Jonathan Zhong's view: SEA is still the world’s most compelling digital investment destination after China and India

Sep 24, 2021 Other

The Covid-19 pandemic has created major economic challenges for industries around the world. The venture capital industry and the start-up ecosystem it supports in Southeast Asia are no exception.

After discussing the Southeast Asian venture capital market in the last event of HoloBase with Richard Xu, we invited Jonathan Zhong from ATM Capital to talk to us about the current situation and changes in venture capital in Southeast Asia after the pandemic on July 12.

|  Jonathan Zhong: the Founding Partner of ATM Capital

At this event, he gave a brief overview of current situations and changes taking place in Southeast Asia after the pandemic. Prior to the outbreak, Southeast Asian venture capital deal activity was relatively healthy, the Internet economy was growing at an unprecedented rate, and investment trends were positive. 

With the growth of the Internet economy, a number of noteworthy phenomena have emerged in SEA: there is no monopoly e-commerce platform, and variable players constantly exists; low conversion and high CAC made most online business hard to be profitable in short term in SEA; the increase of popularization of digital payment in SEA takes longer time than China and India. 

The data shows that the Covid-19 outbreak cuts Southeast Asia's GDP forecast to 4.2% in 2020. Many industries are coming to a halt during the crisis, but with businesses forced to operate more efficiently, many sectors will have the opportunity to reset and restart on new grounds with technology at the core. There are also some industries that have hit a growth spurt in this special environment, such as technology, e-commerce, education, healthcare, etc. Taking Tencent for example, its online gaming revenues rose 31% (contributed by Internet café shutdowns on 3rd & 4th tier cities), and its long video platform Tencent Video, gained almost 6M new subscribers (26% YoY growth compared to 19% in Q4 2019).

As for the short-term impact of the crisis on investment in SEA, he believes that it is mainly reflected in the following aspects:

• LPs & VCs tend to be more cautious, TS of SB cannot be executed as planned;
• VCs in SEA defer most investments and focus on portfolio management;
• Bargain-hunting in SEA primary market;
• Partial capital flow to the secondary market to scoop up;
• Technical Adjustments in Secondary market.

In terms of long-term impact, the sectors that have benefited from this crisis include e-commerce livestreaming, fresh food e-commerce, online education, online office, online healthcare service, logistic automation…, and for adversely-affected business, it may take 2-3 years to recover, such as tourism and hospitality industry.

The crisis also presents the long-term opportunities. The changes of consumer behavior during Covid-19 pandemic may form the transformational trend to supply side; and traditional business will usher an opportunity to accelerate its transformation; the digital upgrading of tradition industries may speed up…

In addition, he believes that teams or companies with the following characteristics are more likely to be favored by investors: 

• Market leaders: with apparent advantage allowing to extend their lead during the upturn 
• Whose growth will not rely on fast burn, healthy working capital
• Technical strength and products improvements, already found suitable PMF, run ahead of competitors
• Superior management team, continuous communication with investors

Despite the impact of the pandemic, SEA is still the world's most compelling digital investment destination after China and India, and it is believed that it can quickly recover from the impact of the pandemic.

The recording adress: