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All eyes on Grab: From a Harvard University project to a USD 40 billion business

Written by Khamila Mulia Published on     10 mins read

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Grab had a humble beginning but it is now set to go public in the world’s largest SPAC merger.

Grab, one of Southeast Asia’s most valuable tech startups, was conceived at Harvard Business School when its two co-founders, Anthony Tan and Hooi Ling Tan, met in a class called “Business at the Base of the Pyramid.” That class taught students how companies operate in low-income markets, which represent the majority of humanity.

The two came up with a business idea for the Harvard Business School’s New Venture Competition (NVC) in 2011: making taxis safer in Malaysia by connecting drivers and customers through technology. Only 12 years ago, Malaysia’s capital, Kuala Lumpur, had a reputation for having the world’s worst taxis. The vehicles were in shabby condition, and passengers often needed to negotiate with drivers to set the fare. Women didn’t feel safe traveling at night, as there were many reports about taxi drivers perpetrating crimes like robbery and rape.

While working as a business analyst at McKinsey in Kuala Lumpur from 2006 to 2009, Hooi Ling Tan developed a “manual GPS tracking system” that she used every time she needed to work late and go back home by taxi. Tan would send a text to her mother with the name of the driver and the car’s plate number. She would also let her mom know about the route she was taking and the estimated arrival time. This way, her mother could predict her whereabouts, she told Bloomberg TV in an interview released in 2019.

Anthony Tan and Hooi Ling Tan knew there was an opportunity to change the status quo and bring value for both passengers and drivers with technology in Malaysia. Their idea secured them a grant of USD 25,000 from Harvard Business school for winning the second prize at the NVC in 2011.

Anthony Tan himself was no stranger to the transportation industry when the pair launched the startup. His great grandfather was a taxi driver who later started Tan Chong Motor, one of Malaysia’s biggest automobile distributors, making the Tan family one of Malaysia’s wealthiest. Tan briefly worked in the family business before deciding to focus on developing Grab in 2012, which was initially known as GrabTaxi.

Hooi Ling Tan, instead, grew up in what she defines a typical Malaysian middle-class family, she told Bloomberg TV. Yet, many argue her family’s economical condition to be actually in the upper-middle bracket. His father is a civil engineer, and her mother is a stockbroker. After attending public schools in Malaysia, she moved to England to study mechanical engineering at the University of Bath, a privilege not many Malaysians have.

Grab was originally founded in Malaysia but is now headquartered in Singapore. Photo source: Shutterstock.com

A humble start

Grab had a humble beginning. The early team members had to wear multiple hats, even managing troves of data by hand before automated processes were developed and deployed.

Despite coming from a wealthy family, and being a first-time entrepreneur when he started Grab, Anthony Tan was a driven yet humble entrepreneur, said Chua Joo Hock, managing partner of Vertex Ventures Southeast Asia & India, the first investor of Grab in 2014.

“We could tell that he was on a mission to do something big. We like founders who listen, and that’s what Anthony did. From there, we knew that he’s one of the rare breeds of entrepreneurs,” Chua said.

The team at Vertex believed that disrupting the taxi industry was an important cause, considering the many problems in the sector. Grab’s first features like booking the nearest taxi and sharing trips were crucial to increasing convenience and safety, and that convinced Vertex to cut checks for the two-year-old startup.

In 2016, the company moved its headquarter from Malaysia to Singapore, and set up two teams, a research and development (R&D) team, and an operational squad. Grab had grand ambitions and plans, but the people behind the company needed to work on those plans with limited engineering resources.

With resource constraints, they needed to be creative in luring drivers to create enough supply for the platform to run its ride-hailing business. This often meant providing some “perks” in addition to monetary incentives. For instance, they gave out rice in the Philippines and held a lucky draw for a phone to convince drivers to join the platform. 

The company’s first fintech products were also built for drivers. New drivers are required to provide a bank account as part of their registration with Grab, but if they don’t have an account, the company helps them apply for one on the spot.

Grab Financial Group senior managing director Reuben Lai told KrASIA how he had to negotiate with different banks in the region to ask them whether they would allow Grab partner drivers to open bank accounts and provide loans for drivers to purchase a car.

“I got turned down by almost everyone until there was a finance company in Indonesia that said yes. We started creating the scoring, collection, and disbursement systems. That was the genesis of our lending business.” From there, Grab was able to partner with more financial institutions to offer new services, including insurance for drivers, Lai said.

