Southeast Asia Tech:

2021 Predictions, VC Sentiment & Post-Pandemic Recovery By Verticals - E37

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"When we look at certain verticals, the question is: do we see some of that gas? Does it keep going? Or does it slow down? Or does it invert and not help this specific startup's approach to it? I think that's going to be that question, where people ask: are we oversaturated for A, B, C?" - Jeremy Au


In this episode, founders and VCs shared their predictions for Southeast Asia’s tech scene for 2021 such as what investor sentiment would be like as well as the startups to watch. If you are interested in joining us on our next episode of SEA Tech Clubhouse, sign up now at Nominations are limited and approved on a rolling basis. You can self-nominate or nominate someone who you think would fit the bill. You can find the episode's transcript in the podcast description. Let's dive right into it.

Jeremy Au: [00:01:16] If anybody would like to be part of this conversation panel, feel free to raise your hand and we'll just add you to the group for the panel. We're just having a conversation about some of the things that we've been seeing for 2021. And obviously, we'll see whether we get it right. I'm sure lots of people who made predictions for 2020 at the start of it got it wrong horribly. So, it's going to be an interesting experience for us to have those conversations. Just for everybody to know, this is on the record. That means that we're recording this, and we'll be sharing this via podcast later, because there's actually a huge, couple hundred people who are interested in learning more about it. Currently, Android as well, and wait-listed on the Southeast Asia Tech Club wait list. Again, if anybody wants to speak, just raise your hand and then we'll go from there, and I'll repeat this from time to time. Dev, do you want to say hi to everybody as well?

Dev: [00:02:10] Oh. I just wanted to say hi, everybody. This is my first Tech Club. I wanted to see what sort of topic you plan to cover, and I just had a question, but it may be premature at the moment.

Jeremy Au: [00:02:23] Awesome. That's good. Why don't you just tell us what the question is?

Dev: [00:02:26] Well, I'm looking at the macro environment, and I was in a few 500 Startups webinars last year. And I was thinking of what your opinion is on what the investor sentiment is for 2021.

Jeremy Au: [00:02:43] Yeah, happy to share quite a bit more about that. Anyone else out there who has questions feel free to just raise your hands and then we'll go from there. Okay, great. I think just prepared a few comments, but why don't we just jump straight to it? I think what we've been discussing, with a few folks, is I think investors are obviously taking a much higher point of view on the region. And actually, the way that people think about it is less about specific trends of Southeast Asia, but actually looking at the global, macro environment first. Then, the region. And then it's the different sectors, the verticals that you can look at it.

At a global level, I think what we're seeing is that growth is there, the fundamentals. The world will continue humming along. And with COVID being a crazy 2020, we still expect 2021, 2022, 2025, GDP will go up globally, even though there's a shock to 2020. There's still that high, long-term optimism. And some people may argue is misplaced. But the world's going to continue growing, and there's still going to be growth. And a lot of that growth is going to come from technology, right? Startups. But I think we saw that in pandemic too. As long as there is a disruption, incumbents lose, to some extent, but technology wins, to some extent. Obviously, a lot of technology startups fail because of cash position or positioning, but it doesn't mean that if you look at it, the fundamental values of the economic drivers globally has been tech.

I think tech startups, and investing into it, has proven to be, in some ways, a countercyclical investment. When everything went down, historically you would invest in consumer goods, because it was a defensive stock. But now, we're starting to see tech as a countercyclical for certain types of global shocks, like a pandemic. Or in the future, a zombie apocalypse. Then, everybody would definitely be home, ordering stuff. Instacart or things like that. And so I think that's the global side Dev you want to say something?

Dev: [00:04:51] I was only reminded to ask it because I saw the recent use about the tech insurance company called GoBear. They raised, I think, 97 million, and then they just announced either last week or this week that they have to shut down.

Jeremy Au: [00:05:05] I was talking primarily about the global aspect. If you look at the net value of investments, it's just saying that you look at aggregate tech in terms of revenues, in terms of what they're driving, they've definitely been able to grow over time. But of course, zooming in, I think obviously it's played out differently in different parts of the world. So, zooming in on Southeast Asia side and the vertical side. And so, I think Southeast Asia, obviously for 2021, still has those fundamental growth drivers. There's a recent Google and Temasek report still sees not only digitization continuing, but accelerating because of COVID, and expects the digital economy to even accelerate as well into 2025. And so, I think 2021 is going to be part of that trend of Southeast Asia continuing to grow e-commerce in terms of GMV, digitization, SMEs doing adoption, so on and so forth.

But zooming in, of course, those macros are veritable tailwinds for certain classes and verticals, and also certain types of companies and startups. Startups that were more well capitalized and have been preparing for 2020 to be a recession were busy raising cash in 2019. That's something operators were having a conversation in the US; was we need to raise cash in 2019 because we think 2020 is going to be a recession. And it obviously turned out way worse than anybody expected.


