Tapping China Synergies:
Benny Chen of BAce Capital
20 October 2020
Welcome everyone to our 20th episode of Indo Tekno...
ART DICKER 0:13
...and another episode of Gan Bei, and our third installment of Sino Indo Tekno. I'm Art Dicker, a technology lawyer and host of the Gan Bei podcast here in Shanghai.
And I'm Alan Hellawell, Founder of startup advisory firm Gizmo Advisors, and Venture Partner at Alpha JWC Ventures.
ART DICKER 0:30
As part of our mission to profile the growing tech connectivity between China and Indonesia, we are very pleased to welcome on to today's podcast, one of the leading VCs involved in building this corridor, Benny Chen of BAce Capital.
Welcome to the show, Benny.
BENNY CHEN 0:44
Thank you Alan and Art for having me here today.
ART DICKER 0:48
It's our pleasure, Benny. Could you give us a sense of your own personal journey that eventually led to your current role as managing partner at BAce Capital?
BENNY CHEN 0:56
Sure. BAce Capital was founded by me and KK (Kshitij Karundia) in early 2019. Five years prior to that, KK and I worked very closely for Alibaba and Ant Financial respectively, in the region. So we were the first batch of global expansion teams for investment and building businesses, right from the beginning of 2015. We invested in a bunch of companies on behalf of Alibaba and Ant in those five years. We did a lot of travel to China, India, Southeast Asia, especially Singapore, Indonesia, and a few other countries. Prior to that, I was in the debt financing space, and also telecommunications. So I stayed in India and Singapore for over seven years of my life. I witnessed the growth of the mobile infrastructure in terms of 3G and 4G. And in those years, I saw people's adoption of smartphones, and how technology was changing people's behavior. And before that, I was in the US for half a year doing a start out in data technology. So over the years, I've been seeing how technology can change people's life and how the startup culture has grown in the emerging Asia market, especially Indonesia and India. In the beginning of 2019, after seeing so many companies, unicorns, and the great success of the entrepreneur in the region; we decided to create a venture arm which is BAce Capital today. And fortunately, we got Ant Financial as our anchor LP. And we're deeply associated with the Ant and Alibaba ecosystem.
Very helpful background, Benny. Thanks for that. Now, Benny, you mentioned you spent five and a half years as an MD for Indian and global strategic alliances at Ant Financial, I assume that that experience has informed the creation of BAce Capital. Can you give us some more background on your time there?
BENNY CHEN 2:43
It was definitely one of the greatest experiences in my life. In 2014-2015, when Alibaba had just gotten listed, Ant Financial and Alipay were still relatively small companies. The digital payment had just seen adoption in China. At that time, Ant Financial and Alibaba collectively decided to go global, seeking opportunities. What we believed at Ant at the time is we want to do that through strategic investments or alliances. We didn't believe that we should build out a business by ourselves, especially in the FinTech space. So those five years gave me a lot of great experience, learning from the Ali and Ant Financial team. My partner KK and I together invested in companies like PayTM in India and Zomato. KK was also involved in the Lazada transactions and Tokopedia. So what we did is sit on Ant Financial and Alibaba's very experienced teams not only through capital investment. We were also able to bridge the companies we invested in Indo and India, with a team with the right people in the Alibaba ecosystem, so they can share know-how, they can actually study together, brainstorm together and exchange ideas with Alibaba and financial started in early years. So I'm able to communicate and learn a lot of knowledge from all the team members in Ant Financial in different verticals; from payments to wealth management, insurance, and a lot of other stuff. I really understood the history of Ant's growth. So I can carry that information. I can bring that knowledge to the investee companies that we have in the region. I spent 30% to 40% of my time in China in order to learn from our various team members. We are part of the core team that helped Alibaba establish a footprint in the region, including Emerging Asia, especially in India and Indo.
ART DICKER 4:35
Benny, could you narrow in a little bit on what are your favorite sectors to invest in?
BENNY CHEN 4:40
This is a great question that a lot of people ask me. When we started BAce Capital, we thought we should be sector-agnostic. The smartphone is really the key driver for the growth of internet adoption. So our thesis is very simple. Our sector is very simple. We believe in mobile technology. We believe that mobile penetration, smartphone penetration, can greatly improve efficiency. It can greatly change traditional distribution and can greatly help people to obtain services. For example, banking services. Usually in the old banking system, you had to deposit a lot of money, or there was a bare minimum amount. But today with the mobile phone, you can do as low as one Rupiah. And you can invest as low as one Rupiah for wealth management products. So those are changes brought around by mobile technology, not only making service accessibility easier, but also making the cost of the service lower. We don't have a particular sector per se. But everything we do is actually associated with the smartphone or mobile technology.
