SFF GREEN SHOOTS SERIES: THE INTERNATIONAL EXPANSION PLAYBOOK
June 8, 2020
On 4 June 2020, we partnered with the Milken Institute Asia Center to bring together Asia's tech titans and investors for a thoughtful conversation of how the pandemic has fundamentally changed international business, what companies are doing to accelerate the new normal, and what business models and technologies will shape economic and social interactions and financial inclusion in the future. Our speakers also discussed the current set of challenges around international expansion and the key considerations for expansion post-pandemic – focussing on key FinTech markets: India, China, Singapore and Hong Kong. A big thank you to our speakers: Jenny Lee (Managing Partner, GGV Capital), Simon Loong (Founder and Group CEO, WeLab), Sarbvir Singh (CEO, PolicyBazaar) and Dirk van Quaquebeke (Founding Managing Partner, BEENEXT) for the insightful panel discussion and inspiring green shoots stories! Some highlights from the session:
Q&A with Speakers
Question: Jenny, today’s topic is about international expansion, but that assumes that the aim of scale/growth is still on the table in the near term. What has been your view on margin vs scale and has that changed in some way, since unit economics of viable models may have altered significantly?
Response: Jenny Lee: Yes, I don’t think we will encourage international expansion for expansion sake. Right now, the focus of our discussion at board level is all about UE model, margin, and most important cash runway.
Question: Alternative lending is facing a big challenge in this economic downturn. With cheap credit from the various government financing schemes, how do you think this will affect the alternative lending market?
Response: Sarbvir Singh: Answering for India – the government is best positioned to manage the very bottom of the pyramid. Above that, they don’t have the resources and will find it difficult to service customers. I see that market remaining open to lending from private players. In fact, the revenue-cost equation is very hard for traditional players so technology led players have a great opportunity there. Post Covid, this will remain a huge opportunity for the alternate lenders who survive the crisis.
Question: Dirk and Jenny: How has your investment strategy changed following the COVID-19 crisis?
Response: Dirk van Quaquebeke: Short term inward looking, now outward looking again but smaller cheques first.
Response: Jenny Lee: Investment strategy has not changed. We continue to focus on innovative startups who can bring about changes with product, tech, or service innovation across all stages. How these startups have navigated the crisis is an additional DD data point for us. It does tell us how founders/ leaders react in these times of crisis and whether they have the right resilience to build a company through these uncertain times. We have seen in the last many cycles that after every downturn, there will always emerge great companies; examples like Alibaba and Tencent, etc. after the 2003 SARS.
Question: Jenny, great to have you back in Singapore. In view of the global market dislocation, how has GGV’s investment thesis and focus on verticals within South East Asia changed, if at all? Has FinTech allocation gone under- or over-weight? And how would GGV view B2C vs B2B in that context?
Response: Jenny Lee: thesis has not changed. We have continued to be active in the markets. We don’t have a specific allocation for FinTech but continued to be bullish about infrastructure level FinTech services especially for SEA. No change for B2C or B2B but certain sectors like EdTech, remote office software, cloud etc will be strong growth sectors.
Question: Dirk: which industry sectors would you invest in? Does emerging technology areas around Augmented and Virtual Reality be on radar for the future? Education?
Response: Dirk van Quaquebeke: Yes. We are industry agnostic. Ideally the founder tells me why now and why he/she has unique insights into the timing of the market.
Question: Would decoupling between US and China be ultimately materialised? If so, what would be the potential implications on the start ups, especially on the exit strategies of the investors?
Response: Jenny Lee: Decoupling is widely discussed but given the integrated manner between countries, IMHO will be a long time before it will materialize, if any. Startups need to plan for key redundancies. Understand this could happen and plan to ensure continuity. I am still positive on exit strategies. Markets are racing to offer alternatives in terms of listing venues (china STAR board as an example). In uncertain times, M&As also increase as a way for companies to come together to leverage each other or to grow in scale or grow competencies.
Question: Jenny, you talked about bringing offline businesses online and how you have seen those companies being affected. What are your suggestions for businesses that are currently counting on offering financial services based off of the free usage of the end businesses. How do you see them succeed?
Response: Jenny Lee: There is nothing wrong to provide free services if the free services are differentiated and can indeed acquire new users who will stay with you after the initial free trial or service. We would typically look at the LTV (life time value) of a user in addition to the first order economics or unit economics. It is of course important to ensure you have sufficient cash runway if free trial or usage is the only acquisition tool. I typically advise companies to work on other innovative methods to acquire users vs the “free” model if they can, especially in current environment.
Question: Sarbvir, could you share the top #1 trend you are seeing in the insurance sector now? How has PolicyBazaar pivoted to respond to the impact of COVID-19?
Response: Sarbvir Singh: We are seeing protection products - term and health insurance growing faster. We have a digital and tele sales model (largely working from home) but no physical presence.
Question: Sarbvir, do you have plans to digitise bigger part of your business such as your focus on call centres, where you would be moving more towards a fully digital broker or is the human touch element still key in India?
Response: Sarbvir Singh: We have a full stack digital offering starting from products, comparison, tele sales assistance and sales. So we are a digital broker and intend to stay that way.
Question: Sarbvir - Are you seeing more of B2B2C models for insurance using API based tieups, more than say the direct B2C as you currently have in India?
Response: Sarbvir Singh: We are seeing some B2B2C models but our preference is B2C in the long run. Whoever owns the customers, tends to get the value.
Question: As nationalism takes hold across the world, and the economic impact on the Middle class. What does the panel think will stop this downward spiral from taking hold?
Response: Dirk van Quaquebeke: Political leadership or obvious long term arbitrages, the margins for the global labour arbitrage is reducing. COVID will play majorly into safety of X (access your manufacturing of any good) etc.
Question: Jenny: considering the geopolitical issues between China, India, USA, for Chinese companies/unicorns who are considering international expansion, do you see SEA will become the major beneficiaries? If yes, which area/sector do u see Chinese companies are looking to expand into SEA.
Response: Jenny Lee: Yes, SEA, India, Europe etc will play a part. From a market expansion, SEA is a natural expansion region. This will have pros and cons. It will introduce more competitors (bad for competitors, good for consumers), may drive prices down, selection up.. etc.
Question: Dirk, you have mentioned a shift in a more flexible and remote workforce. While startups are re-thinking their expansion and growth plans, do you think that they are actually open implementing new ways of doing business? Do you believe that the change is only up to the startup or do you think the change also needs to happen on the side of the staff?
I am a business development executive myself and have been laid off by a German RegTech startup that is pulling out of Asia in the wake of Covid-19. While looking for my next challenge, I have changed my approach from “1 contract with 1 employer” to promoting the idea of “on demand” work. Do you believe that this could be a way moving forward at least until there is more clarity on when the economy will go back to “normal”?"
Response: Dirk van Quaquebeke: I think the BD as a service model is pretty well known in the USA. I think sitting in Germany/ speaking German should be a good USP - some of our companies may be willing to assess a success/retainer model for Germany.
Question: You all now have been working from home or remotely for some time. How has that gone for you and would you keep working from home post-pandemic? Has the WFH period catalyzed new insights for you or the businesses in which you invest (or not invest).
Response: Dirk van Quaquebeke: We are discussing 2 days office and 3 days from home forever at BEENEXT. It has proven quiet effective.