Greek Complexity

Why RedMart's sale to Lazada/Alibaba matters

I'm cheering Lazada's acquisition of RedMart – but probably not for the reason you think.

A couple of years ago, I wrote about the need for more soft landings. Why? To enable more risk-taking. Set up as many incubators as you want but that isn't going to incentivise new venture creation as much as a culture that, if even if it doesn't quite applaud risk-taking, at least provides the chance of a safety net for those who don't quite make it to the big time.

The South-East Asian entrepreneurship scene has grown leaps and bounds over the last few years. The number of entrepreneurs and people aspiring to join start-ups has definitely hit critical mass. Whereas I might have been at most two degrees of separation away from every single person in tech start-up circles a few years ago, I'm not sure I can make that claim now. There is also a vastly greater amount of sectoral and functional depth in the market now.

The one thing we don't yet have enough of is soft landings. And that's where the Lazada-RedMart news is so encouraging.

No one said it would be easy.

By all accounts, RedMart had been struggling for a while. Singapore is not an easy market to operate in. Consumers are sophisticated (read: informed and hard to please) while also being price-sensitive (read: informed and hard to please). On the back-end, costs are high. Large rounds of later-stage start-up financing are still not easy to come by in South-East Asia and RedMart was certainly one of our few trailblazers in this regard. Which is why, when the company's investors threw up their hands this year, it was imperative for the health of the community overall that RedMart find a buyer.

Now, does this mean that this was a profitable sale for investors? Not likely. The earliest angels may have made money if all investors had pari passu status (very unlikely) or the latest investors may have got their money back if they had LIFO liquidation preference rights (but that doesn't mean they would make a profit). Either way, few if any are going home happy.

But again, that's not the point: the entrepreneurial community, the broader matter of consumer choice and investors all reap the benefits when entrepreneurs try new things, staff join them, and the market funds them. Even if the company doesn't eventually get to the promised land.

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The twist in all this, of course, is that Lazada was itself the beneficiary of a white knight in the form of Alibaba swooping in to rescue the company. I didn't comment on that deal when it happened because Lazada wasn't a traditional start-up in the sense we really think of one. The spillover benefits to the overall community in terms of providing encouragement to other founders weren't great, because Lazada (and other Rocket Group companies) although run by people with stellar backgrounds don't really fit the image of traditional founder-driven start-ups.

A version of this post first appeared on e27.

AT&T-Time Warner and competition policy

1/4 Proposed AT&T-Time Warner deal illustrates once again how oligopolistic US business tends to become. Not a problem IMHO as long as…

— Murli Ravi (@murli184) October 23, 2016

2/4 …real competition possible. In A) networks-effects-based firms which B) become dominant over time, A & B both vital, hard for new rivals

— Murli Ravi (@murli184) October 23, 2016

3/4 to fight incumbents. That's why, say, retail, energy, real estate and on-demand taxis don't merit the same level of anti-competitive

— Murli Ravi (@murli184) October 23, 2016

4/4 scrutiny as say, AT&T-Time Warner, MS Windows, big airlines and Facebook.

— Murli Ravi (@murli184) October 23, 2016

You read that right. I don't think Uber merits anti-trust scrutiny (yet) and do think Facebook does.  There are plenty of competitors as well as business model reasons that act to keep Uber on the straight and narrow (mostly). Facebook? Nope.

Does this mean Uber, Airbnb and Amazon will never need to be monitored? Of course not. Do I mean to imply that Facebook is in fact acting in an anti-competitive manner? No, because I don't know.

Also, does my highlighting Facebook imply that all other social networks merit the same degree of scrutiny? No. Or at least, not yet. Snapchat, Twitter, Pinterest and arguably even WhatsApp don't qualify as dominant even though they obviously have huge network effects.

Another thought to keep in mind is that competition regulators might be better off cooperating with each other, sharing information and formulating regulations holistically, rather than trying to regulate companies in a patchwork manner. The cost of not coordinating efforts is that some of the most sophisticated, fast-moving companies play off regulators against each other. Companies that fulfil my conditions A and B above have long since become pan-national and regulatory actions taken at the national level cannot possibly be sufficient.

