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Venture Matters | VC’s interest in Southeast Asia and Africa holds, but startups must prove their worth

VC firms remain bullish on Southeast Asia and Africa, betting on continued growth in online consumption, and emerging areas like medtech and services.

In the previous edition of  Venture Matters, we engaged Fosun RZ Capital, Wavemaker Partners, and Gobi Partners to explore the new investment landscape in post-pandemic Southeast Asia and India. In this release, we catch up with ATM Capital, Ondine Capital, and Future Hub on their game plan for Southeast Asian and African startups.

COVID-19 has thrown an economic curveball that left the world scrambling for a viable game plan. Even as fears of a second wave linger amidst new local outbreaks, investors are counting on the agility of startups to adapt and pivot to online business models to ensure survival—and growth—as Southeast Asian and African nations begin to ease movement restrictions and revive economies.

This is a once-in-a-lifetime opportunity, Tony Qu believes. Qu is the founding partner of ATM Capital, whose focus in Southeast Asia revolves around technological innovation, fintech, and entertainment. He describes how the Indonesian beauty brand Y.O.U., which is part of ATM’s portfolio, evaded a devastating downturn during the pandemic by shifting its business online, achieving a 300% sequential growth.

Digitization in Southeast Asia is expected to accelerate even after the worst is over, as online consumption habits continue in pandemic-driven areas like online education, digital healthcare, and remote working. Online consumption and payments have also become indispensable to African consumers, particularly for services that are culturally relevant or offer a fitting digital alternative to consumers’ offline habits, says Li Bohai, co-founder of Future Hub, China’s first internet startup incubator for Africa.

Qu hopes that businesses that have successfully embraced digital commerce and benefited from the pandemic can invest in critical areas like supply chains and logistics. This will not only sustain online retail growth, but also revive physical retail. One of the startups in ATM’s care, Indonesia’s physical retail chain for mom-and-baby products Bebetour, is tapping China’s supply chain experience and resources to roll out an aggressive expansion plan—the chain hopes to open 100 fully profitable stores within a year, in spite of challenges faced by physical businesses.

While the coronavirus has disrupted most aspects of the economy, it has proved a boon for some firms that have shifted online. Photo source: shutterstock.com

Some offline services have found it virtually impossible to fully migrate online. Carsome is one of them. Despite being the largest used car trading platform in Southeast Asia, the company’s vehicle inspection service has come to a complete standstill when social distancing laws kicked in.

Randolph Hsu, founding partner of Ondine Capital, an investor in Carsome, predicts that omnichannel businesses could become a long-term trend. As physical retailers continue to struggle with e-commerce due to the lack of skills or incompatible nature of business, omnichannel models that can deliver a seamless offline-to-online customer experience for various consumption scenarios will inspire new possibilities and revenue streams.

Poised for post-pandemic growth

Venture capital (VC) firms remain bullish on Southeast Asia and Africa, betting heavily on the continued growth of online consumption and emerging investment areas that have grown in significance during the pandemic, such as medical technology and services.

The pandemic is a true acid test for startups, where only those with strong fundamentals will emerge as winners. As a cloud of uncertainty hovers over the horizon, investors offer a few suggestions on how to win coveted funding during this difficult time.

“We prefer startups with adequate business resources, short term income, and cash flow, which will ensure that they can weather the uncertainties of the pandemic,” says Li Bohai. He also has his sights set on innovative startups that are capitalizing on the economic lull to identify new opportunities and prepare for a post-pandemic boom.

Randolph Hsu agrees that the pandemic has surfaced a number of long-tail opportunities for startups, which revolve around more convenient, autonomous, and personalized products and services. He also mentioned that Ondine Capital’s investment strategy in Southeast Asia leans in favor of mature markets with proven business models, technology, and teams.

Tony Qu adds that agile teams, which have been quick to adapt their strategies to buffer against the pandemic, are the best poised for growth. Startups must no longer burn cash to expand, he cautions. Instead, they need to maintain healthy cash flow, control risks, build core competencies, and scale on true customer value and market competitiveness.

“There is an opportunity in every crisis. Be prepared with your arsenal of resources, and launch your winning strikes once the pandemic is over,” he tells startups.