ART DICKER 5:45
If we can talk a little bit about the stage that you invest in, typically. What is BAce's average check size? And how does it think about following on?
BENNY CHEN 5:54
Sure. Fund One is $115 million. We love early stage companies. That's the reason KK and I started this fund, because we saw a lot of early stage entrepreneurs become more mature. And we can go as early as the Seed round, and as late as the Series B round. As of today, we invest in the range of half a million dollars to $5 million as our single ticket size.
Benny, I'm sure a lot of entrepreneurs in the audience would love to understand: what is the nature of BAce's day-to-day operating relationship with Alibaba and Ant Financial? And what benefits might that relationship create for the investee company?
BENNY CHEN 6:35
Ant Financial is the anchor and the largest LP in the fund, and a few Ant folks also work with us very closely from the business/investment team. I'll give you a few examples: internally, in Ant, we have been treated as an ecosystem fund to invest in sector-agnostic early stage companies. And Ant is very open to having collaboration with our portfolio companies, to have know-how exchanges and learn from each other by talking to our founders on a quarterly basis. And we also have an annual get-together with Ant Financial. Last month, we did our Season Three CEO Club, which was organized by Ant financial, whereby all the CEOs that Ant Financial had invested in, including the CEOs we invested in, will have a three or four day session together to share their experience, know-how, telling the tough stories of how they overcame COVID this year. Unfortunately, this year, the overseas CEO's who are outside of China were not able to fly in. But we actually did that online as well. So we believe that, with our experiences and previous background at Ant, we are happy to help our portfolio companies to gain connections with either the Ant Financial business team or Ant Financial investee companies. Wherever they go, there's opportunities to learn or wherever they feel there's going to be synergy between them, they can collaborate right now or in the future.
Understood. Some very palpable forms of collaboration and support. Now, Benny, can either of these companies or other affiliates for that matter, coinvest with BAce?
BENNY CHEN 8:13
Yes. It is very much possible. Today, Ant is quite an established ecosystem in China, and has also invested in over 200 companies in China and globally. Not only Ant itself, but also of a wider range of what we call "ecosystem companies" can coinvest with BAce. Because once those companies get larger, they also have a need to deploy their capital in emerging markets. I do see that becoming more and more popular within those companies. I'll give you another example. Last year, before COVID, we actually took five founders and CEO's from Ant Financial ecosystem companies, and we visited Indonesia. We met with local entrepreneurs. We met with conglomerates as well. They went there to learn and look for investment opportunities, to see if there is a similar company or business model which they can understand, and help the company to grow. So there'll be many coinvestment possibilities through BAce, our investors and our ecosystem family and friends.
ART DICKER 9:16
Benny, can you tell us a little bit more about some of the investments that BAce Capital has made in Indonesia?
BENNY CHEN 9:22
Yeah, sure. In Indonesia/the region, we have invested in three to four companies. The reason I'm saying it that way, is that one of the companies we have incubated and is a slightly early stage. For example, we invested in a company called RoomMe in the coliving space. We invested in a company called Printerous, who use cloud printing technology. They aggregate the demand from individual customers, SMEs and corporates; and they utilize the printing capability across the country in thousands of cities and locations. They print marketing materials, collaterals, souvenirs, packaging materials, etc, etc. We also invested in an SMB cross border remittance company called Wallex. The company is based in Singapore, but Indonesia is one of its largest markets. They have offices in Indonesia. So those are three companies that we have invested in so far.
Very helpful, Benny. I know you talked about some of your broad investment focuses. But if we tighten the focus to Indonesia, and we think about your activities today, what would you describe as the most interesting investment theses that you're pursuing when it comes to venturing in Indonesia?
BENNY CHEN 10:42
I think things are still in an early stage. All the sectors are still quite open. And there are many early stage entrepreneurs, or first time entrepreneurs that have tried to enter into the market. And then somehow it follows the trends of China, and a bit from India as well. But what we actually did is, whenever we came across a company, we will think whether BAce Capital can add value. Do we have the domain knowledge, and do we have a related company in China who can actually guide or help the company to understand their journey, so they don't make the same mistake, etc, etc. I'll give you another example of all the companies I mentioned, including three companies that we invested in. With some of the companies, even before we signed the term sheet, we took the founders to China. And we visited three or four companies in a very similar space within the ecosystem, and sometimes even outside the ecosystem because of the connections we have. We communicate and talk to the founders and CEO's directly. And we felt that this is a great process. We can run this eventually to Indonesia. The feedback from our founders was very positive. Not only is the scale in China amazing, but the approach a lot of businesses take, or how to build a product, will give them a lot of inspiration. So this is the way we look at the market. I think in the Indo market, beyond Jakarta and a few other top cities, mobile internet will gradually penetrate into other islands into villages and into towns. It's just a matter of time before people adopt technology. People, for example, will get used to making mobile payments, etc, etc. So for me, it's a whole lot of open market. And we just need to be a little bit patient in finding the right entrepreneur. And I do see the second time, a third time entrepreneur also coming out from the market, which again, follows what China and India did a few years ago.