I do acknowledge that what I am saying is much easier said than done because of conflicting objectives such as the desire to build up national champions at the expense of external interlopers or differing cultural values on issues such as consumer privacy and wage policy. That's without even considering the cost, time and expertise involved in coordinating large multi-agency efforts.

Then again, if, say, multiple national police agencies can cooperate on criminal investigations spanning multiple jurisdictions, then that could well offer a template for anti-trust agencies to explore.

Whither 2016? Prognostications on IoT, the venture capital model in Asia and more

Last January, I jumped on the Here Are My Predictions For The Year bandwagon and came up with this set of 8 predictions. Although I was not rigorous enough to attach probabilities to my predictions, you can see that some of my predictions were deliberately bold: in the start-up world, the mantra is, “Go big or go home." You can judge for yourself how well I did.

 

This year, I suddenly find myself in March not yet having put out a similar list for 2016 even though I’d consistently Evernoted down some thoughts all through 2015. (An anti-prediction: “Evernoted” will never become a colloquialism!) No matter — here we go now. This year’s list is somewhat eclectic and doesn’t focus just on start-ups and venture capital.

 

As usual, you’ll find a TL;DR version at the bottom.

 

1. “IoT" is dead, long live IoT.

Just like “on-demand” last year, “big data” a couple of years ago and “daily deals” before that, I think this is the year the term “IoT” will become so widely used as to become meaningless, banal, even uncool. This doesn’t mean that the move towards an Internet of Things will no longer be a truly powerful trend. The trend will, in fact, accelerate. But when anything with a chip in it can be said to belong to the Internet of Things, which could encompass everything from wearables to logistics tracking technologies, home appliances, entertainment gadgets, cars and more, then I argue that the term not only loses its meaning but actually inhibits clarity of thought on how to tackle a given opportunity. (In the same manner, I've heard people declare with a straight face that their little Excel spreadsheet with a few thousand rows of data constitutes Big Data — urgh.)

 

As “IoT” itself becomes meaningless, what I expect to see is more specific terms within the broader IoT universe gaining currency, reflecting specialisation and maturation of yesterday’s sub-niches.

 

2. Fintech touching consumers more directly and in more ways

Today, most ordinary consumers don’t know what “fintech” means. In Asia, most don’t even experience fintech directly except occasionally in the area of payments. This will change. Fintech underpins pretty much every aspect of banks’ internal operations as well as many of the ways institutional/corporate clients interact with banks. This year I expect to see the beginnings of fintech directly touching consumers. Untapped opportunities exist in personal financial planning, term insurance, investment execution, credit, security as well as in payments itself. Each of these is a vast area.

 

3. Rationalisation and specialisation of VC firms in Asia

Even with recent market turmoil, there is plenty of growth capital available to start-ups in Asia from non-VCs. These include wealthy individuals and families, corporations, government agencies, crowd-funding platforms and more. Most of these actors don’t invest for a living and therefore may have lower return thresholds and/or different measures of success from traditional VC firms. This means that VCs who fail to recognise this new reality (where they are not the sole source of capital) will get blown away in negotiations and fail to win deals. Over time, these are the VCs who will end up as has-beens. Other, smarter VCs will focus on building their strengths in specific industry sectors, stages of development or other areas of specialisation, which will help them make a compelling and differentiated case for winning the right to invest in companies.

 

Note that phrase: "the right to invest". This has not historically been the way capitalists in Asia have thought.

 

To be clear, I expect this to be a multi-year trend, not just in 2016: the venture capital business has very long lead times and poorer performing firms don't die overnight, instead fading away over several years.

 

4. Privacy and personal control renaissance

The proliferation of smartphones and Facebook’s continued insinuation of itself into every aspects of many people’s private lives will, I hope, finally have the effect of provoking a substantial backlash and precipitating a move towards greater personal control for users over their data, phone features, notifications, etc. (I call out Facebook because they are the biggest culprit but they are by no means the sole culprit in this regard; LinkedIn may be worse and several others deserve blame too.)

 

I think there will continue to be a number of people for whom privacy does not matter, but I think others will demand and gravitate towards services that respect users’ desire for full control over their own information and devices. How could this come about? At multiple levels of abstraction, ranging from changes to mobile operating systems — I hope my next phone will allow me to set app permissions at a much more granular level instead of presenting me with a take-it-leave-it "choice" when I install a new app — through to businesses built around VRM-like principles, and government regulation and standards-body frameworks concerning what’s permissible.

