Snippets from this piece were featured in KrAsia’s Venture Voices: The WeWork fiasco and its lessons for Southeast Asia’s startups scene.
Losses are part-and-parcel of the VC industry
When it comes to investing in fast-growing technology companies, risk is always part of the deal. There is the uncertainty that comes with scaling a presumably innovative business model or product, the volatility of disrupting often entrenched markets or industries, and the unpredictability of human behavior that comes with managing a fast-growing company.
For all the due diligence, analysis, and even intuition that goes into dealmaking, losses remain part-and-parcel of the VC industry, be it as a result of a missed opportunity or a misplaced bet. From that perspective, WeWork’s fiasco and the subsequent entrenchment of Softbank doesn’t deviate from the spectrum of possible investment scenarios.
The scale and anticipation has certainly drawn in an equivalent amount of attention and commentary, but similar cases have come up prior to WeWork in varying degrees.
More than what can be learned from the fiasco (nothing new), it’s the implications for ecosystems that are much more compelling. For Southeast Asia in particular, it is a signpost for VCs in the region to reevaluate capital flows in the region as more money will continue to flow in, especially from China. What is the bigger picture for these investments?
The Southeast Asia thesis
The recent influx of investments into Southeast Asia are largely motivated by the potential value of capitalizing on technological niches. It’s not just about finding the next billion dollar company that disrupts an industry, but the next billion dollar industry or ecosystem that caters to the diversity of localities and needs across the region. It’s not just about producing exits, but exits that can support these industries long-term. This means a good balance of growth and profitability, which is becoming more attainable with smarter money in the region.
Smarter money means investing is not just about making individual bets, but testing different theses in the market over time. Aside from capital, VCs help founders to achieve the shared vision of the company by investing time with the company. Much of the effort placed by investors into the region has gone into supporting founders post-money, providing access 24/7 to networks, services, and experience. VC is no longer simply an industry that bridges capital but also a whole variety of resources, from tech services to hiring for senior positions and PR support.
This paradigm is reflected by the region’s unicorns as well. While notably loss-making, they are also taking the lead on carving a path towards sustainable growth, focusing on growing ecosystems of value rather than solely betting on market share domination. This incentivizes earlier-stage players to build their ventures not just on valuations but on value. And WeWork’s story only reaffirms this.
This Southeast Asia perspective does not take away the risk that comes with investing, nor does it take away the potential losses to be had. Even with theses, not all are proven right in the end. Ultimately the difference lies in the process. Bets are in the momentary roll of the dice, while testing theses are in the day-in and day-out support of startups’ growth. Achieving unicorn status should be less the miracle that everyone marvels at but no one understands, and more catalysts of long-term value across the region.