But also, I mean COVID was a unique one where it really impacted different types of verticals more. For example, if you look at say, GoBear, and looked at other categories like travel, for example, what's interesting is that firstly, obviously, travel globally was impacted because business travel tanked. No one's doing large conferences or events, and international travel has dropped due to border restrictions.

But we also see different sort of impacts across different geographies. We see Southeast Asia is very different from China and America, where travel domestically for China definitely has rebounded in a V-shaped recovery. And if you look at America, they've also seen a large rebound, for better, for worse, for the COVID dynamics there. But domestic tourism was strong enough, or Airbnb, to say we're seeing great opportunity in domestic tourism for America, but also for different, larger markets.

I think that this also impacted Southeast Asia more, because Southeast Asia's domestic tourism market is an order of magnitude smaller because of the different, fragmented into the ASEAN six and other geographies. Also, a large amount of travel came in from overseas from America, so on and so forth. I think we have to be quite careful to be like Top down is we don't want to be too aggressive about saying just because digitization has been powerful for people, because Southeast Asia's macro drivers means that every company will succeed, and startup will succeed? The answer is no. That's not true. But also, I think conversely, the opposite dynamic We also have to be mindful of that as well, which is we see companies failing or succeeding, and we can't generalize that too much to Southeast Asia tech as well.

I think we have to be mindful that again, the three things, there's the macro at the global and regional level. There's the sectoral component in terms of whether COVID is being hit with a tailwind. And then lastly, of course, is individual startup company performance, and how they are thought about a cash runaway, or what you're projecting. For example, you look at Skyscanner. The have gone through massive layoffs, closed multiple hubs, because they acted much more aggressively compared to other large tech travel incumbents in terms of best case/worst case scenario. But then again, Skyscanner's revenue is primarily based on travel, regional travel, travel across borders, versus other booking sites that are doing hotels or domestic tourism. And so, I think we just have to be mindful that there's a spread of outcomes.

And at the end of the day, the pandemic gives in terms of lifting some companies tremendously, in terms of revenue, adoption, digitization, and it also takes away. So, taken away some of the weaker players. And this happens for any recession. Doesn't necessarily have to be COVID. It's interesting. It's both a recession, but it's also a pandemic, which is much more unique compared to prior recessions as well.

Hiro: [00:09:10] Yeah. Just wanted to chime in on that. Thanks, Jeremy for having me in this group. I think a few things happening when it comes to what VCs are looking for investors in this region. Outside of GoBear, which just announced that they are closing down after raising, what? Close to 100 million. Last year, we saw two other companies this is public. Like, Stocko, which raised over 10 million. One of the investors was Lightspeed. Another company called Sociolla, I think over 20, 30 million raised. They shut down their operations as well.

What we saw, for example towards the end of 2019 with the WeWork debacle, on a company that's not being sustainable. I wouldn't say that companies in this region are reckless, but I would say VCs are now probably scrutinizing their business models, their unit economics, even more closer, eyeglass kind of angle to see, okay. If your business can be built to grow in a good time, then how can your business last during the bad times? I think investors generally will be a little bit more cautious, despite the macroeconomic factors that you mentioned, Jeremy, and the acceleration to digitize companies across the merchant markets.

Jeremy Au: [00:10:27] That's super true. Yeah. I just want to react to what Hiro said as well.

Hiro: [00:10:30] A quick intro of myself. I'm a VC tech founder. Have been in Singapore for eight years, nine years now. We looked at early-stage e-commerce at that level when I joined the VC firm in 2012. And then 2016, I started a fintech company. I've been doing that for about four or five years. And even for us, 2019, 2018 was a really good couple of years of us to really grow. We improved 20, 30% month-on-month. But even before COVID started, we made a conscious effort to switch our mindset and focus on revenue. I think that worked out in hindsight, because we were able to weather the storm and be a little bit more sustainable than splurging and burning cash for the sake of growth.

Jeremy Au: [00:11:17] Yeah. I think there's something that is really admirable, Hiro, I think it was very fashionable to bid scale and grab land/market share. And that kind of percolated at, there are some companies that were able to execute that well, but it became a little bit too overused at the medium and small startups, who honestly didn't have the capital advantage, or the fundraising dynamics needed to do that.

And of course, I think everybody would have, if you read the fine print on that strategy in the book, is saying, hey, we're not taking into account macro shocks or random stuff that happens that may break this operating and fundraising model. I think all the founders in 2019 were saying, we need to raise cash, we need to raise cash, because 2020. Conversely, a lot of investors were also saying, make sure to raise cash because we don't know what's happening. Dev, I think hopefully that answers your question a little bit about the different postures that startups can have in terms of how aggressive the fundraising cycle is. And it works at different parts of the macro cycle.

Dev: [00:12:14] Yeah, thank you.

Jeremy Au: [00:12:15] Do you have another question, Dev? I'm just quite curious.