Read more: Grabbing the wheel | Inside the company that ran Uber off the road en route to the largest SPAC merger ever

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Regional leader

From the beginning, Grab had the ambition to become a regional leading player, as many Southeast Asian countries shares similar traffic problems and unsafe transportation systems, especially when it comes to taxis and motorbike taxis. Malaysia is also a small market with a population of around 30 million people. It only made sense for Grab to expand outside its home market quickly.

The startup entered neighboring countries like Singapore, the Philippines, and Thailand just a year after its launch, and expanded into Indonesia and Vietnam, the two most promising markets in the region, in 2014.

The same year, Grab managed to get big-name investors like Vertex Ventures Southeast Asia & India, GGV Capital, Tiger Global, and SoftBank Group on board. Since then, Grab has constantly raised new investments from the likes of Didi Chuxing, Toyota, Hyundai, and Mitsubishi.

Even so, Grab’s business operations and regional expansion weren’t easy. Ride-hailing and the sharing economy concept were new to Southeast Asian consumers. Grab and other apps like Uber and Gojek were seen as threats to local taxi drivers. Thousands of drivers in Jakarta, Bangkok, and other cities across the region held protests against online ride-hailing apps as they became popular, saying that these apps were “illegal taxi services” that affected their regular operations and incomes.

Platforms like Grab and Uber also quickly caught governments’ attention. Grab’s representatives were summoned in different countries by parliamentarians and grilled by conservative politicians who intended to maintain local stakeholders’ status quo. However, this didn’t stop Grab and their competitors from finally gaining approval from local lawmakers.

A turning point in Grab’s rise to dominance in the region was when it acquired Uber’s Southeast Asian business operations in 2018. Despite being the pioneer in the ride-sharing industry, Uber struggled after its entrance into the region in 2013. One main reason might be that the company applied its Western-centric business model for all regional markets, offering credit cards as the only payment option, while only 27% of Southeast Asia’s population had a bank account in 2016, according to KPMG.

“Grab is run by its founders, while Uber’s Southeast Asia was run by hired professionals who don’t have the same level of passion as founders. Anthony Tan was making many sacrifices. He would go to two or three countries a week with budget airlines. Secondly, Uber already had operations in many regions like the US, Europe, and China, while Grab only focused on Southeast Asia,” said Chua.

Southeast Asia consists of different markets, each with its unique characteristics. As a regional player, Grab knew how to gain an upper hand over Uber. It offered cash payment options from the beginning, while Grab’s motorbike drivers, in certain countries like Indonesia, Thailand, Vietnam, and Cambodia, were able to weave through heavy traffic to take passengers to their destinations on time, leaving Uber’s cars in gridlocks. Grab even introduced hyperlocal services like the Grab Tuk-Tuk, or three-wheeled motorized vehicles, in Phnom Penh and Siem Reap.

Having a local team is critical, and it is something that Uber missed, said Chua Kee Lock, CEO of Vertex Holdings. American companies that brought their top executives from abroad, who didn’t quite understand the culture in Singapore, Indonesia, Malaysia, and other emerging markets in the region, have tended to make wrong assumptions, he added.

“Another important thing to note is the culture. Anthony and the team believe that it is important to work with the local authorities and regulators to try to find solutions, while Uber came in as the dominant player, thinking to change the world and the regulations,” Chua Kee Lock said.

After years of intense competition, Grab acquired Uber’s Southeast Asia operations in 2018. As part of the acquisition, Uber gained a 27.5% stake in Grab and a seat on the board.

Anthony Tan said to Bloomberg that when he met with Uber CEO Dara Khosrowshahi in a private meeting in San Francisco, he told Khosrowshahi that it didn’t make sense to have a “street fight city by city.” They started building trust and, finally, the two CEOs agreed that a merger was the best outcome for both companies.

The merger between Grab and Uber’s Southeast Asia also gave Grab an advantage over Gojek, which by 2018 had acquired a huge customer base in its home turf, Indonesia—Southeast Asia’s largest market by population.

Infographics by Shermin Shu/KrASIA.

Entering the next chapter: Going public

Grab is leading the competition in food delivery, digital wallet payments, and ride-hailing in Southeast Asia. Grab’s services also cover other areas such as last-mile logistics and online health.

