ExtraVallis Expert Interview: Southeast Asia with Lilyana Abdul Latiff of BETA Foundation
Key Takeaways:
The current state of Southeast Asia startup ecosystem, advice from a female ecosystem builder to Western angel investors and the reason why now is the time to invest in Southeast Asia startups
How the funding ecosystem in Southeast Asia looks like under the impact of SoftBank and COVID 19
The difference between Asian and American/European investors; why Asian investors are too cautious, how that affects the startup funding scene in Southeast Asia, and, changes that the ecosystem builders wish to see
The idea of the perfect deal between an angel or family office and a startup in Southeast Asia
Edited Transcription (edited for readability):
Interviewee: Ms, Lilyana Abdul Latiff, CEO and Co-Founder at The BETA Foundation, based in Kuala Lumpur, Malaysia. The mandate of the foundation is to build a vibrant and high impact tech/ startup business ecosystem and community across Asia Pac – which includes startup founders, corporates, ecosystem communities, investors and funds, mentors, and policy makers.
Interviewer: Mr. Aaron Everhart, Head of Asia Territory and CMO of ExtraVallis. Aaron is also the founder of HATCH! Ventures, a startup ecosystem builder in Southeast Asia and local implementer of GIST activities in Ho Chi Minh City, Danang, and Hanoi, Vietnam.
Aaron & Lilyana: Opening remarks
Aaron, host: It would be good If you just give a quick elevator story on the Beta Foundation at the head interview, and then we can get into the first question: what is the state of Southeast Asia in terms of startup ecosystems in general and on their funding in particular?
Lilyana: Career wise, I've been in tech most of my life. I studied Computer Science in Iowa and graduated, came back and that was the beginning of the multimedia super corridor program and policy in Malaysia, which basically turned our little country from manufacturing to a more information based country. I was helping the government to roll out digitization programs. And all my life had been surrounding that.
In 2016, I was asked to lead a tech foundation in Malaysia funded by the government called New Entrepreneurs Foundation. We started this program called the ASEAN Rice Bowl Startup Awards. And the awards was, you know, an excuse to have a party. But on the other hand, it was really a great way to connect with all the other startups across Southeast Asia. Every year, we had about 2000 to 3000 submissions, we went through each and every one of them and we got to connect with most of them. That's how we learnt what the startup ecosystem was like not just in Malaysia and Singapore but also in Indonesia and Vietnam and see how things were growing at different stages.
I left the New Entrepreneurs Foundation early 2019 and started out my own private foundation called BETA Foundation, which stands for Business Ecosystems for Technopreneurship Advancement. The idea behind the foundation is to help both startups and SMEs across Southeast Asia to truly understand digital.
For the startups, we help founders at their ideation stage, at their funding stage, at their software development stage. So we come in, we partner them with the right experts for those subject matters, and they grow their business.
On the other side, which is the demand side, we work with SMEs to actually make them more familiar with digital and how digital can benefit their organization and their business. So we moved on, we started to work with not only SMEs but also large corporations like PETRONAS. So we recently helped one startup, a B2B supply chain, to get a long term contract with PETRONAS so that they become the procurement platform for the Maintenance, Repairs and Operations, they call it MRO inventories. So they are doing purchasing on that platform now. That was a big deal because it's not easy to get into these multinationals. So that's what BETA Foundation does.
If you're an investor from the US, you should see Asia as a very big chunk. Asia is made out of China and India. But Southeast Asia, that block is collectively known as ASEAN, made out of 10 countries: Malaysia, Singapore, Indonesia, Thailand, Philippines, Vietnam, Cambodia, Laos, Myanmar and Brunei. And they're all at very different stages of the general economy, the most advanced being Singapore and Malaysia and Thailand. And then very close behind them would probably be Indonesia. And I would say Indonesia already surpassed Malaysia in terms of GDP and they would probably surpass Malaysia in terms of technology and in terms of maybe getting more people into the middle income stage within the next three to five years. Indonesia is a very interesting market for a lot of those who want to invest in startups. And then comes all the other countries.
