Q&A: Cambodia’s Startup Ecosystem, Investment Hotbeds, Historical Conflicts & Tech Predictions for the Next 10 Years - E279

Jeremy Au and Adriel Yong discussed Cambodia's startup ecosystem, highlighting its growth potential, challenges, and historical conflicts. They noted that despite the country's tumultuous history, Cambodia has a young and growing population, with a high percentage of tech-savvy youth who are increasingly interested in entrepreneurship. However, they also acknowledged that the ecosystem is still in its early stages, with limited access to funding and a lack of infrastructure and support services.

To address these challenges, both Jeremy and Adriel emphasized the importance of collaboration and community building, particularly between entrepreneurs and government officials. They also noted the potential for regional partnerships and the growing interest of foreign investors in the Cambodian market.

In terms of growth potential, they identified several promising sectors, including fintech, e-commerce, and agritech, and discussed the potential for Cambodia to become a hub for Southeast Asian startups. However, they also cautioned that progress will depend on continued political stability and the ability to address ongoing issues around corruption, bureaucracy, and infrastructure.

Overall, while Cambodia's startup ecosystem is still in its early stages, Jeremy and Adriel remain optimistic about its potential for growth and development, particularly with the support of local and international stakeholders.

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Jeremy Au: (01:41)

Hey, Adriel. Really excited to have our monthly listener Q&A. We've got quite an interesting range of conversations to have, actually. So I guess the first one we got was about Cambodia. What questions do we have?

Adriel Yong: (01:54)

Yeah, post-Cambodia trip, I think everyone's really excited to hear reflections on Phnom Penh's startup ecosystem, both from the founder's perspective and also from investors. What sectors people are looking at investing in? Who are the main investors there? So maybe you can start at that high level.

What do you personally see in terms of the sectors that founders were building and excited about, and where the economy's headed in the next couple of years?

Jeremy Au: (02:23)

Yeah. Cambodia was interesting because so many folks were actually surprised that we were traveling to Cambodia to speak at the conference and meet a startup ecosystem because it never really was in your mind. I think people are very focused on Singapore, Vietnam, Indonesia. And then of course, to some extent, the Philippines, Thailand, Malaysia, and Cambodia are one step out.

So what was interesting is that of course there are other folks in Southeast Asia. There's Brunai, there's Laos, there's Myanmar. So ASEAN is a very interesting range of geographies, and it was a surprise for folks.

For me, what was interesting at some level was just how energetic the country was. We went there and it felt like Southeast Asia. Obviously, the motorbikes, we almost got run down twice along the way, or while we were walking at night. We were walking by the river. You can see all the various bars. You can see the businesses. So I thought there were a lot of similarities where I felt very Southeast Asian and it didn't feel. weird or different or whatever it was.

It was just every other Southeast Asian city, in terms of the capital city. And I remember that the airport was surprisingly efficient in terms of the Visa, on arrival process, and you and I were just watching them go through, and I was just like, everyone was just flying through the process.

It was a quite serviceable airport that we could get to our destination. So, lots of different things that kind of stepped up to be like, it's surprisingly normal Southeast Asian country. And that's not good, that's not bad. It's just things are working, things are running, and people are flying in and out, and there's a bit of a gap because for a lot of folks, because of the pandemic, people don't really travel to Cambodia, because the history of Cambodia, the Khmer Rouge, and some of that turmoil associated with that. I think people look at it more as a tourist location rather than an economy that's looking to grow. That was my first impression.

The second impression I got was, of course, about the fundamental economics of the region, and what was interesting was at some level, you and I just pulled out the GDP per capita numbers just to be like, okay, where are we? How are we thinking about this? So, what's interesting of course is that, at the top you have Singapore, right? We have about 90,000 for GDP per capita, and then of course you have Thailand and Malaysia. So Malaysia is about 13,000. Thailand is about 8,000 per capita, USD.

And then after that, the next tranche you have is you have Indonesia, which is about 5,000. The Philippines is at about 4,000. And then, Cambodia is about 2000, right? This is similar to Laos, so there's a very interesting dynamic here where if you take a step back, it's okay, people are very excited about Indonesia's market and its 5,000 GDP per capita for 300 million folks.

And people are excited about Vietnam, which is also about 5,000, but of course a much smaller population. And then you have the Philippines, which is about 4,000, which folks are getting more upset about these days. And then, Cambodia is half that, of the Philippines. So it's an interesting way to think through at an objective level, the maturity of the various ecosystems, and the GDP per capita.

What was, it's so interesting to find out was, one-quarter of Cambodia's GDP per capita is attributed to textiles and export, so a very strong garment industry from Chinese capital and exporting globally, so it was an interesting, non-obvious objective number, but also, it's a good way to level set. And of course, we were in a capital city, of course, which is very different from the surrounding areas. But yeah, it was just interesting to see where the ecosystem was at.

Adriel Yong: (05:58)

At the start of our trip, we are discussing what's the objective. What do you want to learn? What do you want to find out over the next couple of days? So what sort of questions did you have in mind at the start of the trip? And what do you manage to answer? And what do you manage to not answer?

Jeremy Au: (06:14)

Yeah. That was actually quite a common question because a lot of local Cambodian folks were like, hey, what's your agenda? Are you looking to make deals? Why did you make a track here? And I was like it's not really a track, right? It was about a two-hour flight, door to door, maybe three to four hours.

It's not far, actually, and so that's one side. And also, it's curiosity. And the reality was that nobody has really thought of Cambodia as a startup ecosystem hotspot, and so when we got an invite from The Rising Giants podcast, so check out their podcast, Max Thornton kind of reached out and was like, hey, we have a conference.

The biggest feeling was curiosity, and that's why I asked you to say, hey, why don't you come along with me as well? Be my exploration buddy.

The truth is I've previously been there primarily as a tourist. Obviously, helping out a little bit, but also, obviously, visiting Angkor Wat as well as the Killing Fields, and the Khmer Rouge museums. So I was there very much as a tourist, but not very much looking at it from, older eyes, but also professional eyes to be seeing, like what is the future.

And I really wanted to meet people who had made Cambodia their home because they grew up there. And I thought it was interesting actually because there was actually quite a vibrant community, it felt like, and I'll share with you, Adriel, at the event, I was like, yeah, this conference feels like the same group of people we meet in Indonesia or Singapore, in terms of the startup conference vibes, right? You have the founders, you have the young students, you have the expats. So we felt similar-ish in terms of persona, and so there were about several groups that were interesting. There were, obviously, the expatriates who were very much made Cambodia, or I would say Thailand, as well as Vietnam, their home. And so Cambodia is part of their geography. So, it's interesting to see folks from Canada, Russia, the US, from Europe.

The second interesting category was folks who were, in some version, like sea turtle. They were a refugee, and then they had studied in Europe and grew up in Europe, like France, and then they had come back home, and maybe they're spending half the time in Cambodia and half the time outside, for example.

There were folks who had one parent who was Khmer and one parent who was an expatriate or someone else, and for them, there was a part of their exploration of their identity. There are other folks who were Khmer, but then they had studied somewhere else and now they're coming back.

So that was an interesting group who were like that nucleus, and then last year, obviously, what was most interesting to me was actually the local university students who were wanting to be founders, grew up in Cambodia, not much regional or global exposure, but it was just very interesting.

My reflection on that is just, so much of entrepreneurship is really from YouTube and the internet. We're just chatting with a bunch of them and they were like, oh, I want to be a founder because I watched it on YouTube, and then they hear the stories. I don't know, they're watching this TV series, but the concept of building technology, the resources they have on the internet, and actually English literacy was very high as well in Cambodia. That was also not a surprising fact. I think you and I were meeting, because of maybe the interface via the tourism sectors or the local population.

But that influence and that, we talk about it in a previous episode, which is some countries are landlocked so they don't have access to the ocean, so they can't access trade. If you're language-locked, that means you're not really speaking English, for example, or maybe Mandarin to some extent. Then, to some extent, you're locked away from the startup ecosystems, a wealth of substacks and information. So it's kind of interesting to see that ground-up hunger, and so that's where my curiosity was bringing me, when I was like talking to local folks about their personal stories, about why they wanted to stay in Cambodia, why they felt like they wanted to build a technology startup in Cambodia.