Dev: [00:12:17] I think that answers it quite well. I think it was more or less along the lines that I agree, the macro element, the growth picture is there. But I think as Jeremy was saying, there's sectoral components to consider. And as Hiro was saying, we can expect more scrutiny from investors. And I think working at a startup at the moment. I think 2021 could be a pivotal year, because I think we raised towards the end of 2018, early 2019, and we are gearing up for another raise in 2021. I think it'll be interesting to see how it all plays out this year for us. Not really a question. And again, I didn't mean to put the topic on investor sentiment for this room, because I understand it's more like predictions for 2021. So, don't let me alter the theme here.

Jeremy Au: [00:13:09] I mean, I think that's exactly a good question. And from prior feedback, bottom-up answering questions has been more helpful. If anybody else here has questions, feel free to raise your hand and we're happy to invite you as a speaker, and then you can ask your question as well.


One thing to think about as well is, I think in the US, we also saw a bifurcation in the data between early stage versus later stage investing. Actually, during the pandemic, early-stage investing did not slow down in the US in terms of the data, because angels and seed investors were still looking for deals. They're still looking to deploy capital, there's dry powder, and they see an opportunity to do that. An idea that hadn't been considered before. Like, I saw so many angels and seed investors say something like, oh, we never thought about virtual events or virtual gifting, or virtual X as a category, even. It opened up investor point of view on what's interesting, but it also opened up the aperture for founders to start tackling new ideas as well. And therefore, later stage capital that's been much more cautious.

The caution happened because for later stage investors, they're normally investing based on data. And for so many companies even today, it takes a quarter for the results to show, for the company to react and surf the wave, or to change and adapt their business model to take advantage of the pandemic. It takes a quarter to execute, and maybe takes a quarter for it to show up as financial results. And as a result, that created caution in the later stage of the market, as investors waited to see how these new deals coming in, what the real data showed for that. And conversely, the cost to support their existing portfolio companies who are also trying to solve or adapt or evolve. And I think that's something that's going to happen in 2021, for certain sectors. Like some sectors, there's a bull and bear case for vaccinations. But at some point, in time, the world is going to get better around the COVID situation.

I think when we look at certain verticals, the question comes up is, do we see some of that gas? Does it keep going? Or does it slow down, but it still keeps going and it still helps the vertical? Or does it invert and not help this specific startup's approach to it? I think that's going to be that question, where people are like, oh, are we oversaturated for virtual meetings? Are we oversaturated for video calls? Are we oversaturated for A, B, C? I don't think it necessarily slows down the conversation around the deals, but it definitely causes people to ask that question and say, okay. This is the macro environment. How do we feel about it? But at the end of the day, every year it's another macro situation, if you think about it.

Dev: [00:15:42] I think you're right in the sense that it will become better in the future. From a personal and professional level, my question is more like timing. Because even, let's say, with the vaccines, there is a timeline, but no one's asking the question which is the elephant in the room. Mutations happen, vaccines fall behind the mutations. How long does it take for vaccines to catch up with the mutations, and what does that mean in terms of how it affects startups and so forth? Generally, how long is this affair? Some people are saying it's not a 2021 thing, it's probably a five-year affair.

Jeremy Au: [00:16:18] Dev, to answer your question, there's always uncertainty in the macro environment. But I think people have better grasp at it, especially at a macro level and even at a vertical level. I think maybe a helpful approach to think about it is the bull versus the bear case. And that at least create some bounded thing.

Let's talk about the bear case upfront. The bear case is COVID mutates, vaccines don't work. I think its kind of tricky, because if we actually look at the technology, the reason why the West went with mRNA vaccines was because in January, the mRNA vaccine was already ready. It's just that it had never been deployed as a vaccine before, right? And so, people were unsure about the safety. But what we do know is that if there's another mutation, the mRNA vaccine is not only going to be adapted within a month, but it can be deployed and produced in that same month as well. And there's going to be much more bottom-up support for emergency authorization and usage of the vaccine.

In other words, it took us a whole year to get through the clinical trials. And the clinical trials are not just for this COVID vaccine, but the specific category of vaccine called mRNA vaccines. In many ways, a pandemic like this is going to be less bad, because now countries have the vaccine strategy, at least in the West. And also has the containment and lockdown measures. Again, that's going to vary country to country. For countries like Singapore, or Vietnam, or Thailand, it's going to be like, okay. We're going to keep a policy like New Zealand of not letting other people in. And we're just going to keep growing our domestic market and be okay with it.

I think that's kind of the bear case, is actually an order of magnitude better than what it used to be. And people are going to continue working from home. Tech employees are going to continue working from home without disruption. They already have their computers or their home setups. VCs are now comfortable with meeting online, already, and moving to virtual mixers like this. I think that the bear case is actually a magnitude better than what it was for last year. I don't think we should over fit to that data.

Again, if I'm massively wrong for 2021 and the zombie apocalypse happens because of the classic news montage, right? Infection followed by rushed vaccine plus zombies. Then, we go from there. I think it feels like at least for that case, the mRNA is an order of magnitude better.

And of course, the bull case, very quickly, is the US vaccines are obviously fit for the West and have been short supply. But we don't need 100% immunity. Herd immunity is already achieved. And so, I think a lot of us are talking about when you hit 60%, 70%, reach herd immunity. But I think the truth is that there's actually incremental gains by if you hit 30%, 40%, there's still an order of magnitude better in terms of death, economic activity. The 30 or 40% that get immunized are going to go out, go to party, going to start traveling. That's going to start driving the growth and the snowball effect. And I think on the Southeast Asia side, you also see that the Chinese inactivated vaccine model, they're giving out a recipe to countries. And Southeast Asia is able, has tons of manufacturing capacity for vaccines using the inactivated vaccine model, which does not require cold storage, which is easily manufactured, it's very straightforward. I think there's actually a bull case where countries like Indonesia, India for example, that have this manufacturing capability, are able to not only get started, but just deliver a lot more. I think that's something to be mindful about. There's actually millions and millions of doses stockpiled. I think that's something to be mindful about.

I got to jump off to a lunch meeting, but just wanted to give my two cents on where I think 2021 is headed in terms of tech. There are two things. One, I feel that there's going to be consolidation. As you probably see, there's going to be good assets, good business models up and running. But they might be running out of cash because they need to raise capital. And we see guys like Grab, of course now that with the digital banking license they may want to add something complementary to their core service offerings. And then, who knows? The Grab, like the Gojek-Tokopedia merger might happen, and there might even be another digital bank in Indonesia, because Gojek just acquired a minority stake in the bank. I think we might see consolidation across different sectors, fintech, commerce and so forth. That's one thought that I had.

The other one is, yeah, as Jeremy mentioned. I think businesses, VCs, are now getting used to doing things differently. Perhaps one way to think about where the opportunity lies is, okay. There were the clear winners during COVID, Zoom, digital payments, e-commerce. How can we add on complementary services on top of those apps that will be nice for the users of those services to have? I think somebody was mentioning about a Zoom app kind of thing, kind of riding on that rocket to scale. I think this happened when PayPal partnered up with eBay. eBay was PayPal's rocket. If it wasn't for eBay, PayPal would have not scaled until this size. There's where I think the opportunities are going to be, coming to 2021.

Awesome. All right. Who else has a question? I'm happy to answer them.

Clifford: [00:21:22] It's Clifford here. One is a question, one is more like a discussion I thought would be cool to hear about from everyone else in the room. I think the first question was, in Southeast Asia, what particular industries are the VCs and the big boys looking at currently for Southeast Asia, for 2021? There's so much turmoil, understanding the macro environment is very different from the global VCs and the Southeast Asian VCs. And number two, I'm just wondering what everyone thought about all these big tech giants from China coming into Singapore, and coming and opening up the HQ here? What will be the short-term and probably mid-term effects in terms of hiring, and how much it will drive prices up in terms of raw talent? And how that will affect the view flows, and how much people raise?

Jeremy Au: [00:22:05] Hey Clifford, I can't answer to the first part, which is macro thesis. I work at Grab on the product side. But I can definitely answer to your second part of the question, which is what is the influence of these big, Chinese tech companies coming into Singapore and scooping up talent? I can speak to it from first-hand experience of what we're seeing at Grab. Grab is a pretty large company. Obviously, we're constantly hiring people. And what we're seeing is that there is huge demand right now for product managers, for engineers, for designers. And people from our own team are not only getting poached by the likes of ByteDance and Tencent, but even Facebook and Google.

Because not a lot of new EPs are moving across the world during a global pandemic. So you have less inflow of net, new tech talent to Singapore, with the increase of some very strong companies, ByteDance especially, that are poaching a lot of talent. Talent is very scarce in tech and engineering, and I only see that trend getting worse as time goes on. Maybe after the pandemic is over, there are going to be more people moving to Singapore, hopefully. That's my two cents on that.

Amar: [00:23:22] Amar here just a follow-up on that, is there a positive side to it as well from Singapore becoming a greater hub to attract engineering talent? Like in the past, there were a lot of regional offices, more business oriented, less engineering, R&D, tech oriented. But as this trend builds up, probably more talent gets attracted there.

Jeremy Au: [00:23:44] Yeah, definitely. I think what I always like to think about is the winners and the losers. This is a case for every situation. There's never a pure, everybody wins. There's no pure everybody loses situation. Yeah, I mean Chinese tech companies coming to Southeast Asia, in this case a lot of them are headquartering in Singapore. Obviously, it's a win for Southeast Asian consumers, because they have more optionality. Chinese companies are going to deploy services, and so on and so forth. It's obviously a win for Chinese companies who need a place to shelter the capital, and some employment decisions, and provide growth vertical because they don't feel like US is that source of new investment or growth. It's obviously a win for engineers, who are based in Singapore as well as engineers and product managers who are getting poached, because now their salaries are going to go up by 1.5X. It's a win for the Singapore government in this scenario, because obviously digital banks, and all these other things, it's going to help drive up wages, drive up taxes, drive up innovation.

But it's probably a loss for some people. It's a loss for DBS and incumbent banks, because before digital banks are launching, they're going to poach talent from the banks and from Grab and everyone else. It's a loss, probably a big chunk of their best performing engineers are going to walk out, once it launches proper. I think for the top incumbents, I don't really think it's a loss because you're always competing against top talent. I mean, Grab is always competing against Facebook, Google, for these global top talent. But I think all your middle chunk incumbents, whether engineers or whatever. You're an engineer at CapitaLand, you're an engineer anywhere, it's just going to be like, why not just take a shot at a shift to the tech industry, right? Because there's so much demand or retrain.

There's a whole bunch of winners and losers, obviously. Obviously, short term is going to be painful for a lot of employers. But over the medium and long term, I think it's going be obviously a net plus for Southeast Asia in many ways, yeah.

Thanks, yeah. I used to be at Standard Chartered, and I spent some time in Singapore before moving to Silicon Valley, here. And I saw that we at Standard Chartered had started losing some smart engineers even to the likes of Grab, and a few others. I think you're very right on that incumbent's feeling of the pain on talent.

Yeah. And I think what's also interesting is we're probably going to see the rise of regional, remote work offshoring as well, from Singapore. I mean historically, obviously the US were offshoring to Russia or to Europe or whatever it is, different parts of the States. And obviously, they're going regional as well in terms of remote work. But I think Singapore are starting to see the same dynamics, where every team is basically going to start saying, we need to think regionally in terms of talent search. And we've just got to find the best engineer, the best PM, wherever they are in Southeast Asia. And unfortunately, borders are closed, and EPs are difficult to get, along with every country's citizenry being pretty wary about international travel or immigration. So, we just got to get it started. We just go to hire them and get them started wherever they are. And that's good, because I think that means that Singapore is going to become a net generator of remote jobs for the region as well.

I think it'll be interesting. I mean in Vietnam, you already see so many people, tech talent, who are either working for a Vietnamese company, or a contract company working for an American company, or working for a regional company. I think that's pretty interesting.

Clifford: [00:27:01] But I think that comes back down to my first question, right? Knowing that all these, and its obviously just macroeconomic conditions, what do you think are the interesting bets, industries for Southeast Asia?

Jeremy Au: [00:27:11] Yeah, I mean feel free for others to share. I feel like there's nothing going to be very special or unique, because I think you go to any webinar with VCs, everyone's going to say the same things. It's like COVID, okay. Accelerated a ton of digitization of new users. What are they going to be doing? What are they going to be buying? What are they going to be using? Some of it is the consumers using it. Some of it is businesses adopting it. I think there's a lot of questions that are still being sorted out right now, with just different countries due their lockdown strategy or COVID strategy, has different impacts on digitization, and how to use those tools. Amar, you want to say something?

Amar: [00:27:46] Yeah. I mean, one thing that I notice, especially in Asia, there's a huge rise in the services revenues around use of or migration to cloud, new security tools. So, not just the product side of it, but the services side is also seeing a huge growth in revenue, especially around cloud and security.

Jeremy Au: [00:28:08] Yeah. I think definitely true. I think we've seen a lot of movement in B2B, and small-medium enterprise adoption of tools over the past year. And I think that's obviously shown up in the numbers, right? For what's hot in terms of deals. And that's probably still going to keep going. I mean, the whole definition of hot deals is being hot. It doesn't stop being hot suddenly for the next series round. And then when they do that, then there's a whole bunch of founders who are going to start saying, okay, maybe that's crowded, or maybe we'll double down on that.


But they might say, let's build that for new geographies. Not just Indonesia, but let's look at Philippines or Myanmar, depending on how much risk appetite they have in building at the frontier market, or how early they want to be. That’s one bet is probably diffusion of existing trends in the top markets like Singapore, Vietnam, Indonesia. Diffusion of that to different geographies, either through market expansion or through founders localizing it with different approach.

I think the second question, of course, is deeper thinking. If these things are true, let's just say, if we have accounting or books being done at the SME level, what new tools could potentially be built on top of that in the next five years? You can't do HR systems without payroll or accounting. If the fintech founders are doing their job well and they're helping them do payroll, helping them figure out their accounting stuff, then it makes it much easier to build an HR stack on top that's not just a directory or thing, but actually hooks deeply and makes the job easier for administrators. I think that's something to be thinking about in multiple levels.

One question I had was just out of interest, the story of Stripe as an API for online commerce. It's been going strong. And I've seen some countries, Stripe-like startups come up, trying to do the Stripe for that market. I don't think Stripe is big yet in Southeast Asia, but we haven't seen a local competitor, like a regional, API-based, online merchant commerce platform come out. I mean, I think Grab had GrabPay, but that's more in the wallet and that space, versus just your merchant payments. Is there a big market there or big opportunity that something's missing?

I'd love for Don to share his thoughts on this as well. I'll take a first crack at it real quick. The truth is, there's lots of people doing different types, different layers. I mean, finance is a huge set of flows, so I think obviously Stripe is coming in. And I think they have the benefit of scaling a ton of flow across borders, and they have the ability to spread that cost of regulatory compliance and UX and device adherence standards to UX across a massive base. I think the truth is, it's pretty much a juggernaut in the ways they find it.

Another way to think about it, though, is that there are still so many different types of layers still available. We see Xendit, for example, X-E-N-D-I-T. I think recently on my podcast, I just interviewed, it's coming through really soon. But engineer number one, he's going to talk about some of the dynamics there. But I think that's something that is just to be mindful about, is I think the [inaudible] is one. And two, I think we're going to see innovation at different layers of it. Don?

Don: [00:31:29] Jeremy, you make a very good point here. And I think this is why it doesn't work in Southeast Asia just yet, is Stripe has a lot of money. And it can outlast most any startup, in my opinion, who is trying to go cross-border, e-commerce, payment embedding. And actually, the ex-head of Southeast Asia for Stripe, I mean, she's a venture. She's a VC now. But they have a very, very strong presence. And I've been in Singapore and Southeast Asia for a while.

I think if you want to go with the whole embedded finance thesis around what is going to work in Southeast Asia, I'd actually look at Plaid as a really interesting and compelling company to sort of copycat elsewhere, especially in Southeast Asia.

And I say that because I actually spoke with one of the heads of Plaid's venture arm, and one thing that they literally outright said is they're terrible at international. And that they tried to go in multiple regions and have not been able to. And as a result, I think that's a huge opportunity that we see from YC where there is quite literally a Plaid for X region. And so, I do think that is going to be very pervasive in the next year or two in Southeast Asia. I forget the name of the company, but there are one or two companies trying to build the Plaid of Southeast Asia right now. And I think that's cool because I do think this whole open data initiative, what we've seen both in the US as well as Europe, there's a very clear playbook, in a way. Especially internationalization playbook.

Jeremy Au: [00:33:03] Can I ask a follow-up question on your Plaid comment? And the question is, do you have any insight on why it's hard for them to do international? I mean would you assume with their scale, it's a matter of resources and time, right?

Don: [00:33:16] This is pre-M&A. I think that a part of it was they just didn't have the right focus, or I think they thought really, this whole regulatory route was a lot harder than they expected. Mainly, one way you can think about it is they are still very much regional plays. And as a result, I think trying to look at Southeast Asia and say, let's build out the Plaid for Southeast Asia, and working out six, five different types of banks, standards, compliance. It probably made it really tricky. Post M&A, obviously I think they're just not on the roadmap at all anymore. But I know a very recurring investment piece is for YC, and I say this as an investor from a YC alumni fund, is that there is now a Plaid for the Middle East, there's Plaid for LatAm, there's Plaid for X. There is not a Plaid, though, for Europe, just because they've actually instilled this in the law. But other than that, though, I think that's going be a really cool one.

And then just to take it back really, really quick, is another trend I see in Southeast Asia and now slowly taking off here is this notion of embedded finance. And what I mean by that is how do you almost use existing software, such as accounting software like Xero or QuickBooks, or whatever it might be the soup du jour of Southeast Asia? And how do you use that as your back door to, for example, underwrite SMBs? I think banks in general are notorious at being not good at handling digital data. I think it's even trickier when banks are trying to handle SMB purchasing data or sales data. And I think companies like Spenmo will have a very good time and have a big opportunity to be that underwriter for these banks, but also still be that back office, financial software tools that SMEs can use pretty easily. And I'm not talking about the digitally native or digitally first companies. I'm talking about hopefully, maybe, it starts with more like, not ma and pa shops, but maybe restaurants that actually have a POS or something.

So, I'm really excited just because I do know that banks would love to partner with these sorts of startups, because it gives them additional data points to actually properly underwrite. And in a zero-interest world. Obviously, that's a little different in Southeast Asia, finding ways to earn additional yield or revenue.

Just a quick one to Don though. My question would be if the biggest group that is hurt from COVID would be the SMEs, can they really be a viable target group for digital businesses as a steady source of income during the pandemic?

Jeremy Au: [00:35:59] Yeah, sorry, just to jump in here. Don, after you react, then Ritesh is going to speak after that. Don, go first. Don.

Don: [00:36:06] Totally, yeah. I think so. One of the things that we talked about at YC and one of our investments this year is for these fintechs who want to address SMEs, I think that that's the right go-to-market. Instead of just saying, what's my edge? SMEs. I think they should be finding the edge of the wedge, whether that's nail salons or any sort of specific business that uses digital software. And I don't think Southeast Asia is in this Third World where no one uses it. I think you can even say yeah, there's at least 5,000 SMEs that use X, Y, Z software for finance or accounting. That's all you really need. And I think, frankly, why I think SMEs could, perhaps, be very interesting in Southeast Asia is that they're an emerging segment. And I think they're only going to grow more, very similar to how we saw startups grow in the US. The stack to start a business and a company is so, so much cheaper to do now versus even five years ago, let alone 10. I think it's a growing segment that should be pretty good for fintechs.

Ritesh: [00:37:11] Hey, guys. Ritesh, here. I'm at Grab, leading the payments for multiple payment integrations at Grab just the region. So, I think it's a very relevant question, why we don't have a single Stripe or Plaid in this part of the world. But one thing that we miss out on is the underlying infrastructure. Unlike the West, payment infrastructure here isn't very mature. If you look at Malaysia, if you look at Indonesia, Philippines separately, the infrastructure is very different. And adoption of cards isn't as high as what it is in Singapore. What my experience tells me, even I have worked in Grab, is that it takes a lot of time to build those local integration and set up that basic infrastructure.

One of my prediction is that in future, maybe end of this year or next year, we'll see some companies which are becoming regional players in this. Could be Xendit, could be Razer, could be Midtrans from Gojek, but it's going to happen at some point. And this lack of infrastructure is what, I guess, is causing a delay in having that local player in this market.

Jeremy Au: [00:38:12] That's a super fair point, Ritesh. Which is, I think people just underestimate that a lot of people are based in Singapore. Singapore is not Southeast Asia, and we've got to build the pipes. And whoever's going to invest in the real, humbling work of actually laying those pipes is also going to benefit a ton, but also create a lot of value for people who are going to build on top of that, that we take so for granted in the rest of the world.

I think, Dev, also I just want to address one quick point he had, which is I think you look at SMEs, and saying they have been lost in the past 2020. But I think one interesting thing is if you look to e-commerce, or you look at alot of small retail, actually there's an interesting bifurcation of the results for SMEs, which is that we see some SMEs doing very poorly, because they are not able to digitize or react. But we'll see some SMEs actually doing incredibly well, because they were either led by people who are more nimble, or you saw second or third generation SME owners digitize and move online.

And I think one thing why SMEs are always so interesting globally is that in many ways, if you try not to think about them on an individual level, but you look at them as a sectoral level, they are the fastest to innovate and find new models to adapt to whatever it is. In this case, a pandemic, but it could be a recession and things like that. And I think that's still going to be a huge driver of growth in terms of demand, in terms of consumption, in terms of wealth creation. I think the question is more like, it's going to get better, macro. It's going to get better at SME level. But we can't make individual bets on SME, but to say, how do you build a company that creates value as a layer and is patient enough to nurture that across different geographies?

Dev: [00:39:51] The other thing that should be considered here is we think of SMEs as an actual company of multiple people. But I think there is going to be this rising tide of single-person LLC equivalents, and how do freelancers really be a company of one? And I think that's going to be a pretty pervasive trend you see in the next year or two also.

Jeremy Au: [00:40:15] Wrapping up here in the last 10 minutes, any other questions that people have about predictions for 2021?

Diane: [00:40:20] Hi, Jeremy. Diane here. Thanks for having me. I'm a news editor based in Singapore, and my question is for everyone here, actually. Over the last year, apps like Calm, Headspace, BetterHelp and even astrology apps, these have obviously gotten a lot more attention. I'm just wondering what kind of technological trends are you seeing or predicting in the mental wellness space over 2021? Specifically, in Southeast Asia, because I'm not really seeing any newcomers in this space. Maybe Razer could have a go. That's my first question.

And my second question would be, in terms of innovating in the mental wellness space, do you think that there are entry barriers in Singapore specifically? Or is it a culture thing? I don't really see any companies stepping up.

Jeremy Au: [00:41:12] Yeah. I mean, I think I would give a crack at it, and then happy to hear everyone else's take on it. I think I'll be frank as a founder. I've definitely looked at the mental health space multiple times and I've actually built MVPs and things like that and testing there's two conversations that are happening. But I think the first conversation is, is there a need for mental wellness and health from a consumer side? That's one. And then two is, can it be a startup? Or should it be a startup? I think that's two different conversations.

I think the first part is yes, there is demand globally in the US and Asia. And I think obviously in Asia, it goes without saying, the stigma. I think it shows up in different ways. An American describes depression as actually shows up differently in Southeast Asia, actually in different geographies, urban versus rural. It's actually not described the same way. And poor mental wellness shows up in different ways. And there's interesting psychological literature and research around that. Of course, as the world globalizes, it's interesting that there's a convergence on mental issues, converging in terms of symptoms. But also, convergence in how treatment approaches and pedagogies, and how we intend to do that. And user/consumer acceptance that we can tackle that using that problem. For example, meditation or pills, or things like that. I think the truth is, there is increasing consumer demand, and its increasing convergence on the understanding of the problem. I think the second question you're asking obviously is, how is that approached from a tech perspective? That's one layer. Which, the answer is yes, I think there's a lot of opportunity to tackle that from a tech perspective. And I think we see that in the States, like therapy in person is painful. How to do in the pandemic. Really expensive. Focus on the cost of labor is factored in it, so prices it out of the reach of many people, quality, substandard. So, I think tech and innovation is going to be there. I think there's an opportunity.

