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.


  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.

Social commerce in Asia

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.

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.

This piece first appeared on Tech in Asia.

The next big opportunities from the next Silicon Valley

That title isn’t clickbait: I’ll tell you upfront that I don’t believe that there is any such thing as the Next Silicon Valley. Apples to apples comparisons across regions are mostly meaningless. Now that that’s out of the way…

I was invited to speak on this topic at dmexco earlier this month, Europe’s largest digital media conference and expo, with 30,000 attendees. The discussion was moderated by Terry Kawaja of Luma Partners and my co-panelists were Marvin Liao of 500 Startups and Stefan Gross-Selbeck of BCG Digital Ventures. The conference organisers have produced a slick recording of the session here.

Although I don’t believe in notions like the Next Big Thing, I do strongly believe that there is globally unparalleled potential in what I term Emerging Asia.

South and South-East Asian countries are a few years behind Japan, Korea and China, and still have poor broadband coverage on the whole, low digital media spend, low incomes relative to the developed world, etc etc. Yet these same marketes contain in aggregate close to 2 billion of the world’s people. Their median age is a mere 26 and the fastest growing demographic is aged 15-24. The top 5% wealthiest people in India have the same aspirations and spending power as the average Western consumer — while also easily outweighing their Western compatriots in terms of sheer numbers.

People in Indonesia and Philippines are far and ahead the world’s leaders in terms of time spent per day looking at screens. Not US users, not Koreans, not even the Japanese come close.

Attitudes to entrepreneurship are changing and no one bats an eyelid at the idea of launching a company in Emerging Asia that targets Western businesses as clients.

The number of VC firms actively seeking to make Series A and B investments in Emerging Asia of between $1 million and $10 million (i.e., well below Silicon Valley norms) is less than 30, possibly less than 20.

Singapore, although small and far wealthier than its neighbours, sits right in the centre of all this activity and is a natural hub for start-ups to set up regional HQs, access financing and, at a later stage, become a venue for exits.

Finally, not all of this is mere potential: over the past 6 or 7 years, we have seen about a dozen technology companies hit the magic billion-dollar valuation mark.

Isn’t all this mind-boggling?

It’s clear that these markets are massively attractive though not without their risks and obstacles. We discuss some of this in the video.

Why do VCs hunt in packs?

Lots has been written about WhatsApp’s sale to Facebook back in February this year. Plenty has also been written about how this is perhaps one of the best returning investments ever made by a venture capital investor. After all, WhatsApp’s backers Sequoia Capital are estimated to have received proceeds of about $3.4 billion for an investment of about $60 million.

One point that has been remarked upon in a bit less detail is the fact that Sequoia was the sole VC to invest in WhatsApp. Rob Go of NextView Ventures seems to have been the first to talk about this at any great length. He wrote:

I can almost guarantee that if any other fund was an investor in this company, the cap table would look very different by the time they exited. Well done.

Very true. Well done indeed. (Not that Sequoia is waiting for the rest of the industry to pat them on the back.)

Pack hunting

Photo credit: Beau Considine

Rob explains why this sort of situation is very rare. In summary: it takes guts.

It also requires having a lot of dry powder, a VC partner who is willing to stick their head out without social proof, and the ability to convince a genuinely successful entrepreneur that they don’t need a different investor at the table in their next round of financing.

Dan Primack of Fortune asked whether Sequoia’s phenomenal success as the lone WhatsApp investor meant the death of social proof. Dan feels that social proof “deserves to be on the run” but also hints that it is unlikely to go away. Why? Because being the sole investor requires conviction.

CB Insights dug into their database to see how many other large VC-backed tech exits in the US had just one institutional investor and found that just 7 out of the 100 largest exits fell into this category. (I unfortunately don’t know which companies these 7 are.) Their conclusion? Leaning in requires conviction.

Conviction. Guts. Is that the #1 factor?

In the US, yes.

That’s probably because the US financial markets are the deepest and most sophisticated in the world. Not only do start-ups have access to the world’s largest and oldest venture capital industry, they also have access to other forms of financing, such as from wealthy individuals, the government, venture debt providers, banks, hedge funds and several other financial entities. All this makes the market incredibly competitive. A consequence of this is that consistently generating outsized returns is very hard. This implies that if a fund does have access to a high-return investment opportunity and they have strong conviction about it, they quite rationally should take a shot at being the sole investor. If they don’t, someone else in their highly competitive marketplace will happily jump in.

How does this play out in India and South-East Asia? Quite differently. (more…)

Live Q&A with Pune startups

We recently ran a live Q&A session with entrepreneurs from PuneStartups.org. We discussed several topics ranging from customer discovery, defining one’s value proposition, customer acquisition, fund-raising, pricing and others.

Our participants were Yash Rane, Nanda Ramaswamy of Let’s Practice, Sushil Chaudhari of Scandid, Anand Shah of Ignite Solutions and Rohan Khare of Yogurt Labs. Santosh Dawara of PuneStartups.org graciously coordinated everyone’s participation.

