How Southeast Asia’s VC scene stacks up to China’s VC scene

Some VC firms have a global presence. But startup investment tends to be a very local activity. Gobi Partners’ Kay-Mok Ku, Convergence Ventures’ Adrian Li and Golden Gate Ventures’ Jeffrey Paine talked about what it’s like to invest in Southeast Asia at the TechCrunch Beijing conference.

While these three firms don’t have the exact same geographic and investment focus, these three VC firms all recently raised new funds, proving that they’re bullish on Southeast Asia.

In many ways, Southeast Asia is following in China’s footsteps, but with a ten-year difference. “In Southeast Asia, it’s almost like going back in time,” Kay-Mok Ku said. “Over the last 10 years, there’s been a lot of growth in China. China is obviously a very big market today but it’s also hyper competitive.”

That’s why it makes sense to bet on Southeast Asia today if you think that the region is still in the middle of an incredible economic boom. “If you draw that very basic comparison between Indonesia and China in 2008, it looks like there are comparable opportunities,” Adrian Li confirmed. Some startups are even founded by Chinese founders who have moved to the region.

“We only have one Chinese LP in our fund. He’s saying Southeast Asia is extremely complex,” Jeffrey Paine said. “It’s fragmented, it’s about the quarter of the size of China. But it’s very easy to expand.”

Many Chinese companies are looking at Southeast Asia as an interesting market. Some of them are acquiring local startups, such as Alibaba. Others like Baidu are launching their own products in these markets.

“Baidu has had a fairly strong presence in Indonesia with a local team and a completely local product just for Indonesia,” Adrian Li said. “I think they recognize that there’s potential in these local markets.”

China is also a specific market with its own rules. Many Chinese companies choose to focus on China, and many startups in Southeast Asia choose not to enter the Chinese market.

“China is a very close market and local market today — Southeast Asia is actually much more open,” Kay-Mok Ku said.

Adrian Li also agreed, but with some limits. “There are much more compelling reasons for China to go to Southeast Asia than the other way round,” he said. “There are not that many Chinese companies that have reached a critical scale to expand across Southeast Asia. Given all the opportunities in China, making a different strategy to conquer Southeast Asia isn’t a top-of-mind concern for Chinese companies,” he also said later in the discussion.

When it comes to the current state of VC investment in Southeast Asia, it’s still quite hard to raise a Series B, C or D round, and the size of the average round is smaller. You can sometimes raise tens of millions of dollars for a seed round in China. It’s not possible in Southeast Asia.

“I think it’s also important to distinguish the size of the deals in China and in Southeast Asia. In Indonesia, Series A are between $1.5 million to $3 million,” Adrian Li said. “You get seed deals at a few hundred thousand dollars.”

According to Kay Mok Ku, the exit value is still too low as well. That could explain why it’s harder to raise late stage rounds. “In general, raising money is difficult,” Jeffrey Paine said.