Looking Back, Seeing Forward: Reflections on Investing in Asia
By Ganesh Rengaswamy
Since my early days as an entrepreneur in Mumbai in 2005, and subsequently as an investor in India and Southeast Asia for Greylock, Unitus, and my current firm, Quona Capital, a lot has changed in these markets. Back in the early 2000s, China was on the rise, and India as a market was still quite nascent. In 2004, as an entrepreneur, I couldn’t come up with even a handful of global A-list funds that would have been interested in a modest (sub-$5 million) Series A investment. Southeast Asia was barely on the entrepreneurial map then. Singapore had some startups, but all seemed to be in traditional tech and infrastructure-oriented companies.
The number of global investors in India and parts of Southeast Asia have exploded in the last decade across every stage imaginable, from pre-seed to IPO. But the 2000s? They were sleepy days filled with entrepreneurial mistakes, broken dreams, and extreme scarcity of resources and capital.
How things have changed! Over the last 10–12 years, the number of local, regional and global investors entering India and Southeast Asia has exponentially increased. India has been on the entrepreneurial rise for the last 10–12 years, Indonesia for the last 7–8 years, and the rest of Southeas Asia for ~5 years. The evolution of the local ecosystems — for entrepreneurs and investors alike — is a promising sign of secular progress for any country.
Consider the chart below, from Bain’s recently published 2022 Venture Capital Report on India. The last decade has seen steady growth in deal sizes, but the increases seen from 2018–2019 and then from 2020–2021 show the tailwinds of COVID and increasing digital confidence.
Other signs of progress and confidence in these growing markets are obvious from the degree of specialized global investor interest — including my firm, Quona Capital, which has made a long term commitment to backing digitization and tech innovations that advance financial inclusion in emerging markets. The entry of generic global investors with deeper pockets is also a promising signal as it ensures that the resources are there for innovators building transformative solutions.
Not all investors are the right fit
Having said that, it’s important for founders to appreciate the context of different investors, and to look at them through a long-term lens, asking these critical questions before saying yes to the term sheet (assuming you have the privilege of multiple options):
- What is the investor’s commitment to the market and to this sector? What drives their excitement? Is it secular thesis/belief, FOMO, or recent exuberance?
- What is their historical approach to investing and to founders?
- Do they take a long view of their investments in founders, or do they pump and dump?
- Is the investor a cultural fit from a growth, company building, and long-term vision perspective?
The answers to these questions of context often turn out to be way more relevant for a long-term partnership than mere capital commitment.
The role of governments and regulation
One thing that continues to drive digital innovations forward in these markets is the increasingly active role played by governments and regulators. Across Asia, progressive regulators have fueled innovation through favorable policies related to digitisation, payments, interoperability use cases, digital infrastructure and credit. While the pace of innovation in recent times has been increasingly rapid — posing challenges to regulators anxious to keep up — government stability helps. Even when regulation isn’t quite there yet, global investors and passionate entrepreneurs appreciate consistency and certainty of governance to keep innovation moving. Also, the best entrepreneurs, especially in fintech, recognise the importance of engaging with regulators pro-actively (and responsibly) to educate them and collaborate. The time and effort dedicated to this is worth the dividends it’s likely to generate.
Back in markets, looking ahead
Over the past few months, I’ve spent time in several of Quona’s core markets in Asia and Southeast Asia. In India and Indonesia in particular, the tech ecosystems have reached a scale previously unimagined due to the pace of digital adoption in light of COVID.
A few observations and reflections: The market evolution we’re seeing (created through the virtual and remote requirements of COVID) has been fascinating to watch. Some markets experienced intermittent lockdowns (leading to more appreciation for digital services) and some remained mostly open (like Indonesia). In both cases, digital adoption has exploded anyway — the mental blocks people may have had around embracing digital have come undone, penetrating deep into both SME and consumer markets.
Some of the themes we are witnessing right now across India and Southeast Asia:
- Convergence of technology opportunities across real-life use cases like logistics tech, supply chain, retail, investments, etc. are evolving rapidly
- Physical infrastructural developments including metro rails and highways have also been accelerated during these times
- Awareness around health and insurance is on the rise — the number of start-ups, ads, and related billboards is exploding
- Crypto investments and DeFi are coming of age as the younger generation across India, Indonesia, Thailand, Vietnam, and the Philippines is embracing it. The ability to push forward (responsibly) despite some regulatory uncertainty is a surprising change from only a couple of years ago. Crypto investments are amongst the top topics at social and professional gatherings!
Just last week, I was in Jakarta. Even though it was religious fasting season for Muslims (and Indonesia has the largest Muslim population in the world), the energy in the city was quite palpable. Previously, startups would focus just on Jakarta; today more and more start-ups are focused on regions across the country. SME digitisation, credit, payments, commerce, and health start-ups are penetrating deeper across all of Indonesia, thanks to talented founders and digitisation. New start-up hubs are emerging rapidly across Jakarta. Bali became a palpable hub during COVID (handily enough, a number of founders and investors were hanging out in Bali during the peak of COVID). Good talent is in very high demand and most founders are spending an extraordinary amount of time on recruiting. Founder ambitions are scaling new heights like we’ve never seen before, and COVID doesn’t seem to have made a dent in those aspirations.
I left Jakarta feeling more excited about this once-in-a-generation digital evolution we are witnessing. It’s been a long journey since my entrepreneurial days in Mumbai, and Asia entrepreneurship has come a long way, too. As Bob Dylan would say, “the times, they are a-changin’” — and the winds of change are pointed in the right direction this time!
Ganesh Rengaswamy is co-founder and Managing Partner at Quona Capital.