Perspectives

Delving into the CLMV Start-Ups’ Realm of Possibilities

Credits

Analysts
Mr Jonathan Lau, YLP Analyst

Research
Mr James Tan

Overview

The CLMV countries, namely Cambodia, Laos, Myanmar and Vietnam, have traditionally been overshadowed by its more buoyant ASEAN neighbours. However, the pandemic-induced economic doldrums now pose a giant hurdle in ASEAN’s endeavour toward becoming the fourth largest economy in the world by 2050. This is a rallying call-to-action for CLMV, whose growth is a key factor in that goal.

Startups, the seeds from which major corporations sprout, are the linchpin of economic revitalisation and a burgeoning investor hub. With a relatively raw entrepreneurial scene, CLMV has immense potential for growth and should strive to proliferate strong SMEs and local industries within the next few decades.

This report shall thus focus on the startup ecosystems of CLMV. This report will – (1) unpack outstanding features of the CLMV startup community; (2) examine the respective growth obstacles; and (3) highlight promising sectors that CLMV can dive deeper into.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

Cambodia, Laos, Myanmar and Vietnam, commonly known as CLMV, is an eclectic grouping of long histories and rich cultures. With a sizable combined population of 175.7 million, the market in CLMV is challenging and exciting.

The technology startup scene in these countries has blossomed over the decade. In preceding years, our research and networks on the ground show the rapid growth in the amount of funding, number of startups created, and overall development of the ecosystem.

Even with COVID-19 as an important consideration, we remain bullish on the potential of CLMV. Barring major shifts in political direction, we expect growth in technology startups in CLMV to continue unabated.

---

Cambodia

Overview

Cambodia has had a turbulent history. 40 years on, Cambodia is still reeling from the effects of the Khmer Rouge regime, responsible for the mass killings of millions. Despite its past which has left a significant number of its population in poverty, the country has been striving to escape this state. Its poverty rate has in fact more than halved from 2004 to 2018, with the percentage of citizens under the national poverty line decreasing significantly from 47.8% in 2007[1] to 12.9% in 2018[2]. The economy has primarily been driven by industries such as Agriculture and Garments[3]. Tourism is another leading source of income for the nation as many tourists flock to the country for its magnificent Angkor Wat, contributing 12.1% to the nation’s GDP in 2019[4].

However, the negative impact of COVID-19 on its core sectors has once again highlighted the importance for the country to focus less on traditional sectors that rely heavily on manual labour or external derived demand[5]. Instead, they need to shift their priorities to the digital economy which is often better able to weather heavy storms, and which is largely driven by young budding entrepreneurs in the community.

Startup Community and Ecosystem

1. Co-working Spaces

More than 23 co-working spaces and innovation labs have been established in Cambodia since 2011[6] – a considerable number considering the early stage of the startup ecosystem in the country. In fact, these spaces cater not just to startups, but also to bigger names in the tech community. SmallWorld Realty, a partnership between SmallWorld Venture and Raintree, is one of the newest spaces launched in the country[7]. Its tenants include Microsoft and Grab, thus bringing together opportunities for large collaborations between tech companies and startups. As startup founders continue to grow their business and build their network while working at these collaborative spaces, the startup ecosystem in Cambodia is sure to continue growing and shows no signs of slowing down.

2. Mentorship and Training

Cambodia has a considerable number of incubators and accelerator programmes although its startup ecosystem is still in a rather early stage of growth. The economy is slowly transforming from one heavily dependent on physical labour to one geared towards building skills and knowledge[8], tapping on the youthfulness and vibrancy of its population.

One such accelerator programme available to budding entrepreneurs include the BIO Accelerator Program, launched by the Cambodia Investor Club Association. It provides several months of intense training and mentorship for SMEs chosen to be part of their holistic programme. Entrepreneurs who undergo this programme learn to develop their businesses in a sustainable manner in order to achieve financial independence. SHE Investments has also delivered similar programmes, namely the SHE Incubator and Accelerator. What differentiates them is their specific focus towards women entrepreneurs whom they found are often unable to grow past the micro stage of business[9]. Hence, they aim to help women obtain the same resources and attain the same status as men in this developing economy.

Additionally, a major milestone for the startup community was the launch of the Techo Startup Centre, an incubation centre that aims to further the development of Cambodia’s digital economy[10]. Being government-funded, this signalled the government’s recognition for such innovative efforts and its willingness to dedicate resources to further the development of early businesses. Its location within the Royal University of Phnom Penh also increases its proximity to youths, allowing the community to harness the benefits of its young population.

3. Funding and Investments

Cambodia’s business environment has been known for its openness to foreign companies and investors. The country has designated Special Economic Zones which provide tax benefits on imports and exports, and also permits full foreign ownership of most companies[11]. Although its investment law is already touted to be friendlier than its neighbours’, the country is in the midst of revising its investment law in order to increase its competitiveness and attractiveness among foreign investors[12]. With fewer restrictions and greater protection for investors as compared to other countries, investors will be more incentivised to consider investing in startups in Cambodia.