Please pardon the glitchy audio. This was our first time trying a live session and we had participants dialling in from several locations.

If you or anyone you know would like to participate in our next Q&A session, please tweet at us and we’ll keep you in the loop.

Subscribe to our YouTube channel to be notified when we upload more Q&A videos, interviews with successful entrepreneurs, discussions with senior executives from large companies, and lots more.

How transparent should start-ups be when pitching to a VC?

We were asked this a while back: “Have any startups seriously compromised their company by giving away their ideas/strategy in a VC pitch? Some say that VCs can use pitch meetings for market research and that you have to be careful when speaking with firms which have competitors in their portfolio.”

The question came up again recently and here’s what we said:

As VCs who’ve covered markets across India, South-East Asia, the US and even some other markets, we see a lot of investment opportunities every year and plenty of start-ups who simply approach us for counsel if not funding. If anything, we find that copycats and seemingly similar ideas are quite common.

So is there that much value to a VC to steal one firm’s idea? Not really. If all it took to achieve start-up nirvana was a great idea…

It’s really more about execution and a dose of luck. On the other hand, the effects on one’s reputation of stealing someone’s idea (or even being perceived to steal someone’s idea) are too great a risk for reputable firms. Ideas are a dime a dozen, so why bother stealing them and risking one’s reputation?

To the somewhat less urgent concern of VCs using pitches as market research exercises, we say: possibly, but so what? Wouldn’t this concern come up in customer meetings too? Whether a start-up pitches to a customer or a potential new recruit or an investor, people naturally want to know more. It is the pitcher’s responsibility to filter out useful meetings from the time-wasters. Or go one step further: ask the listener questions and treat the pitch as a research exercise of your own. We sometimes ask questions for which we already know the answer (or think we know!) so that we can understand the presenter’s thought process. Entrepreneurs can do this too.

If you're going to VC pitches disguised as Groucho Marx, you might be taking it too far...

If you’re considering wearing Groucho glasses to disguise yourself during VC pitches, you might be taking it a little too far…
[Image courtesy Gratisography]

Finally, do your homework. If you are concerned about potential rivals in the VC firm’s portfolio, first research the firm’s past deals before pitching to them. Sign an NDA if you’re paranoid. Don’t give anyone your source code. You’d do the same with a customer. A VC isn’t that different.

A quick postscript: in my personal experience, on the few occasions when someone has made a pitch to me similar to one of our existing investments, I have either said no straight off the bat or introduced the two companies/teams to see if they can collaborate or, rarely, pursued the new opportunity with the team’s full knowledge that we have another similar investment. Other VC firms may have different (not necessarily better or worse) portfolio management strategies, including deliberately making several investments in similar/overlapping areas of interest.

How do I value my early-stage start-up?

Your VCs at Unicorn answer a common question: how much is my start-up worth? This is a question we have often heard as advisors to early-stage companies.

The answer isn’t to use DCF analysis, which is better suited to valuing large companies with relatively predictable cash flows and discount rates. It is also not appropriate to apply the valuation ratios of publicly-listed companies, even those that operate in your sphere, to your fledgling start-up. Neither of these approaches will yield a fair or justifiable valuation for your company.

So what will? Watch this video to hear our thoughts on the subject.

CAUTION: valuation is a moot point if you don’t get the deal done and fund-raising isn’t the reason for your existence. Keep your focus laser-sharp on raising money quickly at a fair valuation and getting back to your day job of building your company.

As I have said in a previous article:

Don’t raise too much money too early and don’t push for too high a valuation at a very early stage. Leaving a little money on the table in the short term can help you build a long-term partnership with your earliest, most dedicated supporters and lead to a happy, productive relationship.

For one very important reason why NOT optimizing for a high valuation can sometimes be a good idea, see the end of this article.

Asia may have lagged the tech world in the past — but a different future is already here

I came across a puzzling assertion by Tech in Asia’s Anh-Minh Do a few months ago that “Asia still has at least 10 years before it leads the tech world“. More recently, the Wall Street Journal provided a mixed, mildly positive, assessment of Singapore’s technology start-up landscape — while illustrating its case with a photograph of web giant Google’s Singapore office, irony unintended. We are intimately familiar with unfulfilled past promises and the various obstacles faced by tech start-ups but are puzzled by the sense of relative despondency conveyed by these observers and some others.

So what do we think the future holds? We are extremely optimistic here at Unicorn. Minh listed several reasons for believing that Asia — and he seemed not to include China and developed Asia in this — will continue to lag other parts of the world in the tech world. Several of these reasons are backward-looking. Our view however is that one can’t see what’s coming up by looking in the rear-view mirror :-)

There are many constraints to overcome, consisting not only of problems such as logistics, payments and others highlighted by Minh, but also of relatively small amounts of capital available to start-ups, no long history of exits to point to, lack of sufficient risk-taking mindset and so on. However, progress is not linear. It never has been. There are lots of reasons for realistic optimism and when several of these come together, as we believe they have, unstoppable momentum builds and results can cascade in non-linear, almost step-function fashion. Here are some of those reasons: