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Quiet accomplishments: Q&A with Michael Yao, partner at ZWC Partners

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The investment firm localizes by performing deep research on the ground.


ZWC Partners’ most recent win was GoTo’s IPO. As a backer of Tokopedia and GoPlay, the investment firm was able to capitalize on its team’s knowledge of the way successful Chinese e-commerce companies built their platforms, and offer advice on how to do the same in Southeast Asia.

Now, the investment firm, which has offices in Singapore and Jakarta, is eyeing even more opportunities in the region. KrASIA spoke with Michael Yao, partner at ZWC Partners, to find out what sets ZWC apart from other investment firms in Southeast Asia and China.

The following interview has been edited for brevity and clarity.

KrASIA (Kr): How would you introduce ZWC Partners to those who may not be familiar with the firm?

Michael Yao (MY): Our fund has always been technology-driven. We focus on emerging markets in Asia, including China and Southeast Asia. This is because there’s a young generation with rising income and general familiarity with consumer technology in these markets. We specifically make early growth stage investments.

Kr: What does ZWC bring to the table that local or regional investment firms in Southeast Asia may not be able to offer?

MY: There are three things. The first is that we are a localized fund. We have teams on the ground, and we understand the markets.

Second, since we have been in China much longer than in Southeast Asia, we have experienced the cycles of technology adoption, so we know the key success factors for winning. That helps us give insights to local entrepreneurs when they want to understand how to build companies.

Third, we can move talented engineers from China to Southeast Asia, where it may be scarce. There are some businesses that may benefit from this type of synergy across borders.

Kr: What are your typical check sizes for startups in Southeast Asia?

MY: It depends on each startup’s stage of development. If they are in their early stages, then it could be USD 2 million to USD 5 million. For companies in their later stages, the check can be USD 30 million to USD 50 million.

Our check sizes are more flexible than typical VCs in Southeast Asia. For companies that don’t want to spend a lot of time raising funds, we can invest in multiple rounds and become their long-term partners up to their IPO.

Michael Yao, partner at ZWC Partners, said the investment firm is building a sizable portfolio in Southeast Asia. Photo courtesy of ZWC Partners.

Kr: You mentioned that ZWC can reference the growth history of Chinese tech companies. One comment that we hear frequently is that the tech scene in Southeast Asia is like China’s, but ten years ago. Is this an evaluation that you agree with?

MY: I don’t think so. Each country has its unique characteristics, including the culture, the distribution channels, and the supply chain. There is always a twist. That’s why we emphasize our localization.

With that said, some principles of business models remain the same no matter where they are applied, such as e-commerce. We can offer advice on how to run a platform business, when to increase monetization rate, and when it should emphasize its price to value. These are some of the generalized principles that are then adapted for local markets.

Kr: Has there been a specific “twist” in Southeast Asia that surprised you?

MY: Tokopedia is a great example. In China, there are two options for e-commerce. There is JD.com’s model, which is a self-operated e-commerce platform. Another is a platform business, like Alibaba. Which one is the right business model for Tokopedia in Indonesia? Both work in China.

After performing much analysis and careful comparisons in 2017, we determined that the platform business model would work best in the context of Indonesia at that point in time. This would be healthier than building a lot of infrastructure or self-operation.

There are some investors who viewed emerging markets the same as China but a few years behind. They made investments in those markets while copying business models that were developed in China, but they burned a lot of cash, and those models didn’t work. They lacked in-depth knowledge of the local market.

Kr: In Q2 2019, ZWC said it was ready to invest USD 300 million in Southeast Asia over three years. We’re approaching the three-year mark since that statement was made. Did the firm hit that target?

MY: We’ve invested in multiple rounds for Tokopedia since 2017. We’ve also invested in a couple more companies. I can say that we are on track to build a sizable portfolio in Southeast Asia.

Kr: Would it be fair to say that ZWC typically looks more at companies that offer consumer-facing services rather than B2B?

MY: It depends on the market. In China, we look less at consumer-facing or mobile internet technology. That wave already passed. Instead, we look at technology for vertical industries, such as finance, manufacturing, and distribution. It can be software, hardware plus software, or AI.

However, in Southeast Asia, mobile internet adoption is still low, so we are still focused on consumer and mobile interfaces. Internet adoption is still a main driver for the technology curve.

Kr: Aside from Singapore and Indonesia, is ZWC also looking at making investments in other Southeast Asian countries?

MY: Our offices in Southeast Asia are in Singapore and Jakarta. Indonesia is still our number one target because of the population and GDP per capita. Vietnam, for example, is relatively small in terms of the value creation. We see many things happening in Indonesia, such as development of the B2B2C business model, fintech, and consumer-facing apps. We are actively looking for opportunities there.

Kr: Given that China’s tech sector has gone through regulatory upheaval over the past two years, does this change the way ZWC evaluates potential investments?

MY: The weight of China and Southeast Asia in our portfolio remains unchanged.

Previously, consumer technology in China was unchecked. This was the case in many industries, including the financial service sector, which needs regulation. The Chinese government has taken pause to determine whether technology should grow in various spaces without clear regulation. But we still see strong momentum in other spaces, especially in semiconductors, hardware, and AI. These business models do not have a “winner takes all” effect and thus will create value for society at large, rather than a single company and its shareholders. That’s a social responsibility issue that is especially important in the internet space, where there is a strong network effect.

Furthermore, ZWC does not deploy a lot of capital into one specific sector. That would be risky. We diversify across a few sectors, but the fundamental emphasis on technology remains the same. This way, we don’t get burned if something happens in one sector, like online education. LPs need to understand the GPs’ risk appetite, the diversification of portfolios, and whether the GPs localize to understand the regulations and underlying theses.

Kr: How did ZWC meet Tokopedia?

MY: We’re always looking for e-commerce opportunities in Southeast Asia. It’s one of the theses that we have held since the early days, even before we met Tokopedia. We heard about Tokopedia because it had raised prior rounds, but we stayed quiet. Eventually, we were introduced to the founders. We looked at the company’s numbers and the competition, and compared them against Alibaba and JD.com to see what its development curve looked like.

Tokopedia was already a leader in Indonesia. We liked their platform strategy, customer acquisition methods, merchandising, and the way they run local operations efficiently. The team was well educated, and they understood their market. We liked that they were focused only on Indonesia first, instead of over-extending themselves through expansions.

Kr: What sort of advice did ZWC give to Tokopedia throughout its process of building an e-commerce business in Indonesia?

MY: We maintain frequent dialogue with the management team to give them advice based on what we see, and we offer our takeaways on how Alibaba built its ecosystem in China. We discuss whether they should build payments or logistics ecosystems, how they can raise funds, and what type of investors should be invited to join their board. We also monitored its merger with Gojek.

KrASIA is a digital media company reporting on the most promising technology-driven businesses and trends in the world’s emerging markets.

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