Why I say these four countries are a bit more advanced in terms of startup ecosystem simply because they've got government backing behind them: very strong government policy to cultivate and to grow startups as well as the funding ecosystems behind. If you go to Singapore, you will find that it's a very cohesive ecosystem. It looks a lot like the Silicon Valley, so you could have your ideation stage. Everybody will know all those terms, ideation, growth, maturity, going IPO, the path is very clear. If you're very focused as a startup, you are able to grow your market across Southeast Asia. Funding shouldn't be a problem.
Malaysia is a bit more interesting. Our ecosystem actually lacks funding from the government and private sector, but it's not as bad as some other parts of Southeast Asia. We do have a pretty strong Angel ecosystem in Malaysia. We have licensed Equity Crowdfunding Platforms, which makes it less risky for a lot of angel funders to come on board. Because these platforms are licensed by the Malaysian Securities Commission. So they are allowed to manage the sale of equity into the startups on these platforms. And then, in terms of private funding, say, VCs and PEs. Most of the time, a lot of VCs come in with some backing from the government, kind of a matching grant that goes to the VC and the VC does a lot of funding. And then there's also a very active Private Equity market. But these are usually government linked companies who have very deep pockets and they want to diversify their portfolio. In Thailand and the Philippines, it's all about family money. So if you have access to family offices and you've got a good idea you can also, as a start up, approach these family offices and then go from there.
In terms of ecosystem, if an American investor comes in and sees Southeast Asia, “Where should I start? Why should I invest in Southeast Asia?”. Well, Southeast Asia is the growth market for the eastern world, right? It's very hard to invest in China and in China, they've got so much money that most of their startups get funded by Alibaba or whatever. So it's not sexy for investors to come in and invest in China, unless you really got deep pockets. Even Indian investors are coming into Southeast Asia and they're coming through Singapore and Malaysia and setting up offices over here to invest.
Southeast Asia is very interesting because on one hand, you've got a developed country like Singapore. On the other hand, you've got poorer nations like Laos and Myanmar. But all of them, if you look at the makeup, they're very digital, they've got digital access. In some countries like Thailand, they even have two and a half mobile phones per person. So if you're doing a digital startup, a lot of people are actually very connected to the internet through mobile phones. So there are a lot of opportunities.
And a lot of the SMEs and corporations are not very digital. So there's a lot of room to move into the B2B space. Everything in B2B space from Accounting Software to Website Management or E-Commerce Management, or Logistics and Supply Chain Operations Management. There's a lot of room for a lot more software and IoTs. So there's a lot of room for new startups to grow and grow across Southeast Asia.
As a note of advice to some American angel investors, it's fair to note that if you go into Southeast Asia, we don't speak one single language. There are 20, 30 or maybe 40 different languages. If you go to Singapore, English is the medium of interaction in business. In Malaysia, although we use Malay, most people can speak English. So you can sell stuff, you can invest in software that has the major interface in English too. Indonesia is different. You really need to be able to have Indonesian language as the medium of interaction. Thailand is the same, they don't speak English as much. If you're going to invest in a lot of these startups, you have to know the nuances. And you have to come to people who know the ecosystem to be able to advise you whether the startup is going to grow or not, what the unfair advantage behind it is. A lot of the time, the strategy about going to market within their country and how fast they get out of the country to go cross border. It's an important factor to look into whether that startup is worthy of investment. So that's a nutshell.
Aaron: Awesome. That's wonderful. What would you say would be your greatest fear about startup investment today in Southeast Asia? You touched on some of the issues, but which would be the top issue?
Lilyana: Two things have influenced the funding ecosystem in Southeast Asia. One was the scare of SoftBank. After all of the promise of big money and when we saw SoftBank investments in Uber, and in WeWork, there was a lot of hope for startups that they're going to get big-ticket funding. And then the whole crash happened. Because of that, because the ripple effect to a lot of other VCs, who are now a lot more cautious about the types of startups that they are willing to fund. So there's a bit of a crunch after what had happened.