And then the next layer of that question is whether that's a startup, and whether it's VC backable and so on and so forth. And I think that's something that we see two waves of that mental wellness. I think one about seven years ago, I think that's one wave. And I think more recently, there's another wave of mental wellness startups as well. The question is, if you're approaching this from an investor, that's one approach. But I think if you're approaching it from a, would I want to found something like this? Sure. I think there's demand. I think the question is how do you build that as a business that is open to different types of growth paths, whether it's a slow one or a faster one, a bootstrapped one or a VC-backed one. I think there are different approaches for you to be mindful about.

Diane: [00:43:44] I think I'm also thanks for your answer, by the way, what I'm really noticing that's standard now is more analog products. I think there are a lot of decks and also these anxiety tools, like stress balls and all that. I find that very interesting that this is the consumer approach in this region, as opposed to elsewhere.

Jeremy Au: [00:44:06] Well I mean I would definitely say that in the US, there's lots of products for mental wellness. I feel like maybe Southeast Asia is just catching up to it. I wouldn't say that it's a very novel approach. I mean, there's plenty of perfumes and stress balls in the US. Don?

Don: [00:44:20] I think it's just cultural. I think wellness is still seen as weakness in Asia in general. And this is obviously generalizing it, but I think that it's just this thing that is seen that can be overcome. And so perhaps the go-to-market you'll see for wellness is not going to be about overcoming depression or sadness. I think perhaps it's about coaching and education. How do you level yourself up? And so maybe those sorts of go-to-markets will really make wellness a far more topical thing for people to be interested in. Or, who knows? If you can convince parents that talking to your kids about X, Y, Z on a weekly basis, with an app or something. I think there is definitely a lot of consumer spend that would love to pay for those sorts of services.

Jeremy Au: [00:45:14] Don, I think you raised an incredible point there, which was that I think the embedding of that as well. I think a lot of founders are going to take that approach. I think not just in Asia, but also in multiple parts of the world and the US. I was reading this very interesting profile. But you know it talks about skills, retraining, unemployment, and obviously loss, education tech, or re-skilling schools, tackling that problem.

I can't remember which article it was, but I think they were just talking about how they were incorporating positive psychology and different tools in terms of their design principles, and how they were deploying the product in terms of the instruction. Because if a job seeker may come to an app, for example, looking for a new job. But in order for them to be successful, they may need to rethink their psychology or their stress, or improve how they interview, for example, and all that requires from the app side, a thoughtful thinking through the application and the language.

We tried to explain to a lot our friends, who are tackling the mental wellness space. Because they now have tacked it, or at least tried to. I think it's possible to tackle mental wellness from a therapeutic perspective, which is pills, therapy, and being directly, aggressively upfront and saying, our job is to help you when your pain is at 10 out of 10, or nine out of 10. We're going to dial you down to, well, if you're at 10 out of 10, you're probably all the way at medical services. But if your pain is at a seven or eight, we can dial you down to a six or a five for some apps.

There's a painkiller app. But there's also a lot of vitamin, psychology apps that are embedding their thoughts, where they're helping you dial down your anxiety from a four down to a two. And it helps, because for so many people who have mental wellness issues, they start out around a one or two, and it escalates because of bad employment situations. And goes from a two to a four, to a six to an eight, to a 10. So, people do care about mental wellness. I think everybody can play a role. All of us in this room can play a part in how we deal with people, how we embed products, things like that.

Yeah. I got a question for the VC folks here. I want to know if there is a change in mindset, if somebody's coming up with a mental health or related idea, are you guys more inclined and ready to take a high risk to fund them compared to 2019 or 2018?

Is this geographically bound? I guess it is, since we're in Southeast Asia.

I think it's a bit more de-risked from previous years. I just think that there may still take some time for it to be a standalone of wellness, as opposed to perhaps a DocDoc or whatever other more broadly healthcare apps, and incorporating it maybe as a feature for prevention, or preventative medicine. So, yeah. To answer your question, yes. I am more willing to take a risk now. I just think that there's so many cultural norms that you have to overcome. And I think that's just embedded culturally, and it's going to take a while.

Yeah. I mean, I think another way to say it as well is the macros are there, consumer adoption, consumer spend in the region, for example. At the end of the day, I think VCs are lagging signals, and the true leading signals are going to be founders who choose to build it. And if they can't build it in a way that's not only sound business-wise, but also shows startup economics.

Great. Well, thank you so much. That comes effectively to time. And for people who are interested, we'll be making this a regular weekly series, so this is something, there's an opportunity for people to hear more about and discuss as well.

This episode was produced by Adriel Yong.

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