Sino Indo Tekno Special:
The China Relationship with
Helen Wong of Qiming Ventures
IndoTekno Podcast, 7 July 2020
Welcome to our first ever Sino Indo Tekno podcast. Sino Indo Tekno is a new collaboration with the producers of the Gan Bei podcast out of Shanghai, which is hosted by veteran tech lawyer and China watcher, Art Dicker. Sino Indo Tekno will air on a regular basis, and will be dedicated to the growing relationship between China and Indonesia, within the technology startup space. Please enjoy. And as always, we welcome your feedback.
Welcome back, everyone, to our sixth instalment of Indo Tekno. This marks our first collaboration with Art Dicker and the producers of the Gan Bei podcast up in Shanghai. Art privileged to be able to collaborate with you on Sino Indo Tekno. I've been a fan of your webcasts and podcasts for a long time. And I'm really excited to be able to work with one of the leading voices covering technology and China. As a reminder to our Indonesian listeners: Kami akan memberikan transkrip podcast Bahasa Indonesia di situs web kami..
ART DICKER 1:15
Alan I'm thrilled to be able to have this joint podcast with you as well, and this new series. I've been waiting for a podcast like Indo Tekno to come out, covering Indonesia tech, and I'm so thrilled that there's finally one out there and that you're doing it. You have some really great guests, and chief among them now is Helen on the show. Helen Wong is a Partner at Qiming Venture Partners. Qiming is known as one of the leading Chinese venture capital funds. But more and more it's been making investments outside of China and within Southeast Asia. Helen is one of the people leading that effort. So we're thrilled to have Helen on the show today. Welcome. Helen.
HELEN WONG 1:50
I have the pleasure of having worked with Helen for roughly 15 years. For those of you who are not familiar with your great work in venture capital, Helen, could you give us a brief background on yourself and Qiming Ventures?
HELEN WONG 2:02
Sure. I started my career in venture capital in the year 2000. When I joined GGV capital as a member of the founding team. I was in Silicon Valley then. And in 2003, we started making more investments in China, including Alibaba, which was my first investment deal that I worked on in China. And then in 2005, I moved to Shanghai. And I was also involved with Tudou, leading the deal Tudou, which was one of the leading online video players in China, which subsequently went public and then merged with Youku and is now part of Alibaba. And then I joined Qiming in 2014. Qiming is one of the top tier VC firms in China, and among our better known TMT investments are companies like Xiaomi. We also have Meituan and we are also involved with Musical.ly which is now part of TikTok. We have also other companies like Mobike. And those are some of the unicorns that we've been involved in.
If you guys don't mind me setting the stage, VC analytics platform Preqin just released numbers revealing that Hong Kong-China domiciled, ASEAN-focused VC funds have risen to $2.3 billion in total. But this is still less than one-tenth of the $24 billion in ASEAN-domiciled, ASEAN-focused funds that Preqin tracks. So it seemed that the China-Indo story is still very early days. Qiming was the first major VC to venture into Indonesia and Southeast Asia. Helen, what triggered this initiative?
HELEN WONG 3:44
I would agree that right now is a very early stage of the China-Indo corridor, so to speak. I think that for Qiming we were looking at the development of the mobile internet in China, and how it reach a very mature stage. And as we look for the next growth wave in this industry, we saw that there was a very fast growth in Southeast Asia. And there's also a personal factor here, given that I am from Singapore. So I'm from the Southeast Asia region. And actually, when I started my career with GGV, I started looking at some investments at that time in Singapore as well. But those were very early days for Southeast Asia. And we felt that China had more opportunities. So most of my career since then was in China. Southeast Asia, I think, only started to take off recently. If you look at the historical growth of the mobile internet, you can see that Southeast Asia probably had only 100 million users around the 2010 timeframe. So before that, I think that Southeast Asia, unfortunately, due to pretty poor bandwidth for the fixed line, never had a lot of PC users or internet users. So we think that the market only got interesting in the last few years. And you see the growth of some of the unicorns like Tokopedia, GOJEK. And also the flow of more funds into the region helped the ecosystem grow.
ART DICKER 5:15
Helen, can you give us a sense of some of the investments you've made to date in Indonesia, and also a sense of pace that you're going to be investing in Indonesia going forward?
HELEN WONG 5:24
Sure. When we started looking at Southeast Asia, obviously, Indonesia, being the biggest market was the most interesting. So we started our first investment was Akulaku, which is a team that is focused on the financial sector. And we looked at how under-penetrated the banking sector was in Indonesia, and also how ecommerce was growing very quickly. We thought that Akulaku's positioning in the instalment financing area was very interesting. And we thought that the team was quite a good team in terms of learning from China. Taking all the work that gets done in FinTech algorithms, and using that to apply to the Southeast Asian market, especially in Asia, seem to be working quite well. So that was our first deal in Indonesia. And following that, we've invested in RedDoorz, which is in the hospitality space. It is a tech-enabled budget hotel chain with properties in Indonesia, but also in other countries like the Philippines and Singapore. And then we also have a very small investment in a company called Mucho, which we actually invested in at the angel stage, focused on social e-commerce. So we are starting to expand our investments. And recently we've done another deal. It's in Southeast Asia, but not in Indonesia. It is actually Fingo, which is focused on Thailand and Malaysia. And regarding pace, to answer your question: we would like to maintain a steady pace. So every year, I do about two to three deals. So we don't want to give ourselves, how should I say, a quota or a certain number that we have to invest in Southeast Asia. But we'd like to see what are the interesting opportunities, and be patient in terms of the amount of money that we've deployed into Southeast Asia.
Thanks for that. Helen, many talk of the clear synergies that exists between China and Indonesia. Some would cite a tight fit between, on one hand, China's 25 years of battle-hardened and time-tested technologies and business models; and on the other hand, Indonesia's large consumer market, its low penetration levels, and its untapped online behaviours. You clearly believe in this kind of symbiosis. But can you peel back this relationship a little further for us? What specific Sino-Indo synergies excite you?
HELEN WONG 7:50
I think Chinese companies have built very interesting business models in recent decades. When I started in venture capital, the innovation really came from the US, It came from Silicon Valley. But the last decade, you've seen companies like YY, like PDD, really grow their own innovative models. And even WeChat is a super-app that is very unique in the whole world. So I think in terms of these innovative business models. The Chinese entrepreneurs, they have more operationally intensive approach to developing these business models, makes their models very applicable to the rest of the world. If you look at the contrast with the US apps, you can see that the US apps tend to be more focused on product, more product-driven, and they tend not to do a lot of localization. So I think that that there is a lot that can be learned from Chinese ways of building internet models, as well as the actual innovations that they've done, and see if some of that can be taken to Southeast Asia. And then I would say the other important part is technology. Because we've seen how Chinese companies can use technology very effectively, whether it's, for example, matching products to consumers, or just matching content to consumers. The level of personalization that can be done with algorithms is very strong, very effective. So I would say those are the things that the Chinese have developed very well. And I think it's very exciting when you combine it with niches like the consumer market, as well as the untapped online behaviours. But I do think that the locals also have an advantage in certain business models that require more on-the-ground knowledge, and working with the regulators a little bit more. I think those are business models that would be more relevant for the local teams.
ART DICKER 9:53
Thanks, Helen. Let's turn a little bit to some of the problems that these companies in Indonesia are trying to solve, looking at the model of China and what it went through. A lot of companies succeeded in China years ago, because they were able to solve legacy problems in the system. China maybe, being perhaps a bit more of a state-dominated economy; where banking, healthcare, other sectors, infrastructure limitations, were still dominated by the state and screaming for a better solution. Do you see some of the same patterns now in Indonesia at its stage of development? And if so, what winning companies in the experience of China have a business model that can be applied to Indonesia?
HELEN WONG 10:29
You mentioned state-dominated economy and what was like a very successful model in China. The first thing that comes to mind is not banking or healthcare, but actually media, because I think China media was controlled. So in the first wave of internet companies in China, it was really about information asymmetry, and how a lot of people would go to the internet to search for information, and also for entertainment. So when I think about some of our portfolio companies like Zhihu, which is like Quora, a Q&A platform, is really driven by people's thirst for knowledge. They couldn't find it on traditional media. If I think about Tudou, which I was an investor in, we very much grew, because the content that was created by users, was a lot more interesting than what you could see on the on the television channels. So I think that was very interesting. And then the other sectors came on later. You mentioned the banking healthcare in the last decade or so with innovations. But I think that Indonesia and Southeast Asia might be different, because we see that certain sectors are probably not so open, maybe because they've seen the China story play out. Just thinking about online payments, there are still a lot of barriers to adopting online payments. There's the OTP that you need to do. There's a limit on the transfer amount that you can you can have. So in a lot of ways this experience is not as seamless as using Alipay and WeChatPay in China. And I think that a lot of it is also the fragmentation of the whole ecosystem. I think maybe some of the traditional players in banking or healthcare or other areas in Indonesia, are more aware of what can happen to them. And so they are actually jumping in to prevent that same thing happening in China. Whereas I think in China, I have to give credit to the government because they actually stepped out of the way, and just let the private players just grow and develop their business models. So that was that was a big plus for the China ecosystem.
Helen picking up on something you referred to earlier: in which verticals or sub sectors will Indonesia indeed produce its own champions, with their own unique genetic coding, to maybe even share with the rest of the world?
HELEN WONG 12:45
It's really hard for me to read into the crystal ball. I would think that in areas like AgriTech, and maybe some Muslim-related business models like Shariah finance. Maybe they are areas that we haven't seen, at least in China or the rest of the world, that could develop unique to Indonesia. And I do see that's a possibility, especially having been through the whole wave of the China internet. I think that the models really became more innovative when we have a more mature ecosystem. And people started to solve problems that were unique to their own country.
ART DICKER 13:22
Thanks, Helen. We saw the first attempts to move some of the business models that had been proven successful in China, to Indonesia. There were some mixed results. You touched on this a little bit already. But were there specific mistakes that you've seen made in trying to take some of the models from China and apply them to Indonesia?
HELEN WONG 13:41
Yeah, I've seen, like you said, mixed results. For example, I think Shopee is very successful in implemetning what is a Taobao model. TikTok, bringing their Musical.ly products that have worked overseas in other countries, has worked very well in Indonesia as well. And then there are some models like the Alipay or WeChatPay model, which I would say is also getting wider and wider adoption. Some people say they are more cash-burning than even the China experience. I think that in some cases, unlike payments, the push for online payment by the players, maybe it's because it became a proxy war for Tencent and Alibaba, meant that it actually ran ahead of the actual use cases. Because e-commerce or even ride-hailing and food delivery, have not developed to the same stage that the online payment players hoped they would develop. You see a lot of subsidies that are far above the level that happened in China. And also I think there are differences, for example, in the density of the cities. Because in China, you find that it's so dense, so a lot of O2O models work very well. You probably have seen some statistics showing that Indonesia is not as dense. The number of cities with a million people is not as not as high. So, even taking into account differences in population, I think that there are models that just struggle a lot. For example, video sharing, long-form video sharing, is a market that made alot of money for Chinese VCs. I think has been tougher in Southeast Asia, given that the whole payment infrastructure, the whole bandwidth infrastructure, and the availability of good content, is not quite available. Just buying Hollywood content is very expensive. We've seen iFlix with their struggles recently. In certain areas, you need to be aware of the local market and the differences, and GoPlay might have a better chance than what iFlix did.
ART DICKER 15:42
Thanks, Helen. You've touched on this one a bit already as well. Just to flesh it out a little more: on the issue of subsidies and high customer acquisition costs. We have seen that play out in China, with DiDi and Meituan-Dianping and others. You mentioned in Indonesia, there's that tendency as well. Do you see that still today? And you see that situation learning anything from the China experience?
HELEN WONG 16:06
Yeah, it's a good way to create network effects when you have a cold start in a marketplace model. The use of subsidies I think worked well in the beginning. But when the fight between DiDi and Kuaidi became a proxy fight between Tencent and Alibaba, then it became very expensive. But luckily, they ended the fight with a merger. We see the same happen for Mobike and Ofo. Unfortunately, we didn't get the merger that we wanted. So if you talk about lessons learned, I think that is probably the biggest lesson. Such subsidy wars can be very costly. If it doesn't result in a merger, then very often you can have a "not-so-positive" outcome. The key is always trying to be ahead of other people. I think when you first try subsidies, maybe your competitors don't know that you can use that as a weapon to gain users quickly. Then you have an advantage. But once everybody learns that, then it becomes more of a capital game. And I think we're in an environment where there is going to be less capital. We've seen the SoftBank debacle. I think we would see less of a subsidy war in Indonesia. I think at the moment, the user acquisition cost is still not as bad as in China, in terms of how fast it hss risen. So I would hope that there's not so much of a subsidy war in Indonesia and a reliance on capital. Because ultimately, it's not very good for VCs and very dilutive for us.
Helen, how do you think about what seems to be a clear difference in "digital literacy" levels between the two countries? I note that Chinese consumers are for instance, ravenous consumers of online media subscriptions, etc., while their Indonesian counterparts currently are not. Chinese businesses, meanwhile, understand the virtues of B2B software and will pay for some platforms; while SaaS (Software-as-a-Service) adoption in Indo enterprise seems very low. How does Qiming view this and how can we take advantage of this?
HELEN WONG 18:12
I think there are a few issues that we need to talk about. One is really about the digital literacy and difference. Chinese users seem to like to, for example, consume a lot of news and consume a lot of online media in general. But I think the news apps in Indonesia have not done as well. And I think that might be different literacy levels of the two countries. Maybe video took off at an earlier age, so they gravitate more towards video. I think that's one issue. And then the other issue is the willingness. You mentioned online media subscription. I would say that even in China for a very long time, users did not want to pay for online media. So at Tudou, we always worried when are we going to get the users to pay, or when can advertising revenues ever cover our costs? I think that with time, as content became more and more expensive, the platforms started to charge for the content. You saw that in online video, you saw that in online music, as well as online literature. Definitely over time, there's a percentage of users that are now used to paying for our content. And Online gaming definitely has always been a very good revenue generator. But it took time to get users to be used to this. Then the other part is is also around regulations around piracy. I think in the early days, piracy was very rampant in China. But as the platforms started to pay for the content and to acquire the content, then they started to want to protect their content. So I think then piracy was clamped down on, and I still remember how in Shanghai you could walk around and buy $1 DVD off the street. But now you hardly find any of that. So I really think as GDP per capita rises, and as people get more used to paying for content, things will change. You mentioned another topic, which is regarding B2B software. Even today we talk about this. I think China is ready for SaaS because current labour costs have gone up and so productivity is an important issue. But with the big enterprises, we see more SaaS adoption among corporates who are larger and have more money basically. For example, state owned enterprises. The average restaurant owner may not be very willing to pay for SaaS. But you do see more and more openness or awareness of how SaaS can help bring them many more customers and increase their productivity. It definitely takes time for both consumers and enterprise to be willing to pay for these online services
Dipping into geopolitical current events, Helen, will rising Sino-US tensions benefit the Indonesian tech ecosystem? What is Qiming's on-the-ground view?
HELEN WONG 21:11
With the Sino-US tensions, Alibaba and Tencent as well as, to a certain extent, Bytedance, will increasingly turn the attention to other parts of the world like Southeast Asia. You saw that, even when Alibaba was trying to make the acquisition of Moneygram, the challenges that they faced. I think that will cause them to say "okay, maybe we want to go to a different part of the world where we will not face such regulatory hurdles." And I think Southeast Asia being geographically closer and also culturally closer, will become more and more important. Recently, we also see some China-India tensions. I think Southeast Asia, especially Indonesia, may be the beneficiary.
ART DICKER 21:58
Thanks, Helen. One of the bottlenecks to sort of the healthy sustained growth of the Indonesian tech scene is relatively weak educational inputs. For example, we might consider engineering talent as one of those. A lot of successful founders as well in Indonesia, much as in China in the early days, are these returning entrepreneurs in China, they're referred to as "Hai Gui" or "sea turtles". Do you see that phenomenon continuing in Indonesia, or changing?
HELEN WONG 22:27
There are a few issues. One is really about exposure of the entrepreneur to venture capital. We find that usually returnee entrepreneurs, the same as the early days of China, are more exposed to how venture capital works. And so I think they will have an easier time to work with the board. The other issue you brought up is engineering talent. That's definitely been something that is lacking in Indonesia, or, I should say is in short supply, in Indonesia, which forces a lot of the entrepreneurs to go outside of Indonesia, to have an Indian tech team, or even have a tech team in China or Taiwan. So I think that everybody is focused on how to be successful. You have to be nimble. We see more local entrepreneurs, non-"sea turtles". I think definitely in China, it happened. And even in Indonesia, I think Tokopedia for instance is very local. So I do see that local entrepreneurs who understand the market very well, who have very good connections and networks that can help them build a business. There's no reason why they should be passed over for a "sea turtle". But I do think as well that we may see more "sea turtles" getting funded, just because they might be more familiar to VCs and with PCs.
ART DICKER 23:49
You mentioned earlier, just a bit, the Alibaba Tencent rivalry in China, which pervades a lot of these subsidy battles that you mentioned. Do you use see this kind of duality being strong in Indonesia? And are these kinds of strategic venture capital investor natural partners for institutional venture capital players like yourself?
HELEN WONG 24:11
I think yes, there are certain sectors in which you can see a very strong Alibaba Tencent rivalry. So in online payments, we talked about how Tencent backed GOJEK. Alibaba in Indonesia is, complicated because they have DANA and also they also invested in Grab, and Grab has OVO. We'll see if the overall DANA-OVO merger takes place. You could say in in e-commerce as well, you have Lazada versus Shopee. I guess the other question is: are they natural partners for VCs? I would say yes, and no. We have worked with both Alibaba and Tencent, and we welcome them, and they bring a lot of very good resources for our startups and portfolio companies. But at the same time, we always tell our entrepreneurs that you have to be aware that corporate VCs have very different objectives. Their main objective is to think about investment in terms on their corporate agenda. So if that doesn't align with what you're trying to do, then there are going to be challenges.
Helen, going back to a broader brush question: the Southeast Asian VC universe seems to be going through some pretty volatile times. DealStreet Asia, for instance, estimates that $1.3 billion in Southeast Asia dedicated funds was raised in the first three months of 2020. While that was down 47% from the fourth quarter of last year, it's still more than triple the value recorded in the same period a year ago. Helen, I wanted to focus specifically on how valuations have trended in early stage venture investing in Indonesia since the onset of the pandemic. And maybe you can compare it to the degree of compression you've seen in China.
HELEN WONG 25:57
It's an interesting one because I honestly haven't seen too much of a compression of valuation. I think what we see more is sort of polarisation of valuation. On one hand, you see the handful of companies that are doing very well continue to attract more money and continue to get the high valuations. And then you also see companies that announced that they are stopping operations, and they are unable to raise any more funding. What we see more is companies that don't need to raise money just postponing their fundraising. And some companies are doing a bit of cost-cutting to make sure they have a longer runway. Maybe it's just a matter of time. But I do also think that there's still quite a lot of capital in the system. So it will take a while before valuations really come down.
ART DICKER 26:48
Thanks, Helen. Going back to an earlier point, you mentioned India recently has become a little more restrictive with regard to the to the Chinese internet presence in its market. What's your sense of where Indonesia is going to fall in the spectrum of protectionism, particularly versus openness, to foreign players in the market?
HELEN WONG 27:08
With India, you read different things every day. I think that for a while, it seemed pretty open. But in recent weeks or months have not been very favourable. I do think that we always need to be cognizant that there's a risk when you go into a certain country. And I think on the whole Indonesia has been pretty open. You do hear sometimes certain apps being banned or blocked, but the time period is not that long. And you do see that the regulators allow the players to make amendments to their app, and then they are back on the App Store. But I do also see certain industries or subsectors, for example online payment, in which for a long time, Grab couldn't get a licence, in addition to Alipay. So I think that there are certain subsectors that they feel they have to protect. I understand that every country has so-called national pillars that they want to protect. But I would also hope that regulators see, at the end of the day, the user is the one that benefits when there's open competition. And when there isn't, usually the end consumer is the one that suffers. So I hope that there will be an open market going forward, as well, for Indonesia.
Fantastic. Helen, thanks so much for joining us. We hope you enjoyed this, the first episode of Sino Indo Tekno. Art, you'll hopefully be available for another session soon?
ART DICKER 28:34
Absolutely. I can only hope it will be as good as this one.
And once again, we thank Helen Wong of Qiming Ventures for joining us in this, the maiden podcast of Sino Indo Tekno. And for Indonesian audience: "Terima kasih untuk mendengarkan. Sampai jumpa lagi."