And then there is COVID. Because of COVID, actually, some digital companies got a lot of new markets as everybody suddenly wanted to go digital. But you also find that funders are a lot more cautious because they probably have businesses they now need to save. So if you've got some extra money before, maybe you're not so sure whether you should be spending it on a risky startup. So the worry for a lot of Southeast Asian startups is that there's not enough funds to go around. And even governments are pulling back because they are transferring millions and hundreds and millions of dollars from grants for startup funding into frontline needs to fight off COVID and to fund people who have lost their jobs and all that.
We're bracing ourselves across Southeast Asia. But, on the other hand, people get a lot more creative and a lot more innovative and they start thinking harder about the kind of business that they should be creating. So this brave new world that we're in, where it's going to be very difficult to fly around. It used to be very cheap to fly around Southeast Asia but not anymore. So that's going to be very disruptive for people who want to expand their business overseas. So they're gonna have to rethink what kind of new companies that are going to be created. How are we going to capture markets not only within their own country but also to go cross border.
I used to have a benchmark in Beta Foundation: Most good startups, in Malaysia at least, have to be able to start selling cross border in two years, to Singapore, Thailand, Indonesia, their neighbors. So that's a sign of a good startup. I may have to change that benchmark now and expect a slightly longer runway for people to go cross border.
So, in Southeast Asia, people are really worried about funding, now that there is definitely less government funding. And how are we supposed to attract private funding?
Aaron: If the regional ecosystem has some fear and trepidation. Do you think that presents an opportunity for investors outside to invest locally if they had the right mechanism, platform or partner?
Lilyana: Definitely. One of the general complaints from startups across Southeast Asia is that Asian investors are usually very cautious or too cautious. And because they don't understand technology very much, they've got money from industries like oil & gas and manufacturing. But in terms of investing into a tech startup, they don't understand the metrics or what makes a startup grow. So a lot of investors, especially angel investors across Southeast Asia are super cautious. And number two, they may be asking the wrong questions when it comes to investing in a tech startup, they're not very educated in the matrices that matter. And they're more risk cautious, as opposed to those from American or European VCs, they asked for metrics that matter. They're more mature in terms of their funding experience. They take a lot of risk and they know what to ask.
If an American VC or angel investor wants to come to this part of the world, of course your money is very much welcome. And I think there will be a very good opportunity for you to invest and then divest immediately after these kids go through their early stage, you can divest out at series A, Series B, and get out early; or even just before Pre-series A and you can make pretty good returns. So what startups really need is people who believe in them at a very early stage. We have in Malaysia two equity crowdfunding platforms, one called PitchIN and the other called WatchTower and Friends.
These two platforms, because they're licensed by the government, it's very safe. Their platforms have been endorsed, triple checked, and investors go in there because the founders of these platforms are very veteran investors themselves. They know how to select the right businesses that come in as part of their investment portfolio on their platforms. So if you're an angel investor in Malaysia, most people just follow these two platforms and then if there is something they like, they just invest through it, everything is very digital. So it's important that the platform must be able to tell you the state of that particular startup and what's going to make it tick, what's going to make it grow. So the pitch is not just on what the funders say. The fact that they were chosen to be on these two platforms also shows that they're ready to be funded and they're ready to go on to the next stage. So in Malaysia, we've got the Angel Business Network , the Malaysian Business Angel Network (MBAN), and then there are a lot of corporate guys who have extra money and they pull themselves into clubs and they do club deals, and they usually enter a lot of these in investments through these equity crowdfunding platforms. That's how it's done in Malaysia, in Singapore. You can see that happening in Indonesia and Thailand also.
Aaron: Now, I want to ask you if you could change one thing about how angels or family offices invest in startups, what would it be?
Lilyana: Okay, if you're an Asian Family Office, get yourself educated, get people like me to come and help you educate yourself on the matrices that matter. Perhaps the myth that tech startups are risky is not that true, especially in this brave new world. Now you see a lot more businesses and a lot more corporations very much willing to buy the services and the products of these tech startups because they need to and they must. So it used to be people like "What? You're doing a B2B commerce? Why?". Now everybody wants to get on board. Everybody's asking "Oh, okay, so you can do this. You're cheaper than SAP, you're cheaper than Microsoft and Oracle. When can we start?". So there's a lot of that going on right now, not just in the B2B market, which is huge and so untapped in Southeast Asia. Like I said before, it's as simple as office automation like Accounting Software for SMEs to Operations Management, Factory Management, Data Analytics for a lot of these manufacturing companies across Southeast Asia. These SMEs, manufacturing companies and the old school companies have a need to change the way they operate and become more efficient. For the digital tech startups and software that are coming out, I'm helping them to do that. But for them to become better at what they do, they need the funding, whether it's coming from VC or family offices or angel investors, the money needs to come in, and for family offices who are actively investing or thinking of actively investing, get yourself educated on what's out there, what's the landscape like, what's sexy. That's my advice.
Aaron: So what would your idea of the perfect deal be between the angel or family office and a startup in Southeast Asia?
Lilyana: If investment can happen two hours after the pitch. That would be the perfect scenario. I've had startups who've had this experience. So one of the startups that I helped was a Y Combinator company. They were in the Y Combinator program last year, and they were the first cohort that couldn't do a demo day in the US because of COVID, they all had to do it online. The founders of this company said "Lily, I'm so surprised, when Y Combinator let out that we are seeking investment. Within a day we got 150 emails saying that they're interested in listening to us." And out of that 150 emails and interest and whatnot, they went through and met all these people online within two weeks. And a lot of these VCs and angel investors were so savvy, they could immediately tell you whether they're interested or not within an hour or an hour and a half after they've heard you. And that helps, a lot of startups are not hoping for everyone to come in, there will be people who say "Oh, no, you're not my taste yet." But they appreciate the fact that you can come back to me quickly, so I know that I can move on to the next guy. Ideally family offices in Southeast Asia shouldn't drag people along. If you're interested, come back to them within two weeks: "Yes, I want to take this further" or "No, we're not ready right now." And tell them why you're not ready, why they don't make the cut. That would help startups a lot. That's my advice: Come back quickly.
Aaron: Thanks. So, in the beginning, I said that we contacted you because you're an expert on the Southeast Asia ecosystem, and you're like "Oh, maybe not me. I appreciate humility." One thing though is that perhaps you admire someone in this space. Maybe you could name someone and tell us why you admire that person.
Lilyana: Well, I've worked with a lot of different, I guess, ecosystem builders like me across many many countries in Southeast Asia, but one guy whose candor, work and bravado I admire is Bobby Liu. He's Singaporean based in Vietnam. And he's helping the ecosystem to grow in Vietnam. So Bobby is a very astute person, very knowledgeable about the Vietnam market.
The other person in Malaysia is probably Daniel Cerventus. Throughout this COVID 19, every day since the lockdown, he had held at least one interview every day with someone across Southeast Asia or the globe to help out startups. So they would talk about problems at the startup phase, they would talk about funding, they would talk about almost everything under the sun, that would help a startup founder going through hard times. He really is very connected. And I think he also has a very good idea on what's happening across Southeast Asia. One of the big topics that we were talking about in Malaysia was the state of mind for a lot of startup founders. A lot of them had to cut back on staffing, let go of people. They probably had funders who wanted to come in just before the lockdown, now everything is slowed down. A lot of people are worried whether they are going to be able to maintain their business. So, they've been talking a lot about how to do some side business, hacking your business. I would also go to Daniel Cerventus to find out what's going on across Southeast Asia.
ExtraVallis would like to thank Ms. Lilyana Abdul Latiff for her time.