ART DICKER 12:32
Thanks, Benny. Can you drill down just a little bit on one or two of those examples you've alluded to just now of specific synergies, where, for example, you bring the CEOs from Indonesia to China, and some of the key learning points that they may have had?
BENNY CHEN 12:46
Sure. The company with the coliving space, for example, we brought all of the five founders to China. We visited Hangzhou, Shanghai and Beijing. We showed them similar companies. We brought them to the site of where those companies are building the coliving spaces using different approaches. And we brought them to five coliving companies to understand their journey, but with all different formats. So some companies in China operate a single flat. Some companies operate in what we call a centralized coliving format, whereby they take the entire building and reformat that into different rooms. And some companies do coliving plus other services as well. I remember the largest company today in China has more than 5 million rooms. The five founders learned about scale, how they pick locations, how they actually reformat the buildings or the apartments. They find out how they utilize data technology to identify the right location, to identify the right customer group, and how they serve the customer better. That was an eye-opening trip for the company, even before we agreed to invest in the company. So I think seeing China's scale and seeing China's history is important. But more importantly, we establish connections between the Indonesian founders and many Chinese founders in a similar space. So they can actually chat from time to time to see what is their mitigation towards COVID, and things like that. And the printing company I mentioned, we also found a similar company called EZPYP in China. They have a large scale. One of the takeaways other than the know how and learnings, is that they started to actually source raw material from China for a better printing experience. Those are a few things we did and we'll keep on doing that. At BAce Capital, we're not only a venture fund who invest in equity, putting in money and then disappear along the journey. We'll work very closely with the local founder, the local entrepreneur, in order to cater to their requirements. If they want to see something in China, if they want to see something in India, if they want to achieve better synergies within the network which BAce and myself have.
Very interesting examples. Benny, shifting to another topic: how have rising tensions between India and China impacted BAce's investment focus and its range of activities?
BENNY CHEN 15:08
BAce Capital is just like one of many other Cayman or Mauritius or Singapore-based funds. We have me as a Chinese face. We have KK as an Indian. We have a Jakarta team. We have an Indian local team. So we're multinational. We don't define ourselves as a Chinese or non Chinese fund. But we do have a lot of connections with China. I'm still very optimistic towards the Indian market. I think that, unfortunately, because of COVID, because of different reasons, tension has been created. But I think over time, it will get resolved for sure. And India, as a market, as of today, the economy has been stalled by COVID for a while. But during this process, mobile technology adoption will probably get much more penetrated in the country. People are getting more open to adopting new technology since the COVID lockdown. On the other side, during this process, a lot of entrepreneur will surely get stronger. They will understand how to mitigate the risk. They will understand how to keep their cash flow. They will understand how to grab opportunity if offline accessibility has been strictly prohibited for a while. So for us, it will be a great opportunity to get to know more entrepreneurs and share the story from China of how to overcome COVID or even turn that into a positive impact to your own venture. So I think, over time that tension will disappear. We are still holding a very positive investments view towards India. In fact, we've been seeing that the Indian government is making regulations that should make noncritical sector venture investment easier. So we hope that will come through as soon as possible.
ART DICKER 16:49
Very interesting. Thanks, Benny. Switching back to Indonesia. BAce is connected obviously to China's largest e commerce and FinTech platforms. In what ways might Indonesia evolve differently in these two areas relative to China?
BENNY CHEN 17:02
I think every market has its own nature. China is a very large manufacturing hub. Indonesia is still catching up. Indonesia meanwhile is thousands of islands. I think the business thesis will be the same: how to use ecommerce or FinTech to offer better services. Ecommerce is actually one thing to help the consumer to get product easier, cheaper, much faster, and help the merchant or seller to achieve a wider range of users. I think the thesis would be the same, but the approach will be very different from a logistics perspective, from a payment perspective and from a PIN code perspective. Because the geolocation algorithms are very different. Essentially, the value will be delivered to users or merchant by the way the Indonesian entrepreneur solves the problem. It will be quite different. That's the beauty of investing in the venture space.