 

5. Push back against always-on towards rediscovering mindfulness and focus

This is a strange suggestion for me to be making given that I’m writing primarily about tech. I think this is the year that many of the earliest adopters of tech will say, “Enough.” I see this in my own habits — and I've been online since the early 90s — but this isn’t (purely) a self-reflective prediction. It also comes from my observation of the behaviour and expressed desires of hipsters (I know, I know…), very busy and tech-savvy people, and other early adopters of new trends.

 

Ok, so that may strike you as anecdotal — but take a look at how often people have searched for the term "mindfulness" on Google. As a comparison, you can add other terms like “stress” or “meditation” that you might reasonably expect to be correlated with mindfulness. The growth in searches for "mindfulness" has been much greater (off a smaller base) than these other terms.

 

The implication? Perhaps users choosing not to use apps that incorporate infinite scroll and create a state of permanent distraction. Or more single-button apps, i.e., press a button, get what you want, move on. More prominence given to Do-Not-Disturb modes. More services, apps and OS features that actually help with focus and productivity rather than always-on and interruptions.

 

All of these will change the way we work, play, learn and live.

 

TL;DR

1. “IoT" is dead, long live IoT.

2. Fintech touching consumers more directly and in more ways

3. Rationalisation and specialisation of VC firms in Asia

4. Privacy and personal control renaissance

5. Push back against always-on towards rediscovering mindfulness and focus

6. “Evernoted” will never become a colloquialism ;-)

 

8 predictions for Asia’s startup scene in 2015

It’s that time of year when tech pundits everywhere emerge with prognoses for the year ahead. I’m jumping on the bandwagon too.

TL;DR

1. Early-stage valuations in India will continue to build towards a breaking point
2. Startup valuations in Singapore will continue rising unabated
3. Facebook will make its first big Asian acquisition
4. Google will continue to NOT make acquisitions in Asia
5. Sovereign investors will follow GIC’s and Temasek’s lead into funding late-stage tech firms
6. Large Chinese tech firms will invest outside their home market
7. Southeast Asia will see its first US$500 million tech startup exit
8. Japanese firms’ investment activity in Emerging Asia will remain steady

Let's get into the details.

1. Early-stage startup valuations in India will continue to build towards a breaking point.

India is currently seeing quite a bit of excitement in the early-stage funding scene. By “early-stage” I mean companies raising (much) less than US$5 million in financing in their last round. There are sound reasons for the excitement — accelerating growth in smartphone usage, positive developments on the government and policy front, increased availability of early-stage capital, and a lot else. Yet at the same time, it is fair to say that valuations may be getting a little ahead of themselves.

I think there is still some room for valuations to build further, driven mostly by capital chasing high-quality entrepreneurs in attractive market segments, a combination that still remains scarce today. That is the bull case.

The bear case is that valuations will over-shoot and the trend will break — and this is what I think will happen. All it will then take is for a couple of leading venture capitalists, who have a lot of available capital in comparison to the size of these small early-stage rounds, to take a breather. I anticipate that this will happen in the second half of the year. These bigger funds will then retreat to their original focus on growth-stage investments and leave the early-stage scene to specialists and smaller funds.

2. Startup valuations in Singapore will continue rising unabated.

Although Singapore is very small and hasn’t produced big successes on a consistent basis, government support in one form or another — grants, equity funding, smart promotion of Singapore to entrepreneurs and financiers outside Singapore, assisting Singapore-based firms with commercialization and internationalization, educational resources, and more — has resulted in Singapore punching well above its weight in terms of the number of early-stage ventures at the top of the funnel. Even more so than in India, early-stage startups in Singapore have lots of sources of capital to choose from (and not just from the government). This implies that any decent early-stage startup can raise initial rounds of funding on attractive terms.

There’s nothing to prevent more such startups being founded and many more will continue to be. However, it will remain true for the foreseeable future (not just in 2015) that the amount of early-stage capital available will easily dwarf the number of companies that can absorb that capital. This underpins my prediction.

Whether this story will eventually have a happy ending — and who will be its beneficiaries — is something to think about.

Note however that this is only about early-stage startups as I defined earlier. Among startups that are at series B and beyond, attractive companies will continue to raise money at appropriate valuations while others may find themselves plateauing or worse turning into zombies. At that stage, it is difficult to talk about valuations in broad-brush language.

3. Facebook will make its first big Asian acquisition.

Facebook has made many acquisitions in the US and a few elsewhere. In contrast, their deal activity in Asia has been subdued. In Emerging Asia (loosely defined as India plus Southeast Asia), Facebook has made only two acquisitions – an Indian startup called Little Eye Labs and Malaysian company Octazen.

This will change.

I think Facebook will make its first big acquisition in Emerging Asia in 2015, where I define “big” in this context as anything valued at over US$50 million.

My reasoning is straightforward. The two biggest countries in Emerging Asia are also two of Facebook’s most important markets: India and Indonesia. Facebook’s India userbase is set to surpass its US userbase in the near future. Indonesia is not far behind.

As to what Facebook might buy, I think it’s very unlikely Facebook will purchase a company purely to bulk up its userbase. Facebook’s traction is already so large and has such strong in-built network effects that it doesn’t make sense to do this. They bought Whatsapp not (only) because it had a large userbase — of which a big proportion is in India and Indonesia — but because it brought them exposure to a new, parallel area. The same is true of Instagram, Oculus Rift, Internet.org, Little Eye Labs, and so on.

So what might Facebook buy in Emerging Asia that operates in a parallel domain and warrants a good-sized cheque? Here we move away from prediction and towards speculation, but here are some ideas anyway:

• Technologies that enable Facebook to acquire, service, and retain new kinds of users – the types who don’t fit the profile of the typical Facebook user today. This is a stated mid and long-term ambition for Mark Zuckerberg (Internet.org being one manifestation of this goal) and Emerging Asia would be the ideal place to run a large-scale experiment that could be rolled out to the rest of the world if it succeeds.
• Companies that offer (access to) new kinds of content that Facebook doesn’t have familiarity with today. As an analogy: the biggest app stores in China aren’t Apple’s and Google’s official stores; they’re actually third-party marketplaces. People are trying the same thing in Indonesia and there’s no reason why the trend should stop with Indonesia. Facebook is already a platform in more ways than one and this could be a way for them to become an even more comprehensive cross-OS platform. It would have the added benefit of helping with user retention as they traded up from feature phones to smartphones or from low-end smartphones to higher-end devices.
• Infrastructure. As early as mid-2012, Facebook was far-sighted enough to invest in a submarine network cable in order to secure guaranteed capacity and the ability to better serve users in Emerging Asia. If I were them, I would look closely at doubling down on other similar bets.
• On the customer (B2B) side, smaller companies that have the distribution capability to sign up advertisers or tools to help those advertisers achieve their goals more easily.

4. Google will continue to not make acquisitions in Asia.

Google is perhaps the most global Silicon Valley company I can think of in terms of its userbase. Yet, most of its commercial focus has continued to remain the US and Europe. With the majority of its revenue still coming from its core search advertising business, Google doesn’t gain much by aggressively pursuing users, new technologies, or even advertisers in Emerging Asia. This isn’t to say that they will not grow their business organically in Emerging Asia; just that M&A dollars are far more easily justified in their home market. I’d love to be proven wrong with this prediction.

5. Sovereign investors will follow GIC’s and Temasek’s lead into funding late-stage tech firms.

Singapore’s two government-backed investment companies GIC and Temasek Holdings have raced ahead of their peers in terms of getting exposure to technology titans in the US, China, India and elsewhere, seemingly as a result of putting a formal programme in place rather than merely making opportunistic investments. Temasek-affiliated firms like Vertex Venture Holdings and Pavilion Capital have given Temasek further exposure to tomorrow’s potential titans. I don’t know of too many other sovereign investment firms that have done the same thing, barring the occasional one-off deal such as the Qatar Investment Authority’s recent investment in Uber. I think this will change this year, as other sovereign investors start to pursue large tech companies who continue to stay private well past the US$1 billion valuation mark.

6. Large Chinese tech firms will invest outside their home market.

Many Chinese tech companies are already quickly becoming household names outside China by virtue of organic expansion and some investment activity. We can expect investment and M&A activity by these large technology companies to substantially ramp up in 2015, and specifically in Emerging Asia and the US. The most active players will be ones like Alibaba, Tencent and Baidu, but several other less known players will also appear on the scene.

7. Southeast Asia will see its first US$500 million tech startup exit.

This is perhaps the one prediction I am least comfortable with. I am aware of Southeast Asian companies that have already reached this valuation level. What I am less sure of is whether they will achieve an exit this year.

8. Japanese firms’ investment activity in Emerging Asia will remain steady.

Over the past few years, Japanese investors have, for a variety of reasons — fall-out from Fukushima, contracting home market, desire to diversify away from China — looked at Emerging Asia as an attractive investment destination. Japanese firms generally make decisions in a careful and deliberate manner and thereafter tend to “stick with it” unless and until there are strong countervailing reasons to change course. Investments by Japanese firms in Vietnam, Indonesia, India and other countries in Emerging Asia have generally followed this pattern and I anticipate that this will continue in 2015.

The one exception to the steady-as-she-goes approach is SoftBank (of course), which has made big bang investments in Emerging Asia recently and is likely to follow these up with more such deals. A related investor is Visionnaire Ventures, a joint fund by Temasek Holdings and Taizo Son, brother of Softbank’s founder Masayoshi Son.

So there you have it.

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I focus in this post mostly on investment activity, not broader predictions about attractive new opportunities for startups and VCs because:

• such predictions are easier to evaluate within a defined period, and
• other trend predictions will either take longer than a year to play out or likely occur within a year but be so banal as to be meaningless.

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This piece first appeared on Tech in Asia. 

 

Why India shouldn’t worry (too much) about startups leaving for Singapore

Over the past few years, there’s been a trend of Indian startups moving to Singapore. To be sure, this is only true of a tiny minority of startups but the trend has become noticeable enough that Quartz felt compelled to write a piece titled How India Can Keep Startups from Moving to Singapore.

Find your own path

Now, there are several flavours of “moving” to Singapore:

1. Legal presence only
2. Some operational presence
3. Senior management based in Singapore
4. Majority of company’s employees based in Singapore

As mentioned, the number of Indian startups actually making a move to Singapore remains small. Of this already small number, ones that fall under the 4th category above are an even tinier minority.

Some notable startups, not only from India, who’ve moved to Singapore from elsewhere:

• Flipkart
• Bubbly
• Viki
• Capillary Technologies
• Plus a major VC firm now has roughly 40 of its Indian portfolio companies domiciled in Singapore. However, most of these fall under the 1st category named above, i.e., they only have a legal domicile in Singapore, with no real operations.

Is all of this a ‘problem’ for India? In aggregate, I think not. In fact, for some startups, maintaining a presence in Singapore may actually be a positive. Here are some benefits that looking outside India can bring Indian startups:

A broader regional perspective
In my several years looking at startup investments not just in India but also across SE Asia, Australia and the US, I’ve noticed that Indian startups sometimes get “sucked in” to solving only problems in their own backyards and don’t realise that other countries outside India may be just as attractive places to operate in.

Ease of achieving exits
We’ve started started to see good-sized exits coming out of India in the past few years. However, for a country of the size of India, the number of exits is still smaller than it should be and the exit valuations achieved could be higher, if not for the fact that the legal and financial environment for IPO and M&A exits in India could be more favourable.

Singapore (and some other places) in contrast is a good place to be based in when a startup has achieved exit velocity. Some startups plan ahead and domicile in Singapore from early in their development. As more and more exits start to happen, a virtuous cycle of innovation and entrepreneurship in India can get going.

Access to a different set of customers
Enterprise-focused startups have often related to me sorrowfully that the typical Indian enterprise doesn’t like buying from startups and even if they do decide to go the startup route, there is a tendency to bargain for extreme discounts and favourable payment terms. For B2C customers, this is less of an issue. However, both B2B and B2C startups can benefit by at least examining the different market dynamics present in other countries, even if they ultimately decide not to expand outside India. Singapore offers one particular benefit in that a lot of major multinational corporations base their Asia headquarters in Singapore.