Adriel Yong: (09:55)

Yeah, the diversity of people that we met in Cambodia is definitely something that really struck me, from their strong Canada, Cambodia, like diaspora flows, Australia as well to some extent. There are also a bunch of people from Hong Kong, so it's just fascinating to just see the amalgamation of different cultures and nationalities just bubbling up in one conference hall that day, I didn't expect that many sea turtles frankly, when heading to Phnom Penh, but that's something that we saw a lot of, and that's also reflected in the founder profiles that we met, so one, obviously was building in the healthcare pharmaceutical space was very much inspired by Walgreens and what he saw in the US, for instance, and bring that sort of perspective and I guess experience in the pharmaceutical space back to Cambodia.

Jeremy Au: (10:45)

Yeah. That reminds me actually, now that you mention it, that talent and refugee flow actually reminds me a lot of the stories we hear on the podcast about the Vietnam War. Will Fan actually shares a similar journey about his family migrating, escaping to Australia, and then him eventually returning to Southeast Asia, even though he lost our family members along that journey. So he shares that in the previous podcast,

It reminds me actually, I mean, because Cambodia was quite seriously impacted in the same decade as the Vietnam War, in terms of the bombing campaigns, but also the later civil war with the Khmer Rouge, but then also the security state that came right before that, and then the Vietnamese invasion after that.

So I think there's an interesting decade that it's quite correlated, and I think I didn't appreciate it. I remember you and I were discussing it was like, oh wait, we always think about Southeast Asia in terms of the Vietnam War. We talk about it in terms of these major milestones of decolonization and so far, and then it was interesting to slot Cambodia's history in parallel with all these other states.

Adriel Yong: (11:47)

I do want to come back to that point about, what the main countries involved in Cambodia's development today. I think the Chinese and Vietnamese, obviously, big names that we have heard when we spoke to different founders in different industries and asked them, so who are your main competitors?

And strangely, it's not a local Cambodian company, but it's a large Vietnamese conglomerate or, a Chinese conglomerate, with their inflow of capital. I think we also met people in the startup space who were from mainland China and they relocated with a whole bunch of friends, and families, I think they are like communities, housing communities for Chinese people as well. So that migration from I guess up north, down to Cambodia is also very interesting there.

Jeremy Au: (12:31)

Yeah. We were very surprised to hear that the national security of Cambodia is either pro-China or pro-Vietnam, and actually, once they say it was like, not surprising as well because there's Cambodia, then there's Vietnam, and then there's China. China and Cambodia don't share a border, and so actually to some extent, it's a strategic defensive deterrent because Vietnam has invaded Cambodia in the past, not just once, but multiple times in the past.

And so China has been that offshore balance around Cambodia perspective. So it was very interesting from the national security side to be like, oh, there's a pro-Vietnam side business lobby, and then there's a pro-China offshore balancing dynamic, but then, you take a step back and you're like, yeah, it makes sense as well, historically, which is that there have been multiple ways of emigration from the Chinese country, during the, I was reading about how the Qing dynasty when they were like conquering south and then, there was taking over the Ming Dynasty and so forth. And then, people were just running south. They had the southern Ming, and after that, the southern Ming went south, into Vietnam and probably Cambodia and Laos today. And so it's a very interesting historical way of emigration.

Adriel Yong: (13:45)

That's interesting, right? How, those historical conflicts have trickled into the sort of economic development that we see in Cambodia today? The Chinese initiative One Belt, One Road, and Phnom Penh is, we'll have a new swanky international airport funded by the One Belt, One Road Initiative. I thought that was just super fascinating, both the design of the airport and just how it's been funded. And we could even expect Chinese capital to play a significant role in the growth of Cambodian startups over the next decade. That's really starting to happen when I see potential asset managers representing Chinese family officers, and LPs who want to diversify their assets into startups, whether it is Cambodian startups or Southeast Asian startups and they are parking some monies in Cambodia, actually, which is interesting as well for me.

Jeremy Au: (14:35)

Yeah, it was very interesting to hear, like you said, the flow of talent is one thing, then the flow of capital, and it all feels new to us now, but on a historical basis, this is not the last wave of emigration, it's not the first. It is like thousands of years of emigration. One interesting fact was that for the Cambodian startups, they felt like a lot of their competitors were Vietnamese startups that were very comfortable expanding to Cambodia, and I hadn't really heard about that, but it makes sense.

