The two co-published an infographic today, comparing a number of Chinese unicorns to their Southeast Asian peers within five categories: kings, warlords, magic ponies, gladiators, and anomalies or outliers.
Kings are companies that have already won their respective battles. This does not mean that there is no more opportunity for growth. Indonesia travel booking site Traveloka, which was included in the ‘kings’ category, for example, is expected to grow rapidly, said Pelago and Nikaia in a release accompanied by the infographic. However, there will be no viable competition, they predict.
Warlords are companies fighting for dominance in the largest categories, making the industry they play in the biggest battlegrounds in the region. While the war ensuing might be a long and arduous one, more than one company is likely to survive. Many such companies in this category already have powerful big-name backers like Baidu, Alibaba and Tencent or Softbank.
Pelago and Nikaia explained that for investors looking at companies in this category, they should invest right before a merger of the top competitors.
“As an example, we have seen Grab’s performance skyrocket just after paying a hefty price to buy out Uber,” the two firms wrote.
They added that while Southeast Asia might be a lot smaller than China, the market leaders in Southeast Asia may end up becoming bigger than those in China, just given the fact that they might be able to garner more market share in this region.
Grab, which was referenced by the two companies, a market leader in terms of rides and other online-to-offline services, is said to go “far beyond what Didi or Meituan is doing in China and well into the Baidu, Alibaba, Tencent or the Alibaba, Tencent, Xiaomi territory”.
Magic Ponies are companies that support large businesses and valuations which are also in the running for the next unicorn. These companies can then be broken down into two categories: younger ones like prop-tech marketplace 99.co, car marketplace Carro and media outlet the AsianParent as included in the infographic, and older ones like live streaming platform Bigo and retail image recognition company TRAX.
The younger startups offer higher upside for investors and should be considered for primary investments, while older ones might offer profitability and large revenue streams yet are unlikely to have primary offerings.
Gladiators are companies in industries or verticals that can only support one winner. The two firms explained that consolidation usually happens sooner than later, compared to those in the Warlords category. Investors should spend more time on the company’s plans to eliminate competition.
Anomalies/Outliers are companies considered the ‘true innovators’ with no real equivalent in China. Some of the startups referenced in the infographic include Rotimatic, a Singapore-based Indian chapati machine maker, and ONE Championship, a mixed martial arts media portal.
The two companies also shared why they did not include certain popular names in this non-exhaustive list:
On Baidu, TouTiao and MiaoPai: since there was never a ‘Great Firewall’ set up in most Southeast Asian countries, the various verticals like Internet search, social networks and photo-sharing platforms, have been dominated by US players like Google, Facebook and Instagram. These verticals in Southeast Asia are unlikely to be won over by independent startups.
On Alipay, Ant Financial, JD Finance: these spin-offs rely heavily on their parent company’s strength. Some of these will come from the big winners in Southeast Asia.
On Xiaomi and NIO: Nikaia and Pelago do not expect to see big manufacturers in Southeast Asia. This is primarily due to the economic viability, lack of skilled labour and lack of a domestic market to jumpstart the growth, they said. However, this might change over time with Indonesia, Vietnam and the Philippines primed to take over China’s position as a manufacturing hub as the East Asian country experiences rising costs.
On Appier and TradeGecko: such global-first companies are not Southeast Asia-focused. Since they play in a wholly different arena, they were excluded from the study.
Pelago, founded in 2018, has already invested in six companies, according to the company website. It was most recently a participant in Singapore-headquartered fintech startup C88‘s US$28 million Series C round led by listed company Experian. Both Pelago and Nikaia are being led by Jean Claude Donato, who has over 15 years of experience in the tech and business space in Asia.
See the full infographic below: