908 million) that Japan’s Softbank invested in GrabTaxi last December, becoming its largest shareholder, certainly gave some people the impression that there is a startup bubble in South-East Asia.
 
But to Chua Kee Lock (pic above), group president and chief executive officer of Vertex Venture Holdings Ltd, also an investor in GrabTaxi, Softbank’s investment was not necessarily a high valuation.
 
While acknowledging he has a vested interest here, he also noted that there are always cycles in the technology sector.
 
These cycles occur when there is a lot of money chasing deals, which attracts a lot of ‘me too’ companies, some of which raise money at high valuations. That’s when you get bubbles forming in a sector.
 
“The key is not that the sector leader has high valuations, but because of GrabTaxi, there are many more companies building apps to address peripheral markets [around transportation],” said Chua, whose Temasek Holdings-owned venture fund is the largest state-owned venture fund in South-East Asia.
 
The important thing is to be the top player in your sector, he told Digital News Asia (DNA) at a recent interview at his office in Singapore.
 
The top player always survives and executes, even when markets collapse, he said, using Yahoo as an example. It was the first of the portal plays back in the late 1990s, and while many other portal plays came up to catch the wave, today Yahoo still the leading portal play while all its competitors have long fallen off.
 
And the best part about being the top player? “You always get the best price,” said Chua.
 
The key is to be the dominant player in your category, as this buys a company time to find a business model that works.
 
For those still wondering how GrabTaxi can possibly justify Softbank’s US$250 million investment into it, the answer lies not in its current business model, according to Chua.
 
“The current business model is part of it, but clearly it has to be more than that and [GrabTaxi is] progressively developing this, but we can’t say too much of [this],” he added.
 
As of early December 2014, GrabTaxi said it had around 550,000 active users, with its app downloaded 2.5 million times in 17 cities across the markets it operates in: Malaysia (where it was founded), the Philippines, Thailand, Singapore (where it is based now), Vietnam and Indonesia.
 
This has allowed it to collect data about passengers, drivers and locations. “It has a lot more information today with many people in the region using the app, which has made life more convenient,” said Chua.
 
The market will be keenly watching how GrabTaxi’s monetisation strategy evolves, especially with investors such as Vertex and Softbank.
 
Taking a startup to an IPO too quickly
 
In Chua, the startups that Vertex invests in have a former founder who understands implicitly the dangers of rushing into an IPO (initial public offering) as a means to raise funds.
 
As a former Internet entrepreneur who feels that he took his disruptive VoIP (Voice over Internet Protocol) MediaRing Ltd too early to an IPO, precisely because there was not enough funding available to him, Chua is what one would call a ‘patient investor.’
 
He previously told DNA that it takes time for any good company to create the right business model, and that investors should look beyond the initial period of losses because in the early stages, many things would not be obvious yet.
 
MediaRing listed on the Singapore Straits Times Index in November 1999, when it was still a loss-making company.
 
Recalling the experience, Chua said that the reason startups in South-East Asia look for an early IPO is because they do not have access to large amounts of venture funding, unlike the China and India markets which were at the time attracting most of the VC (venture capital) funding targeted at Asia.
 
“As a result, we were forced to go for an IPO prematurely. Would we have been able to raise money if we did not [go for an] IPO? No!”
 
The public listing exercise however brought its own set of headaches. “You then needed the discipline of running a listed company and [facing] the quarterly pressure of shareholders’ revenue expectations,” he added.
 
While many entrepreneurs whose hopes of listing were crushed by the dotcom crash of April 2000, and who perhaps wished they had listed before the bust, Chua however feels that it was bad timing for MediaRing, as it was badly hit by the bubble bursting even though it was first-to-market with a VoIP product, before Skype.
 
“The point I am trying to make is that in this part of the world, there are real funding challenges in building a company. Entrepreneurs need to have people like us [Vertex Venture] to help their companies through multiple rounds of funding,” he argued.
 
He cited Reebonz, a Singapore-based, branded e-commerce flash sales fashion site, as a beneficiary of Vertex’s patient policy.
 
“It would not have gone so far. But today, Reebonz has grown much bigger and become the dominant player in its space in the region, and we can breathe a sigh of relief,” he said, adding that “two years ago, it was quite scary.”
 
Vertex has invested a total of US$15 million into Reebonz over four years.
 
This type of patience is apparently still a rarity among venture funds, according to Chua, who added that the size of venture funds is also still a problem, as many in South-East Asia are just too small.
 
That perhaps makes Vertex the top port-of-call for entrepreneurs seeking some serious funding.
 
Previous Instalment: Disrupting industries, and Vertex Venture’s double purpose
 
 
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