You're adjacent neighbors, it's clear transportation links and the kind of like social and economic dynamics are relatively similar in many ways. So I thought it was quite interesting, non-obvious when you're outside, but's super obvious once you're there. So it was a very interesting learning.

Adriel Yong: (15:22)

I think we did come across that over certain occasions where we have met AgriTech founders from Vietnam, thinking of expanding into Cambodia as a big market or, we've also met one AgriTech founder, which is covering both like Myanmar and Cambodia, then looking to expand the other way into Thailand, Vietnam afterward. So it does seem like the geography of four different countries is probably a natural expansion marker for one another.

Jeremy Au: (15:49)

Yeah, and what's interesting is that there is actually a capital difference in the markets. So Vietnam has actually a lot of capital formation for venture capital. So one of the big complaints for the Cambodians was that they can't raise as much capital as their Vietnamese counterparts, and to a lesser extent the Thai startups, which are somewhere in between. So there was an interesting component where the talent could be somewhat equally distributed, but the capital is not equally distributed in terms of capital deployment and allocation. So it actually changes the competitive dynamics of the competition of various startups that are in the same job, same vertical, but also potential competitors since there's geography.

Adriel Yong: (16:27)

Yeah, and just quickly on the point about capital markets, I do think it's true that we don't see as many regional or local VCs in Cambodia, but what I was quite surprised about was to see global impact investors, Korean impact investors, and even regional impact investors being quite active there. They're investing in startups, whether it's AgriTech, pharmaceuticals, healthcare, or education. So some local Cambodian founders shared that education and healthcare probably are the two, most hotter sectors right now in Cambodia to build for.

Jeremy Au: (17:00)

Yeah, the education sector in Cambodia has been relatively underinvested compared to next-door neighbors like Thailand and Vietnam. There's obviously a lot of opportunity for the private sector, and hopefully, the public sector invests more in the infrastructure and the teacher training and retention needed to do well.

Adriel Yong: (17:18)

Given that short three, four days trip in Cambodia and the numerous conversations we've had with founders, and investors across the ecosystem, what are your predictions for Cambodia over the next 5 to 10 years? Are you going to start investing in companies there? Are there you going to be unicorn outcomes in Cambodia? What sort of sectors can we expect to see will be very heavily invested in and heavily built?

Jeremy Au: (17:43)

The easiest thing to predict is that there's a succession underway for the political and therefore, the military and economic dynamics of Cambodia. So everyone's waiting for what the second generation leadership is going to do in terms of, they're well educated, they're clearly professionals, but it is a change in leadership. And so, it'll be interesting to see how that trickles down to the rest of the economy.

Nobody's bearish. I think everybody's bullish on that transition, but it'll be interesting to observe and watch. You and I were discussing that there are actually a lot of political transitions across Southeast Asia in this decade.

It's going to be interesting to see how that plays out, assuming the succession is smooth and it's business as usual with some like business reopening and further liberalization. My point of view is that over the next 10 years, the population will continue to educate themselves through parents, through their own osmosis via the internet, and through investments, we talked about it from outside, either from the public sector, in terms of like more grant or donation-oriented, but also teach for Cambodia as well as the private approaches. So that aspirational hope and hunger and entrepreneurial ambition will continue to grow. I think that feels like a thing that will naturally continue, and it's non-obvious to say, but I want to say that out loud.

That being said, I think capital formation will continue to be a challenge. Cambodia historically was on the blacklist for many financial institutions back during the days of the Golden Triangle and the drug routes and so, so forth. So, the ability to move money into Cambodia, as well as deploy data, and get that money out, continues to be a concern. So, capital formation will be, continue to be, have that hangover effect for some time.

So, I expect that there'll be more Cambodian founders over time, naturally servicing their own local markets, and they're going to increasingly continue to build companies, maybe register them in Singapore, in order to benefit from the legal standards that Singapore has. They will continue to tap capital from regional, impact, Thai, and Vietnam investors.

