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How do investors go about deciding where to invest? Is it even possible to predict where the next big thing will emerge?
We asked Nikhil Kapur from Gree Ventures and Adrian Li from Convergence Ventures to give a few of their pointers.
Nikhil Kapur, principal at Gree Ventures
As pan-Asian investors, we have the luxury to see various themes play out in different markets and then apply some common patterns in Southeast Asia. If you look at Indonesia, for example, the startup ecosystem there follows the sectors and businesses that do well in India and China.
Regardless of whether a sector has done well in another market or not, we try to focus on big macro markets in the country. We then dig in deeper to understand the sector, find problems existing in the market, and then find solutions targeting these markets. Again, taking Indonesia as an example, it’s a big aquaculture hub with a lot of exports. We already mapped out all the large-scale problems in that sector and are now trying to find companies that will solve these problems.
When picking a sector to tackle, we look for those that are large and highly inefficient, contributes significantly to the development of the country, and hasn’t seen much technology adoption yet. For each geographical market, these sectors differ and, as a result, our sector focus varies for different markets.
Our fundamental belief is that every sector will eventually adopt tech; the only difference is in the business models and the right team to tackle each sector.
Using this methodology in India and Indonesia, we are currently focusing on agritech, healthtech, and logistics. In Singapore, we are focusing on global-scale companies with significant tech advantage that leverages existing corporate networks in the market.
Adrian Li, managing partner at Convergence Ventures
In “catch up” markets such as Indonesia, we look at the proven internet/technology models that have reached critical scale in countries like China and India. We then compare adoption and market readiness factors such as mobile penetration, GDP per capita, and the percentage of digital payment adoption.
We also analyze industry cycles and digital disruption. Industries like traditional media and retail tend to be earlier in the cycle, while education, medicine, and B2B/SaaS-type of propositions tend to be later in the cycle.
Is this even possible to predict? Not precisely. But in terms of sequencing, there are signals and factors to look for. For example, if 4G or broadband has not reached a critical level, then video on demand and live streaming would be necessarily limited due to total possible adoption rates.
In any case, it’s always important to pick the right founders who have the strong experience and market fit in the business they are building. Teams will, therefore, always matter more than market.
Presently, we continue to have a keen interest in fintech, ecommerce/marketplaces, and certain emerging B2B/SaaS plays all with an Indonesia focus.