Southeast Asia start-ups: Trials of leadership

Various Southeast Asian start-ups have taken extreme action as the COVID-19 pandemic ate into revenues and threatened business sustainability. Bobobox, an Indonesian capsule hotel operator, is one of the most colorful examples. Having decided to fill its empty beds by offering special rates to healthcare workers, the company leveraged its flexible real estate to place rooms next to hospitals.

“We said, ‘Why don’t we bring the rooms to the doctors so they can stay close to their patients?’” Indra Gunawan, a co-founder and CEO of Bobobox, told AVCJ earlier this year. “Our investors thought that was a win-win solution because we could help the community and at the same time, people get to know more about Bobobox.”

The company was in the middle of a difficult Series A fundraise, but it reached out to seed-stage backers about financing the installation of about 10 capsules at a local hospital. This led to an introduction to the Li Ka Shing Foundation, which paid for 100 capsules across several hospitals. Horizons Ventures – Li Ka-shing’s VC unit – then co-led the Series A with Alpha JWC Ventures.

A start-up’s response to COVID-19 says a lot about the strength of its founder and management team. “Whether it’s a good time or a bad time, good founders still execute,” observed Wilson Cuaca, co-founder and managing partner of East Ventures, speaking at a recent ASEAN forum hosted by China Renaissance and EDBI. “How a company can survive through this crisis is not about external factors alone, but how the founders and management teams respond to the crisis.”

Adapt or die?

Cuaca pointed to several case studies in discipline and resilience from the East Ventures portfolio. Traveloka, Indonesia’s leading hotel and flight booking platform, saw its revenue plummet to zero in March and April. The company responded with significant but not suffocating cutbacks. Following a revival in certain markets in recent months, Traveloka is on course to reach 50% of pre-COVID-19 levels by December, at which point it will be breaking even. It expects to be profitable in 2021.

Traveloka closed a $250 million funding round in July. Sociolla, an Indonesian e-commerce platform focused on beauty and personal care products, raised a $58 million Series E the same month, despite putting its offline retail rollout on hold. The company – operating under a work-from-home policy – responded by opening 21 distribution centers nationwide and launching its website into Vietnam.

“We are doing many things we never thought we could do from home,” said Christopher Madiam, co-founder and president of Sociolla. “We have been fundraising from home – all the due diligence is done from home. We expanded into 21 cities across Indonesia, all coordinated from home. I could never have imagined it happening before this year. We even expanded into another country in Southeast Asia, doing it remotely, without being able to visit that country at all.”

For many start-ups, the shift to digital platforms because of COVID-19 is driving demand, though the experience has varied across different segments in accordance with lockdown measures. At the same time, user acquisition costs might fall as consumers need less encouragement to move online and the necessary pursuit of efficiencies could lead to improved margins. However, preparing for the worst – and the measures that come with it – tests a founder’s ability to rally the workforce.

“Communication is important, how you manage your stakeholders in this uncertain period. People panic. Your investors, your employees who don’t know what is going on and what will happen to them. You must discuss your expectations, your plan, your plan B if plan A doesn’t work,” said Chris Ning, a director at Tencent Investments. “That gets more and more important, making sure people are aligned and supportive.”

Communication is harder when it must be done remotely. Tokopedia, Indonesia’s largest e-commerce marketplace, compensates through over-communication, with daily meetings and longer preparation and audit sessions at the beginning and end of each week. As much of this as possible is done by video. “It has helped a lot, making sure we are synched and coordinated,” said Patrick Cao, the company’s president. “Without that, things just fall through the cracks.”

Son Tran, founder and CEO of Vietnam e-commerce player Tiki, added that remote working has made the team more autonomous and less top-down driven. He estimates that the company has been three times more innovative in the last 12 months than in the preceding 12 months. However, this is contingent on everyone grasping the big picture. Tiki livestreams company-wide meetings, encouraging everyone from vice presidents to delivery staff to participate.

Shared experience

Just as COVID-19 is asking new and difficult questions of founders, venture capital investors must ensure their value creation capabilities adapt to changing conditions.

Asked how his firm differentiates itself from the competition, Abheek Anand, a Southeast Asia-based managing director with Sequoia Capital India, highlighted investment in portfolio services. In recent months, Sequoia has hired the former CTO of Gojek as an operating partner to work with companies in Southeast Asia that often lack bench strength in engineering. The firm has also recruited a head of public policy who sits in India and oversees engagement with regulators and governments.

Equally significant is the launch of a program aimed at fostering exchanges among Southeast Asia and India-based growth-stage companies in the Sequoia portfolio. Known as The Guild, it brings together small groups of founders for regular meetings over a six-month period to discuss best practices in company building.

“Entrepreneurship is a very lonely journey,” said Anand. “It turns out it gets lonelier the more successful you become. In some ways, when founders are early on in their life they have a lot of people to lean on but when you have founders running companies with hundreds of employees and very high visibility they do not have as many closed relationships with people that they can have deeply personal and important conversations.”

Such initiatives are especially important given many founders in Southeast Asia are in their mid-20s and have never experienced a crisis before, let alone one as disruptive and unpredictable as COVID-19. Investors can offer counsel, but ultimately founders must grasp the gravity of the situation and fashion a swift response. As East’s Cuaca emphasizes, it requires a lot of self-awareness.

“At this point everyone knows it’s a crisis, and those who acted decisively at the beginning of the crisis, right now they are getting benefits out of it,” Cuaca said. “Why? If you do something drastic at the beginning of the crisis, the mentality and morale of your existing team members can recover. Whether there is a second downturn or not, everyone is well prepared. These are key factors when we decide to double down on some start-ups.”

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• Topics
• Southeast Asia
• Technology
• Early-stage
• Indonesia
• Vietnam
• China Renaissance
• EDBI
• East Ventures
• Sequoia Capital
• Tencent