In the first part of this interview with Kenneth Low, principal at SoftBank Ventures Asia, the corporate venture capital arm of the SoftBank Group, spoke about emerging technologies with potential, regulatory frameworks governing digital assets in Southeast Asia and key considerations in startup investing.
In this second part of the interview, Mr Low speaks about possible implications of the US-China technology conflict on tech startups in China and other parts of Asia and whether COVID-19 will demand changes in investment strategy. He also offers a closer look at the challenges faced when investing in Southeast Asian tech startups.
Unravel: As a tech investor, what is your view on the possible implications of the US-China tech war on: (a) Chinese technology startups and companies, and (b) tech startups in other parts of Asia?
Kenneth Low: There are a lot of factors that have actually accelerated the growth of the Southeast Asian tech ecosystem. Because of the geopolitical environment worldwide, a lot of global companies—not just Chinese companies—have set up offices in Southeast Asia, and largely in Singapore. Southeast Asia has been relatively stable from a growth and political standpoint over the past few years. This has attracted a lot of global investors to set up offices in Southeast Asia.
This year, we have also seen significant amounts of global capital coming in, global VCs investing, and several Chinese big tech companies looking to increase their footprint in Southeast Asia. These include the likes of Bytedance, Alibaba and Tencent. Google is also increasing its headcount substantially in Singapore to prepare for a Southeast Asian expansion.
Global political headwinds have so far benefitted Southeast Asia from an investment standpoint. We are very bullish about the region’s prospects. As more capital comes into the region, it will help increase employment in the region. This, in turn, will help increase GDP per capita, and indirectly benefit monetisation of emerging innovative technologies
One of the biggest investor question has been mass consumer’s ability and willingness to pay for products and services that tech companies are offering. Increasing employment and income levels will help address this challenge in the medium to long run.
Unravel: COVID-19 has accelerated digitalisation and the uptake of different technologies globally. In Asia, has this resulted in a change in your investment strategy in any way?
Mr Low: As a black swan event, we all thought COVID and its impacts would last a year or two, but we are now entering into the third year. It has been quite difficult when it comes to investing.
For example, there are a lot of technologies that make sense during COVID-19, but how will things really change after COVID-19? Consider the example of education tech. There has been a dramatic shift to online, but the question is that as people get vaccinated and schools start reopening, what is going to happen with these online education platforms that act as a substitute to schools? Will online education remain nearly as popular? This makes it tricky.
COVID-19 has accelerated digitalisation no doubt, but at the same time, we want to avoid investing in a sector that has benefitted amid the current scenario, but could see a dramatic drop. So, making investment calls has been challenging in these respects.
However, in some sectors such as e-commerce, we expect current trends to be the new norm, in terms of how people are transacting. The value proposition is clear but a portion of the market has been a bit more reluctant to adopt it in the past. Among the older generation particularly, they are more used to buying goods and services offline. But, now a significant number of them are exploring it. Data shows that even after lockdowns have lifted, these cohorts are continuing to use e-commerce platforms because of the convenience it offers.
We try and look for technologies that have been accelerated by COVID-19, but ones that will also stick around in a post pandemic world. That is the biggest challenge; of predicting consumer behaviour, and whether things will stay the way they are two to three years from now, or will they change?
From a cultural standpoint, we are starting to see people having a little more of a ‘YOLO’ (you only live once) mindset. They want to take a little more risk, and start investing more money. And we can see a significant increase in the number of retail investors through COVID-19. As a result, one of our portfolio companies, Ajaib, which is a digital stock brokerage platform, became Indonesia’s fastest ever unicorn.
As long as the markets hold up well, we see this as a trend that will continue post COVID-19. So, we are trying to see what are the technologies and opportunities that are coming out of this shift towards a YOLO mindset.
And you also don’t want to be investing at the peak of the market. Yes, there is strong growth, but the market could change dramatically. This is just one example of something we pay close attention to.
Unravel: As a tech investor, what are the biggest hurdles you are faced with when investing in the region?
Mr Low: First, as we shift to a post COVID-19 environment, how do we assess tech and opportunities that will not phase out in a post pandemic world? Some of the technologies were key beneficiaries during COVID-19, but will they stay the way they are, or will they dip once COVID-19 is behind us? This is a big challenge at the moment. This is tricky because we are at an inflection point.
Currently, as an investor, it is about making the right predictions. This is an overriding challenge.
The second hurdle is the rate at which deals are being closed at the moment. There has been so much interest in the region from global investors as well. So, how do you get comfortable with the rising valuations? In certain sectors particularly, valuations are increasing substantially in short periods of time.
These are the two biggest hurdles when it comes to investing in Southeast Asia.
Kenneth Low joined SoftBank Venture Asia in December 2020 as a principal. Prior to joining Softbank in 2020, Kenneth was most recently an entrepreneur-in-residence (EIR) with 500 Startups, guiding technology startups to grow and scale within the Southeast Asia region. Previously, he was the co-founder and COO of Club Alacarte, a consumer lifestyle coupon subscription app in Indonesia. Prior to forming Club Alacarte, Kenneth worked for more than 13 years as an investment banker in Hong Kong, New York and Singapore.