Spreading risk
Abrupt policy changes, corruption scandals, hot-cold investor sentiment and several other factors beyond one’s control result in heartache for entrepreneurs. Being present in more than one country while certainly adding a layer of operational complexity may help reduce one’s overall risk.

Access to complementary talent
Again this is a consequence simply of looking outside one’s own backyard. Someone who would bring a lot of value to your team may not be able to move to Bangalore but might be quite happy to be based in Singapore or another city elsewhere.

Improving operational metrics
As a consequence of some of the above factors, operational metrics like margins, days receivable, pricing structure and so on can change quite dramatically from business-as-usual levels.

Each of the above can have a pretty major impact on a startup’s path of development.

However, simply because the above benefits are available to startups in Singapore doesn’t mean that India doesn’t have complementary benefits of its own. It really isn’t one versus another.

Some other perceived benefits may not actually be true. For instance, Indian entrepreneurs sometimes assume that Singapore’s status as a global financial centre means that it’s easier to raise startup funding in Singapore than in India. Arguably, this isn’t really true. India has a far greater number of active VC firms and other sources of startup capital.

So should India worry when startups migrate to other shores? Mostly, the answer is no. If anything, this is something to be encouraged as Indian startups start to forge regional and then global identities as they grow and mature.

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The piece Why India shouldn’t worry about startups leaving for Singapore first appeared on e27.

China’s online funds come under fresh fire

Snip: "Funds launched by the likes of Alibaba have been lambasted as parasites that are endangering China’s economic health by a prominent commentator, the latest salvo in a battle that pits new online funds against the traditional banking system they are shaking up. The war of words over the weekend is a sign of the growing controversy over the online investment funds, which were launched less than a year ago but have already upended traditional business models in China’s banking system."



More: http://ift.tt/1pgEAew

This is an auto-generated post from my reading list.

The modern phenomenon of nonsense jobs

Snip: "In 1930, John Maynard Keynes predicted that, by century's end, technology would have advanced sufficiently that countries like Britain or the United States would have achieved a 15-hour working week. There's every reason to believe he was right. In technological terms, we are quite capable of this."

More: http://ift.tt/14fyRyf

This is an auto-generated post from my reading list.

Urban design as a predictor of public health

Fascinating and so obvious when summarised thus:

If there is a park or some kind of store within a half mile of their home, school-age youth are more than twice as likely to walk. If destinations are farther, they wait for a parental chauffeur. Think of the implications: a community with one central mega-sports complex with several baseball diamonds and soccer fields can actually be bad for children’s health if it replaces small parks scattered every few blocks.

Combine this with the tendency for lifelong exercise and eating habits to be influenced in childhood, and it's clear what the implications are.

Worth reading the whole piece: "Why Cul-de-Sacs Are Bad for Your Health"

Why We Can’t See Inside Poultry Production, and What Might Change if We Could

Snip: "In the past months, there have been several troubling research reports, from different parts of the world, exploring aspects of the same problem: Multi-drug resistant bacteria are present in chicken, apparently because of the use of antibiotics in poultry production, and are passing to people who work with, prepare or eat chicken, at some risk to their health."

More: http://www.wired.com/wiredscience/2013/01/poultry-transparency/

This is an auto-generated post from my reading list.

It's not OK to kill cyclists

From the Economist:

Motorists in America generally receive no punishment whatsoever for crashing into or killing cyclists, even when the accident is transparently their fault. This insane lacuna in the justice system reflects extreme systemic prejudice by drivers against cyclists, and would be easy enough to fix. All that America would have to do would be to adopt traffic regulations like the ones in place in the Netherlands, where the number of cyclists is vastly higher than in America while the rate of fatalities per kilometre ridden is far lower.

And does the Dutch system result in gross injustice or even a major inconvenience to drivers?

The Dutch regulatory regime places an extra burden on drivers. That burden can be summed up as follows: before you turn, you have to check carefully in the mirror to see whether there's a cyclist there. That's it. When you are driving in the Netherlands, you have to be more careful than you would when driving in America.

This is what is known as a no-brainer.

via Cycling v cars: The American right-of-way