Spectre of startup downcycle not a downer for Eight Roads

Singapore

SLOWING economic growth may spell tougher times for startups and limit prospects for venture investors. But Eight Roads Ventures is sanguine, given its focus on startups with resilient business models, said the firm's South-east Asia head, Dave Ng.

Startups in this region have enjoyed an influx of capital for the past seven years, and sentiment still remains buoyant, Mr Ng told The Business Times in an interview on Monday.

"That being said, as sophisticated investors, we also understand that cycles come and go, and the market could potentially slow down in the future. What is important is that we focus on backing companies that are building long-term value, that would be agnostic to cycles and able to ride temporal ups and downs," he said.

Solely backed by financial services giant Fidelity, Eight Roads invests in verticals including consumer tech, fintech and healthcare. The firm was previously the proprietary investment arm of Fidelity, but underwent a demerger in September.

Eight Roads set up its first South-east Asia office in Singapore in September last year. Its startup investments in this region include Singapore-based robo-advisor StashAway, banking tech firm Silot and Indonesian digital lender Akulaku.

Despite the possibility of a downcycle, the South-east Asian consumer growth story remains compelling, Mr Ng said. This means that there are startup investment opportunities in even seemingly-crowded sectors such as e-commerce and fintech.

In the e-commerce space, for instance, he singles out social commerce - where transactions are enabled by social media - as a growth area. The rising number of individuals selling goods on Facebook and Instagram is a favourable trend in this regard.

Another sub-segment of e-commerce with growth potential is B2B (business-to-business) commerce, where startups can build platforms allowing smaller businesses to "aggregate the supply chain", Mr Ng said.

"For example, a platform (could) allow all the little shops to source online and aggregate that demand to help them to get better pricing and cut down unnecessary middle layers. This is also where logistics (can) come into play, as well as potential partnerships with FMCG (fast moving consumer goods) groups," he explained.

With a rise in e-commerce, logistics is a natural growth area for South-east Asian startups, according to Mr Ng. While the last-mile logistics space has gotten crowded, "mid-mile" logistics is still an untapped area, where startups can make the transport of goods between suppliers and retailers more efficient, he added.

Meanwhile, democratising financial access in South-east Asia remains a big challenge where more innovation is due, Mr Ng said.

He finds online, direct-to-consumer insurance particularly interesting, noting that much of this region remains under-insured.

With such growth areas in mind, Eight Roads will continue to deploy its "patient capital" in South-east Asia, come rain or shine, Mr Ng revealed. He will be looking out for startups that are similarly playing the long game. "We think that if you are really building a good business and solving market problems, you shouldn't be afraid of cycles; you should be here to stay," he added.