The Grab app has been downloaded over 200 million times to date, and is now present on about 30% of Southeast Asia’s smartphones. The platform counts more than 5 million registered driver-partners and 2 million merchant partners in 400 cities across eight countries, according to statistics cited in Grab’s investor presentations.

The company booked USD 12.5 billion gross merchandise value (GMV) in 2020, surpassing pre-pandemic levels and more than doubling its GMV from 2018. The firm completed 1.9 billion transactions and reported USD 1.6 billion adjusted net revenue last year.

After nearly nine years of operations, Grab officially announced on April 13 that it would go public on Nasdaq in the coming months by merging with a special purpose acquisition company, Altimeter Growth Corp, in what is considered the world’s largest SPAC merger so far. The deal would place a valuation of nearly USD 40 billion on the firm.

Yet, according to Hiro Kiga, a former venture capitalist who now serves as COO at cross-border payment platform Wallex, the new entity’s high valuation will not automatically attract investors.

“When it comes to public markets, investors are not as patient as those in the private markets. They don’t have a long-term outlook, such as VC investors do. Naturally, they may think the valuation is hefty, overpriced with weak economics, and pressure the stock to go below the IPO price,” he said. “We saw how Sea Group hovered below its IPO price for five quarters before they became one of the best-performing stocks of 2020,” Kiga added.

A strong valuation is also a “double-edged sword with its fair share of pros and cons,” according to Gabriel Li, an associate at Singapore law firm Withers Khattar. “On one hand, a phenomenal valuation, like USD 40 billion, is likely to be extremely beneficial to Grab as it will yield an invaluable war chest of funds that the company can redirect to fund its growth in many ways,” he said.

But a blockbuster valuation will likely introduce new expectations from the public. This may translate to more pressure to deliver profitability and sustain healthy growth. “Nevertheless, we are silently confident that there is still a lot of room for growth in Southeast Asia in the on-demand mobility and food delivery space, with its relatively young and tech-savvy population,” Li explained.

“Altimeter’s big reputation can also be a factor to attract the attention of public stock investors. Altimeter not only contributed more than 10% of Grab’s private investment in public equity arrangement (PIPE) but also tied its shares down to a three-year lock-up period. Investors are likely to interpret this as a show of confidence in the long-term valuation of Grab, and this bodes well for investors’ trust in Grab,” Li continued.

As part of the transaction, Grab will receive about USD 4.5 billion in cash, including USD 4 billion in PIPE by big-name investors like BlackRock, Counterpoint Global, Temasek, as well as Indonesia conglomerates including Djarum, Sinar Mas, and the Sariaatmadja family, the founder of Emtek. PIPE is a system where companies raise additional capital from a select group of investors to close a merger transaction with a target company.

Grab’s IPO will further help to raise awareness and educate American investors about the significance of Southeast Asia, a region with over 600 million inhabitants, a growing middle class, and high spending power, said Chua Kee Lock, adding that the US public market has developed a better understanding of Southeast Asia thanks to Sea Group.

“For us, awareness is important because when we go out to raise funds, investors can see that there are opportunities for exits in this region,” said Chua Joo Hock. Investors are waiting for Grab’s IPO with high hopes. After the lockup period, they have the opportunity to get some divestment and general returns so that everybody will make decent money, he added.

Grab also faces competition from other regional players, as Gojek is reportedly finalizing its merger with Indonesian unicorn Tokopedia. The two will form a new entity called GoTo, which could debut in public markets this year, via a similar SPAC merger. With a strong digital ecosystem after the merger, Kiga believes that GoTo will be able to match Grab’s valuation.

“GoTo is reportedly considering a dual listing in Indonesia and the US. Since both are Indonesian-bred companies, it makes sense that there will be more support from the Indonesian Exchange to list. My take is that GoTo will focus on ‘winning’ Indonesia first, and look at a dual listing option elsewhere. Hong Kong could also be an option liked by their Chinese shareholders, Tencent, and Alibaba.”

As other tech giants such as Traveloka and Bukalapak are also eyeing the US capital market this year, Grab’s upcoming IPO and the eventual public listing of GoTo will mark a new beginning in Southeast Asia’s tech landscape, said Chua Kee Lock.

“This is similar to China 15 years ago when Sina.com went public. It was one of the first tech IPOs that led to many more opportunities. Other companies started heading to the stock market and more investors put money in China.” Chua Kee Lock added that in the next four to five years, more global investors will put their core interest in Southeast Asia.

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