If we think about BAce's geographical focus, it's in many ways triangular: it connects China, India and Southeast Asia. Looking at another arm of that triangle, do you see any specific interesting lines of transmission between India and Indonesia?
BENNY CHEN 18:10
I see that Gojek has an R&D center in Bangalore. And you see a few senior management, a few Indians who migrated from India to Indonesia to join companies like Tokopedia or other companies as well. So there's a cross border communication, amounting entrepreneurs and the startup ecosystem. And secondly, I also see that there are more and more Indian founders who started in the Indonesian market. Probably for the Indonesian entrepreneur, or the Indian entrepreneur, learning from China is a bit difficult and a bit remote because of the language gap. China can be a difficult market to understand. But India is not. India is slightly ahead of Indonesia, in my view. The model from India can be easily learned by local entrepreneurs, or can even be built up by Indian founders who start up in Jakarta, for example. We see companies like Bukukas started by Indian founders. And you see more companies with a local entrepreneur from Indonesia plus an entrepreneur from India getting some traction in the VC investment world.
ART DICKER 19:16
You touched on this a little bit earlier regarding COVID and the recovery in China. If we think of China as several months ahead of Indonesia in its post COVID recovery, what do you think we can expect in Indonesia going forward?
BENNY CHEN 19:29
People are suffering. It's not a great time. It's actually a very tough time for everyone in the world today. But if you look at startup companies, as long as they are able to manage their cash flow, and expand their runway, they should be able to grab this opportunity, especially for mobile-first companies, to educate their users, to really solve the problem by delivering products or services online rather than offline. So this will be a great test for mobile-first company to educate users and acquire users. However, the entrepreneur should make sure that the business model can deliver value: food delivery online education. Do you do that in the right format? Customer education becomes easier. If you really can evolve your model, adjust the model, or refine your model to deliver real value, you will have opportunity to grab lots of users. However, with the early stage company, the entrepreneur should also have a clear view in terms of how long COVID is going to last. So cash flow reserves are very, very important. Can you really stand until the end of the day when things are back to normal and funding activity is back to normal again? Today in the VC world, although we see there's an opportunity to invest, people are not able to travel, people are not able to meet each other. So the due diligence can hardly be organized. So I do see that capital injection was slowed down a little bit, not because people are not interested in the market. But because of the fiscal reasons. A lot of funds cannot organize a proper due diligence, or onsite visit. So the entrepreneur needs to get prepared for the worst, but build for the best.
Makes eminent sense. Now, Benny, if you had a magic wand, what challenges in Indonesia would you hope to wish away? Would it be on the input side, such as the scarcity of well-trained engineers? Would instead be on the business model side, maybe a weakness and online monetization? Would it be issues surrounding ecommerce such as logistics? Is it instead a lack of digital literacy in the enterprise or amongst consumers? What problem would you like to see solved first?
BENNY CHEN 21:40
It's hard to say. The improvement of infrastructure is one of the key elements. I see the government is doing a great job to build roads, airports, new regions, a new capital. Digital payments and a seamless network of logistics; those were become very, very important fundamentals in order for the internet economy to grow. If these two pieces can improve in parallel, we're good. I'm not worried about the capability of monetization. With digital payment, if people are able to pay very easily, if digital payment is going to be there in day-to-day life, I think the monetization would be much better. The other thing is a willingness to pay and the wealth to pay. But I'm less worried about that part. Because as a venture capitalist, we're investing and everyone sees the GDP growth of Indonesia. It's one of the best in the emerging economies. On the other side, logistics will be a challenging piece. Digital payment is something you can do easily with a mobile phone. But how Indonesia can solve the problem of better logistics is very, very important. Not only can Jakarta be a hub of innovation, but infrastructure and data technology can greatly improve the efficiency of the system in other parts of the islands. You mentioned engineering capability. I think that's going to be a long term thing for Indonesia to build. But I do see that entrepreneurs are finding ways not only to set up engineering centers in Indonesia itself, but having more collaboration with countries like India and even China going forward. So there will be challenges. But I'm still very optimistic. If infrastructure can keep on improving, including physical hubs, roads, airports and data technology; I think those are critical parameters to define how fast the mobile-led economy can grow in Indonesia.
ART DICKER 23:32
Really some fascinating insights, Benny, thank you. Well, folks, that's a wrap. We deeply appreciate you joining us here as part of our third episode of Sino Indo Tekno and trust that you'll check in with us as BAce Capital continues its progress into the future.
Yeah, thanks a lot for joining us, Benny.
BENNY CHEN 23:48
Thank you, Benny.
Thanks, Alan. Thanks, Art. Thank you for having me here today.
Terima kasih telah mendengarkan. Sampai jumpa lagi!