Investors to cash out as Singapore TikTok-rival Lomotif sold for US$125m

Singapore

SINGAPOREAN Paul Yang spent three and a half years sleeping on strangers' couches in the US as he scrimped to build his video-sharing app, used today by millions.

Now, his company Lomotif is getting acquired by a US-based group in a deal that could see significant returns for his handful of early backers. The TikTok-rival's investors include Golden Gate Ventures, Koh Boon Hwee and Kuok family-linked K3 Ventures.

The app is popular among urban youth in the United States and Brazil, and registered 14 million monthly active users in February, according to mobile app data firm SensorTower.

Zash Global Media and Entertainment is buying an 80 per cent stake in Lomotif in an all-cash transaction.

Zash's co-founders are Ted Farnsworth, the former chairman of failed theatre-subscription service MoviePass; Jaeson Ma, an early investor in Musical.ly (which merged into TikTok); and Vincent Butta, the former board member of video-sharing app Triller.

The deal, which Bloomberg has reported at US$125 million, would put Lomotif's valuation at close to seven times its US$22.5 million in November 2018, based on research by data platform VentureCap Insights.

The data showed Lomotif has raised an aggregate US$8.3 million in equity funding - a relatively small sum for a seven-year-old company.

Its largest shareholders are co-founders Mr Yang and Loh Xiu Hui with a 28.4 per cent and 27.4 per cent stake, respectively. (Dilution from the employee share option plan and any convertible notes was not accounted for.)

Beijing-based China Creation Ventures invested US$4 million in the startup and now holds a 17.8 per cent stake before dilution. Long-time blue-chip partners Koh Boon Hwee, Tan Chow Boon and Seow Kiat Wang pumped in a million dollars in Lomotif through an investment vehicle, which now holds 9.4 per cent of the company's equity.

Another 8.9 per cent is held by South-east Asia-focused Golden Gate Ventures. Vinnie Lauria, the founding managing partner of Golden Gate Ventures, was an early mentor of the startup and led the fund's US$2 million investment in Lomotif, which now accounts for a 8.9 per cent stake.

Other investors include K3 Ventures, set up by billionaire Robert Kuok's grandson Kuok Meng Xiong; Ireland-headquartered Two Culture Capital; and Singapore-based TNF Ventures.

Locally-listed visual effects studio Vividthree has a small stake in the company through a 2019 deal with tech investor OMG Ventures, as part of a larger transaction involving a portfolio of startups.

Some potential investors were worried about how Lomotif might stack up against dominant players, Mr Yang said. But others saw promise after the startup stuck it out and quietly built its user base.

"The way I look at social media is not 'There's one app to win it all'. The fact is that different apps will exist and there might be different communities," Mr Lauria of Golden Gate said.

"What we've seen in the US with Lomotif versus Tik Tok is that it definitely hits more at urban youth - with hip hop and Latino music - and that's a community that's definitely taken off in the US, and also translated into Latin America."

Building a presence in the US required literal boots on the ground. Armed with a S$50,000 development grant, Mr Yang packed his bags in 2014 and headed to a foreign land in a quest to understand Lomotif's users.

He found that the culture of sharing a creative process, such as remixing and borrowing samples of music, featured strongly in the community. "Multiple patents (for our app's technology) were birthed from this," Mr Yang said.

The next big step for Lomotif is monetising its user base. The company recorded a mere S$9,166 in revenue for the year ended June 30, 2020, against a loss after tax of S$4.2 million, according to data platform Handshakes.

Is the US$125 million price tag unjustified, then? Without confirming the deal size, Mr Yang pointed to how pre-revenue Instagram and Musical.ly were acquired for US$1 billion, with monetisation coming later.

Lomotif plans to strike advertising partnerships with brands. For instance, Nike can pay the platform to can get its video clip featured more prominently than a clip from Adidas in the app's library of clips.

In that scenario, creators who use Nike's clip in their videos can get a cut of Lomotif's revenue if the video gets a certain number of views. Mr Yang said the company is aiming for scale instead of focusing on select users with a large follower base.

"It's like how Alibaba served mom-and-pop shops back in the day, because these shops don't have a huge IT department for e-commerce, so Taobao served that need. In the same way, we are meeting the needs of the average creators - the long tail."

Lomotif also helps creators, such as beat producers and rappers, find each other. In the company's next phase of expansion, it will help them distribute their original content through streaming channels and split the revenue with them.

The next stop on the map for Lomotif is South-east Asia, a fast-growing mobile-first economy, and India, where TikTok has been banned. It plans to grow its team of 39 staff to about 300 over the next 18 months to support this growth.

"We want Lomotif to be a home for creators," Mr Yang said.

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