In terms of startup attractiveness, obviously, there are companies who are going to be servicing global needs and regional needs, so that can be built from anywhere, and if they happen to be built from Cambodia or power to them. There are also going to be startups that are servicing the domestic population, and there are 17 million. I think the tricky part is that for a lot of the startup economics out there, they're looking at a large market size and a large total addressable market in the billions, and so I think they're looking at Indonesia, with 300 million folks. They're looking at Vietnam with a hundred million folks. And then Cambodia is at 17 million, which is an order magnitude smaller.

So when you have a country with about 17 million, and of course, you add maybe Laos, which is another 8 million folks, there's going to be an interesting decision, and what I could potentially imagine is like two sets of startups that come out.

One is they could be, like you said earlier, a Thai or Vietnamese or Cambodian, a Laosian startup that is targeting those four combined markets, maybe like agriculture or some sort of commonality. Maybe it's like natural resources or logistics. So something that kind of like has that natural web. The second I can imagine is maybe some sort of deep playaway is just focusing on Cambodia, and maybe Laos, but very focused on multiple blades of monetization.

So you're just not doing this pharmaceuticals, for example, you're doing healthcare and you're doing shipping, and you're doing doctor training, multiple blades of monetization where nobody wants to really come into that space, but then you're able to build multiple revenue streams that build up a large enough market size for that size.

Lastly, it could be a company that is in Singapore or somewhere in the region and they're planning to expand to Cambodia as a target market. So that could be one way that Cambodia comes up as a geography for service or business expansion.

Yeah, as long as Cambodia continues to have the security and stability that allows the economy to continue growing, the economy will slowly improve.

At the end of the day, it reminds me of this phrase that another VC shared with me, and, what she said was, hey, maybe folks are overly optimistic in the next 10 years, but overly pessimistic over the next 50 years.That's a very good way to think about Southeast Asia as a whole, generally, and it resonated with me a lot. The VC outcome requirement that a company has reached a hundred million of revenue within 10 years is a very aggressive growth path, which works for some folks and obviously creates the economics for VC funds to exist.So for those that work, it works.

However, I just think to myself that there's so much opportunity to build in Cambodia. We actually met a whole bunch of expatriates, Filipino founders, and Singaporean founders in Cambodia who are just building schools, building local logistics, building local groceries, and building local cooking. This is a bunch of fundamental stuff that if you build, you can build a really good, solid business that makes money and creates jobs and pays for your family, and eventually, it can take you maybe 10, 20, 30, 40 years to become a very large company.

You know, what's the rush? From my perspective, Din Tai Fung, which is another episode that I've released, is a story about someone who built effectively a billion-dollar company. He only started building a company when he was 31. He pivoted in 45 to start doing dumplings and then, only became successful in his 60s. That's a great story. That's a great outcome, and he didn't take any VC dollars.I don't know. I love Din Tai Fung, my wife likes Din Tai Fung like it's a great restaurant chain.

What I'm trying to say here is If you look at it from my forecast as a VC, I'm not sure how many VC economic outcomes are really going to happen within the country of Cambodia, but it doesn't need to be, right? It could happen maybe 20 or 30 years of continued growth, education, fundamentals, and then it starts generating the entrepreneurs that kind of like access the global capital markets very easily, so maybe I'm using my Southeast Asian hat, which is hey, this is a long-run, future-building exercise. So for me, if a Cambodian founder talks to me, I'll happily have a conversation and see where there’s a fit. But just because I have an economic mandate that I need to fit the bracket, it doesn't mean that I'm not optimistic about the country as a whole.

So that's the awkward role tension that I go through. At the end of the day, it goes back to your first question. It's what questions we have, and for me it's I'm glad I got to meet lots of interesting, hungry folks who want to make the country better, and it makes me happy as a Southeast Asian that this is going to happen over the long term. And I don't need to create transactions within 10 years for me to feel like it was an inspiring and heartwarming and nice meeting to have, talking about the future, and I can only hope that the future gets better for Cambodia and for so many countries in Southeast Asia.

Adriel Yong: (24:48)

Yeah, that's been a great reflection session on our short trip to Cambodia. From, multiple perspectives, whether historical, the national security part, the trade links it has with Vietnam, Thailand, China, and some hopefully optimistic predictions we have over the next 5 to 10 years.

But overall, very excited about the energy that we felt in Phom Penh and can't wait to see what the founders we've met on that trip going to do over the next five to 10 years as well.