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  • Early-stage

Asia start-ups: Global reach

  • Tim Burroughs
  • 26 January 2019
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Asian start-ups are under increasing pressure to head off competition by pursuing global expansion agendas in their earliest stages of development. They must pay careful attention to social disparities

Being "global from day one" has become a familiar refrain in VC circles as start-ups offering services that are relevant to more than just their domestic market find that distance is no longer an insurmountable barrier to growth. But how soon should they make the leap?

Balderton Capital, an early-stage investor based in Europe, only backs companies with global ambitions and doesn’t like to see them put off expansion plans. “A lot of companies say they want to start in France and after that do Spain, Germany and the UK. The issue with that strategy is after five years you have done five European countries and you are nowhere in the US and in the meantime someone else has started in the US and it is very hard to win there,” Bernard Liautaud, a managing partner with the firm, told the AVCJ Hong Kong Forum last November.

As a result, Balderton pushes portfolio companies to enter the US as early as the Series B and it usually seeks a local partner as a co-investor in that round. Contentful, a Berlin-based developer of digital content management infrastructure, received Series A funding from Balderton and Point Nine Capital in late 2013. Three years later, Benchmark led a second round that was used to support the launch of a San Francisco office. Last month, Contentful closed its Series D with yet more US participation.

Start-ups in Asia have in the past shied away from such accelerated global expansion plans – if, indeed, they were ever on the agenda. This is now changing. Most Australian enterprise software players are targeting the US and Europe as a matter of course, leveraging cultural and linguistic affinities with those markets. Japan cannot draw upon the same innate advantages, but this didn’t stop C2C e-commerce platform Mercari and news aggregator SmartNews entering the US. Shinichi Takamiya, a partner with Global Capital Partners, believes other companies will follow suit.

For Japanese start-ups, overseas expansion can translate into a multi-billion-dollar valuation that wouldn’t otherwise be available. The dilemma is not so stark for their peers in China and India, which have large enough domestic audiences. Nevertheless, Southeast Asia has become a strategic priority for many Chinese entrepreneurs, while consumer-facing Indian players are also beginning to look overseas. “If you solve a problem in India and it is a value proposition, you can compete far more efficiently in most other markets,” observed T.C. Meenakshisundaram of Chiratae Ventures.

Oyo, an online platform that helps budget hotels market accommodation, did just that by growing its China business from zero to more than 80,000 in the space of eight months. Its reward was a jump in valuation from $900 million to around $5 billion between the Series D and E rounds. No other Indian start-up has achieved anything like this – and Oyo has been successful because it had the right business model at the right time, as well as a team with a local mindset.

Of the more obvious counterpoints, Chinese bike-sharing players Ofo and Mobike stand out. They pushed aggressively into international markets, including Europe, when their business models had yet to become viable at home and seemingly with little thought as to how their services might be tailored to suit clientele in each jurisdiction. Both have since encountered headwinds. As Amit Anand, founding partner of Jungle Ventures, put it: “You really have to understand the problem and the customer for whom you are solving the problem.” This is a very different thought process for a consumer-facing start-up as opposed to one that targets the enterprise market.

It is also easier to make the jump into geographies where there is some homogeneity. Jungle’s Southeast Asia and India investment thesis is underpinned by a belief that companies can target a particular socio-economic base across different jurisdictions rather than just one. Given the convergence of music, entertainment and fashion - factors that influence purchasing decisions - a 20-something consumer in Jakarta might not be that different from her equivalent in Bangkok or Mumbai.

“There are still operational complexities but more and more they are learning how to deal with it,” Anand added. “We have seen many companies in India that, after doing the first, second or third cities, realize they have solved a problem using technology and it doesn’t make sense for them to think about tier two, three and four where GDP per capita lags so far behind. It is better to go for Bangkok and Jakarta.”

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