SINGAPORE: In contrast to the stock market which has taken a hit due to slowing economic conditions, Singapore's venture capital scene is looking lively.
One beneficiary of the boom is internet firm Garena, which has joined Southeast Asia's small but growing ranks of "unicorns" - start-up firms that are worth at least US$1 billion.
Garena - which just won the Best VC deal award from the Singapore Venture Capital & Private Equity Association (SVCA) - began as an online gaming platform provider. It was set up in 2009 and launched its first product in 2010.
It has since expanded into areas such as mobile banking and e-commerce marketplaces, helping it attract funds from big-name investors like General Atlantic and the Ontario Teachers' Pension Plan. Garena is now reportedly valued at more than US$2.5 billion, according to the Financial Times.
Explaining its rapid rise across Southeast Asia, Hong Kong and Taiwan, Garena said identifying niches on the Internet business was important.
"Internet should ultimately be a business,” said Garena Online Group President Nicholas Nash. “And we've seen many different countries around the world use strategies of massive cash burn, trying to scale with a less than certain or more fragile business model.
“We wanted to pick areas of the internet, where we could pick up customers, but also ultimately have a resilient business model, which in pure financial terms, it means gross margin. Which is a good barometer of health, and then within those pockets of spending where there are good growth margins, pick the right business model to address the customers. "
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Industry watchers have said that besides successful products, Garena stands out in a crowded field of start-ups because its business model enables rapid expansion. This is one of key factors investors look out for.
"It's (Garena) initial target was Southeast Asia and it has done well and then it's scalable to a global level,” said Dr Wong Kien Keong, a judge for the SVCA awards. “So that is a distinguishing factor. If you look at it compared with others, others may have high profitability too, but the size is not there. So if I'm an investor, I'm looking at the size and the potential to generate different avenues of exit. As an investor, it would be attractive."
Investors believe there are other Garenas to be found in the region, and have pumped in large sums to fuel that search.
"The venture private equity space in Southeast Asia, it's actually grown tremendously,” said SVCA Chairman Dr Jeffrey Chi. “And the reason it has grown tremendously, first of all, is sparked off by some investors taking risk in the early days and putting money behind companies relatively young. But fundamentally, I think it’s driven by the large market in ASEAN and Southeast Asia.
“So Southeast Asia has come to a stage where I think a lot of the tech companies are beginning to take notice. It's not just the home grown ones, a lot of the foreign ones from the US, from China are beginning to take note of this market as well. So in a way the market is ready, coupled with the fact that the funding is beginning to flow in, we're beginning to see a growth of companies in the region and I think we will continue to see that in the years to come."
According to research firm Preqin, 2014 saw about US$1 billion worth of venture capital being closed across 159 deals.
Besides Garena, the region's other "unicorns" include Singapore-based GrabTaxi and Lazada, and Vietnam's VNG Corporation.