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With 10 Chinese unicorns in the bag, ZWC Partners is setting its sights on Southeast Asia: Q&A with Patrick Cheung

Patrick Cheung, founding and managing partner of ZWC Partners, will be guest in KrASIA’s “Venture Matters” TV series on July 9, 7pm SGT.

Patrick Cheung, founding and managing partner of ZWC Partners, will be guest in KrASIA’s “Venture Matters” TV series on July 9, 7pm SGT. You’ll be able to access the livestream here. Our reporter already caught up with him prior to the talk, to discuss the firm’s recent investments and plans in Southeast Asia.

Founded in 2015, the Chinese venture capital firm ZWC Partners has an impressive list of portfolio companies in China including 10 unicorns such as Tantan, Zhipin, and 4Paradigm. The firm currently has USD 1 billion in assets under management in its USD and RMB denominated funds.

ZWC Partners is eyeing opportunities in Southeast Asia promoting a “cross-border” strategy and, with its extensive China knowledge, wants to help companies here grow and scale up quickly. ZWC’s investments in the region so far include the Singaporean online tuition startup Tenopy, Jakarta-based Target Media Indonesia, the logistics tech startup Ritase, and AI company Wiz.ai. The firm also made headlines recently when it lead an independent funding round for Gojek’s digital entertainment arm, GoPlay.

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KrASIA (Kr): Please tell us about your investment strategy. How much money are you allocating for Southeast Asian startups?

Patrick Cheung (PC): We are currently managing our fund of USD 500 million that is focusing on China and Southeast Asia. Our strategy is to push cross-border investment between the two regions. We invest in Chinese companies and we support companies that have the intention to expand into Southeast Asia. For example, we made an investment in Focus Media Group which is the biggest lifestyle targeted interactive digital media network in China. The company has expanded into Indonesia through a subsidiary called Target Media Nusantara or TMN.

Moreover, we invest in local startups in Southeast Asia where we can transfer our China experience, resources, and network. An example is our recent investment in GoPlay. We believe that our experience in the media and tech sector in China can help the company to accelerate its growth.

Kr: What sectors are you interested in and how much is your ticket size?

PC: We invest in the consumer internet sector and we are also interested in sub-sectors, including those that enable e-commerce, like first-mile fulfillment logistics and supply chain fintech. Our ticket size ranges between USD 500,000 to USD 10 million for early-stage investments and USD 10 million to USD 60 million for growth-stage investments.

Kr: As a lead investor, what inspired your confidence in GoPlay?

PC: We are very excited about this investment, especially since this is the first independent funding round raised by Gojek’s business entity. There are three things that drove our investment there. First, we believe that the opportunity in the online entertainment industry in Indonesia is huge, similar to the US and China. Second, GoPlay has a solid team. Its CEO Eddy Sulistyo is a serial entrepreneur with deep experience in the industry, who successfully sold his previous startup Loket to Gojek. I trust Eddy and his team very much. Finally, as part of a super-app, GoPlay benefits from Gojek’s ecosystem which helps them to access a large user base. The platform has an opportunity to lead the on-demand video streaming segment.

Kr: How do you see the opportunity for on-demand video streaming in Indonesia and what makes GoPlay stand out from the competition?

PC: The country is the world’s third-largest country in terms of population, with a median age of 27 years. Internet penetration in Indonesia is close to 65%, while smartphone penetration is over 40%. Indonesia has a young population, an excellent internet using basis, and a rising middle class. We believe that the willingness to pay for online entertainment will continue to increase.

Read this: Gojek’s GoPlay on how to create a sustainable business and promote Indonesian movies: Q&A with GoPlay CEO Edy Sulistyo

Indonesia’s digital economy is similar to China’s several years ago. Let’s take iQiyi, for example, the leading online video platform in China that was started in 2010. At that time, China’s GDP per capita was USD 4,550 and the penetration of internet around 35%. Nobody wanted to pay subscription fees back then, but as the GDP increased, consumers started to be more generous and spent money on digital services. Compared with the situation in 2019 in Indonesia, we can predict that it is the right time for the Indonesian OTT industry to boom. Indonesia has a limited choice when it comes to local online content and GoPlay is filling this gap by working with local filmmakers and content creators. This is something that is lacking from regional and global players. GoPlay is in a very good position to win the game due to its capability of localization.

Kr: How is COVID-19 affecting your investment strategy?

PC: Nothing changed actually because we are long term investor. We promote a concept called “innovation values”, which means that we’re looking for companies that use technology to create innovation, to enhance efficiency and lower operational costs. This is our fundamental thesis. COVID-19 is a challenging event that causes economic attrition, but companies with those values will survive and people will still need their services. We’ll stick with our strategy and I believe the investment climate in Southeast Asia will remain stable.

The interview has been edited for length and clarity.