Expara CEO Douglas Abrams on Early-Stage Venture Funding in Southeast Asia
Douglas Abrams is the CEO of Singapore-based venture creation company Expara. They’re involved in teaching and developing entrepreneurship and venture financing with training programs in Southeast Asia. Expara IDM Ventures became one of the first private incubators in Southeast Asia, and now has partners in Singapore, Malaysia, Thailand, Indonesia, Czech Republic and Norway. In this podcast interview, Mr. Abrams talks about early-stage venture funding in Southeast Asia and why he sees this as the most exciting time to be a venture capitalist in the region.
Today I’m joined by Douglas Abrams, who runs Expara. Douglas, thanks for joining us today.
And can you tell us a little bit about yourself, how you ended up here in Southeast Asia investing in small companies?
I’m originally from the US. I worked at JP Morgan on Wall Street for fourteen years before coming to Singapore. I left there in 2000 to come to Singapore to set up my first company, Parallax Capital Management, an alternative investment manager, where I was co-managing the venture capital practice. So I started doing early-stage venture capital in Singapore in 2000, and have been doing that ever since.
So, since the early days after the Asian Financial Crisis you’ve been on the ground.
Yeah, on the ground in Southeast Asia doing early-stage venture almost from before the beginning, because it was the very early days. In 2003, I set up Expara, originally to do entrepreneurship training and advisory work for startup companies and government agencies in the enterprise and innovation sector. In 2002, I also joined BANSEA, Business Angel Network Southeast Asia, as a director and now Chairman.
I launched Expara’s first incubator fund in 2007. This was part of the original i.Jam micro-funding program here in Singapore. And we started doing early-stage investment at that point. For 2003-2007, I did my own angel investment one at a time into companies. From 2007-2011, Expara invested in sixteen very early-stage interactive and digital media companies—very small investment, pre-seed sized, 50,000 Singapore Dollars per company.
In 2008, I also launched Extreme Ventures with three partners. It’s an early-stage venture fund. There, we invested 1-3 million. In 2012, I launched a second Expara incubator fund, Expara IDM Ventures II—also part of the i.Jam Reload program. We do up to 255,000 per company. We’ve done seven companies so far, and plan to do another 10-15 by 2015.
So can you tell us about one of those investments in the companies, maybe one that has an interesting story that goes along with it?
Sure. I’ll talk about from our first portfolio, the Expara IDM Ventures portfolio, we had three companies that have gone on to raise series A or B funding out of that portfolio. The companies are: a company called Wildfire Asia that started out doing word-of-mouth marketing but pivoted a few years later to do social media marketing monitoring in China. The second company is called 2C2P. 2C2P does end-to-end payment solutions for e-commerce and m-commerce payment including banks, large merchants, small merchants, and consumers. And the third company is called First Meta, a virtual currency exchange.
I think the 2C2P story is very interesting, the founder is Burmese, but I met him in Bangkok, Thailand—I’m also, in addition to my work at Expara, teaching. I teach entrepreneurship at the National University of Singapore for thirteen years, and I teach venture capital as Sasin, which is the business school at Chulalongkorn University in Bangkok since 2007. The 2C2P founder, Mr. Aung, was one of my EMBA students in my first class in 2007. He had started, launched, grown, and successfully exited his first company by the time I met him. The company was called PaysBuy, it’s a PayPal equivalent in Thailand. He sold it to DTAC, one of the largest telecos in Thailand and subsequently wanted to do something bigger, so we decided to together launch 2C2P in Singapore. This was 2008, and it was just him at that point in Singapore. He was one of the earliest companies in the i.Jam incubator program. And he has now raised subsequently two rounds of venture funding including a series B that we closed in October last year. That company has grown from just one person in Singapore and fifteen people in Bangkok to over 70 people. We’re now in eight countries in Southeast Asia, and on the way to becoming the leading regional e-commerce/m-commerce payment company in Southeast Asia.
2C2P is a very interesting story. It could be the PayPal killer in Southeast Asia.
A lot of people are comparing 2C2P to PayPal, but 2C2P product offerings include a payment gateway just like PayPal, but also a whole range of other payment products. So I think we don’t exactly compete directly with PayPal, where the PayPal product is just one small part of the 2C2P business. So I think when you look across Southeast Asia, the payment processing market is highly fragmented. In each country there are a few small players—maybe even medium sized players—that dominate the local market, but there’s nobody that dominates regionally, and we intend that company to be 2C2P.
So given that there’s a fragmented nature to Southeast Asian startups, how do you see that impacting startup companies in the region? How does that impact you as an investor?
It’s good because one of the characteristics that we look at when deciding if it’s favorable or not for a new company is: Is the market fragmented? We love to see fragmented markets because that means the competitors are relatively smaller than if it were a consolidated market. So I think that’s one of the things that makes Southeast Asia attractive, especially for startup companies is that if they can get into the right space, like payment, where there are no dominant players, it gives them a chance to become the dominant player. We’re always looking for investing in companies that are small now, but can become dominant players in their space. So I think there’s a lot of opportunity in Southeast Asia for that. For example, in the US, there are a couple pretty big companies that would be potential 2C2P competitors, but in Southeast Asia they don’t exist now.
And I think—depending on the product category—Southeast Asia may or may not be a meaningful region because it’s mainly comprised of different countries with different consumer bases, languages, cultures, and buying activity. But in something like payment there’s enough consistency across the region that we have a real shot to go from a small Singapore-based startup to a regional player within 5-10 years.
Have you seen companies that face an uphill battle or a disadvantage given the fragmented nature of Southeast Asia? A lot of companies have trouble getting out of one country and going into another market.
I don’t see that very often because—being based in Singapore—companies have to very quickly get out of the local market or die because the local market is so small. It may well be the case in other countries in Southeast Asia that startups can focus on the local market longer, and can get very comfortable in the local market, and then face a real challenge scaling regionally. But I think for Singapore-based startups, the companies that can’t scale relatively quickly out of the local market are just going to die pretty fast, so they don’t struggle that long. Either they’re able to grow relatively quickly, or just die. Now there can be some exceptions. There are local players that have done very well with a profitable niche market in Singapore, but for our investment, we’re looking for companies that can scale regionally or globally very fast.
Can you talk to us a little bit more about your investment strategy at Expara? What type of companies are you looking for? What markets are you in?
For the current Expara IDM Ventures II, which is our current i.Jam incubator reload fund, we look at interactive and digital media as an industry. We look at early-stage …very early-stage because we invest only up to 255,000. We look for companies that have innovative products solving a painful customer problem, addressing a fast-growing market, and with a core of a strong management team, some ability to create barriers to entry, a sound financial business model, and the ability to grow relatively fast.
Do you have a preference towards B2C or B2B type of businesses?
No we don’t have a preference for one of those or the other. We’re investing in companies that do both.
Can you tell us a little bit more about the i.Jam scheme for people who don’t know how that works?
i.Jam Reload is a funding program that’s part of the National Research Foundation. The National Research Foundation is a Prime Minister level office that was created in 2006 and I think launched in 2007 with a whole range of funding programs to support research and development in three key industry sectors. One of which is digital and interactive media. The other two being clean-energy and bio-medical. So iJam is part of the interactive and digital media pillar in the National Research Foundation, and it’s administered by MDA, which is the Media Development Association of Singapore, who’s the media regulator and also the agency responsible for the growth of the media industry.
So in the i.Jam program in the IDM office—that’s the agency hosted by MDA—appointed ten mentors or incubators that can administer grants and co-invest into digital and interactive media companies. So the economics are very similar across incubators, they may vary a little bit. The funds are dispersed in two tiers. So the first tier is 50,000. The second tier is up to 200,000. In our case, because we’re a private incubator, we also make co-investments at each tier. So the requirements for the program are: the company has to be active in digital media, they have to have a local company, they have to have one full-time local founder, and a full-time CTO. And they have to have an innovative product with the ability to scale.
Going back to the Southeast Asia region, can you tell us a little bit about some trends you’re seeing in the region?
Interesting trends in the region—we’re very bullish on Thailand and Malaysia as growth markets for startups. We have set up Expara Thailand in 2011 and Expara Malaysia in 2013. And we think the startup ecosystems are starting to develop there rapidly, so we now see an increasing number of interesting companies coming out of especially Thailand and a lot of interesting research coming out of Malaysia. We see the other parts of the ecosystem as well as entrepreneurs, but incubators, co-working spaces, venture capital funds spring up in these surrounding countries, so we think there’s going to be a lot of interesting opportunities there. Also Myanmar, and of course, Philippines and Indonesia are starting to go up the growth curve. So I think, to pull that together, Singapore has been leading the enterprise ecosystem over the last 7-10 years, and has now reached a certain stage of maturity, but I now think the surrounding countries are starting to catch up.
So we see a lot of interesting companies coming into the pipeline, and investment has gone way up. In 2013, we’ve estimated at Expara that there were 90 million Singapore dollars invested in investments sized 600,000 Singapore dollars or less. So that was estimated to be invested in about 250+ companies. And if you look at the US market for the same period, the numbers are higher at an absolute level, but it’s about 1000 or 1100 companies, and the amount may be also two or three times. So if we think about Singapore at 25 percent of the amount of investment at that stage of company to the US, it’s pretty impressive.
Another interesting trend is exits. I saw—keeping some informal track of exit activity for venture funding companies in Southeast Asia, it’s not complete because it’s just data that I get from public sources and my own information—but in 2013, I saw exits with a published value of 400 million Singapore dollars.
In 2013 alone, in Southeast Asia 400 million in exits with a published value, which is going to be lower than total exit activity. And if you include large rounds that were effectively partial exits, the number goes up to 600 million. If you look at all the years before that, the average was around 50 million, so there was a huge surge. And I don’t think it’s just a freak data point from 2013, I think what we’re seeing is the beginning of the growth of exit markets which are reaping the startups that have been sown in the last 5-10 years.
So the pipeline is getting bigger, higher quality. A lot of money is going into early stage investment, and on the other end exit markets are starting to balloon. So this is good news for entrepreneurs, venture capital investors, and others involved in the space in Southeast Asia.
Where are you seeing these exit markets come out from?
Most of these exits were in Singapore. So I think markets develop first in Singapore, but we’ll see those also expanding regionally over the next few years.
Where do you see the exit market going?
The form of exits that I’ve seen so far and that I think are the most likely to grow over the next few years are trade sales. These are almost all trade sale exits. So I think that’s a very hopeful sign.
Well, it must be happy times to be a venture capitalist when you see these signs moving in a positive direction.
That’s one of the reasons I’m so excited about the direction of the industry. I’ve been here since 2000 doing this, and I have to say now is the absolute best time since I’ve got here for this industry.
Is there anything else you’d like to tell us before we head into the lightning round?
No, I think that’s good.
So as always, we do the lightning round at this point. Can you tell us what you’re reading? What’s on your bookshelf?
I’m reading two books right now because I read on my Kindle. Actually, I’m reading a book that I heard about and wanted to read for a long time, which I’m sure a lot of your listeners have read already. It’s called “The Lean Startup”. I sort of knew what it saw about, but I decided I should go and find out in detail what it’s about. I’m really enjoying it.
The other book that I’m reading is called “The Second Machine Age”, and this is a book about the growth of advanced robotics and also digital innovation. So they’re both focused on future trends and startups, and both highly recommended.
Very relevant for this podcast. We’ll link to that in the show notes. Do you have one piece of advice that you’d give to entrepreneurs.
My favorite piece of advice is: Take more risk. Whatever level of risk you’re taking now—increase it a little bit. My other favorite piece of advice is: Do something that you love to do. I know everybody says that, but I think it’s the most important thing. If you do something you love to do, take more risk…Oh, and my third piece of advice is: Do something this week that you’re afraid to do, and then see how much better you feel after. It’s similar to take more risk.
Now can you tell us for our last question, what sector do you have your eye on?
Industry sector…I look at interactive and digital media, but I’m excited about virtual economy, virtual currency, and digital currencies. This is a sector that I’ve been looking at for a long time. I mentioned that one of my successful first portfolio companies was called First Meta, and this company was one of the first in the virtual currency market to do a virtual currency exchange. We’ve been a sort of candle in the darkness on virtual currency for a long time, and the market has taken a while to catch up, but I believe that over the last year or 18 months, with the rise of Bitcoin and other crypto currencies, we’ve seen virtual currency moving into the mainstream, and I believe that this part of the economy and companies that are leveraging digital currency over the next few years are going to explode. So this is an area I’m watching closely and very interested in.
You were very, very early with that investment in First Meta.
Well, I always say in this business, you’re either too early or too late. It’s almost impossible to time the markets right, so since we’re an early-stage investor, we’re going to be too early most of the time. In this case, with First Meta, we were able to hang on until I think the market is starting to catch up now, so I see big opportunities there.
Well, thank you very much for your time today. I appreciate having you on.
It’s my pleasure. Thank you very much.