Its open business environment has evidently reaped benefits, with the country’s investment value increasing from USD 2.9 billion in 2012 to USD 9.4 billion in 2019[13]. The number of publicly-disclosed startup investments has also risen over the years, doubling to more than 10 between the years of 2015 and 2018[14]. This is a vast improvement as startups in Cambodia generally find it difficult to receive seed funding, let alone larger funds[15]. A greater diversity of funding sources has attributed to this rise in investments.

The increase in funding in the last few years has originated from both public and private sources. In the private sector, the USD 5 million Smart Axiata Digital Innovation Fund was launched in 2017 to provide more funding options for local startups[16]. Additionally, Octane, a local venture capital firm backed by Worldbridge Group, closed its first investment fund in 2019 with a total of USD 55 million aimed at tech investments in Cambodia[17]. In the public sector, the government launched a USD 5 million annual fund at the 2019 Cambodia Outlook Conference which aims for “Digital Transformation toward Industry 4.0”[18]. The increase in financial support for local tech startups has thus shifted the country’s focus away from traditional businesses and business models towards those in the digital economy. As the number of funding opportunities increase over the years, startups will be able to gain greater access to capital which will in turn propel further growth and development of the local startup ecosystem.

Challenges

1. Poor Governance

Cambodia has been criticised for not being a true democracy due to the absence of a credible opposition. Kem Sokha, the former leader of the Cambodia National Rescue Party (CNRP), was arrested in 2017 for treason, and the CNRP was dissolved[19]. This enabled Hun Sen’s party to win all parliamentary seats in the 2018 elections with a one party rule. However, no evidence has supposedly been found against Kem Sokha for the last two years, strengthening the theory that he was wrongly accused[20]. Beyond the conjectured corruption involved are dated political ideologies that may hinder the country from advancing together with global trends. The absence of an effective opposition questions the ability of the ruling party to accept foreign trends and practices, thus suppressing the introduction of new developments and perspectives. This may also instil fear in the locals to introduce new ideas to the community that may not be very welcomed by the government as they may risk being criminalised. These considerations may cause Cambodia to strive towards economic and political progress without any effective advancements, affecting all realms in the community including the startup ecosystem. The lack of a strong governmental structure and concerns of corruption may also in turn deteriorate trade relations and hinder foreign investors from entering the country, as already seen by the European Union’s withdrawal of the Everything But Arms’ trade scheme due to concerns of human rights violations[21].

2. Startups’ Limited Access to Capital and Professional Services

One common problem that startups in Cambodia face is their inadequate access to capital and professional services. While strides have been made to promote and boost the local startup scene, these fundamental resources are required by the startups when developing their business.

The poor access to capital is a problem not only faced by startups, but by businesses in general. With high interest rates, undesirable loan terms, and high collateral requirements, local businesses find it difficult to receive capital financing. This has been highlighted as a problem by the Cambodian government under the Cambodia Industrial Development Policy 2015-2025[22], reinforcing the need to improve the country’s banking system in order to support local businesses and further economic growth in the country. While a new fund dedicated to capital financing for SMEs was set up in 2020 by the Rural Development Bank[23], it specifically targets SMEs in the agricultural sector which has traditionally been the backbone of the Cambodian economy. As a result, SMEs in other rising sectors are still left behind.

SMEs have also had limited access to professional services, which are the key to establishing their businesses within the country’s regulatory framework. Over 60% of founders have struggled to find sufficient information related to legal and tax advice24[24], thus posing an obstacle to their awareness of the latest updates or actions that they are required to take. Several firms have noted the importance of improving startups’ access to professional services. In 2019, the first professional service alliance in the country was established, with a focus on the tech community which consists of many startups[25]. This marked a huge milestone for the startup community which will be able to receive more guidance and advice. To ensure that the startup community is able to continuously receive such crucial support, the alliance can consider bringing more professional services firms on board to expand the capacity that the fast-growing startup scene requires.

Rising Sectors

1. Fintech

Cambodia’s population is becoming increasingly tech-savvy, yet 78% of them remain unbanked and a mere 13% are acquainted with mobile payments as of 2019[26]. As few established foreign players have noticed this under-served market[27], startups can capitalise on this opportunity to meet the needs of the local population. These startups can provide mobile payment solutions and even address the very issue of the limited access to capital that many startups are facing today. Several startups, such as Morakot Technology and Clik have already entered the Fintech sector, carving a name and reputation for themselves. As new Fintech startups are sprouting quickly, founders that aim to address existing problems in the Fintech sector need to take quick action and launch their business soon in order to ride this wave.

2. Agritech

Agriculture made up 20.71% of Cambodia’s GDP[28] and employed 32.3% of the population in 2019[29]. As one of the key drivers of the country’s economy, it is understandable why it has been receiving a considerable amount of attention and resources from the government. Apart from the specific funding provided to Agriculture companies, the Ministry of Agriculture, Forestry and Fisheries has soft-launched a mobile application for the sector, tying it in with e-commerce to match farmers with consumers[30]. There is evidently still a gap in the Agriculture sector in terms of streamlining processes and there remains a lot of untapped potential in terms of the mechanisation of agriculture. Nevertheless, farmers increasingly understand the importance of moving away from traditional manual processes in order to improve productivity[31]. Agritech thus plays an important role in transforming the sector that has supported the country tremendously for it to remain as a driving force for the Cambodian economy.

Conclusion

Cambodia’s open business environment is definitely a strong pull factor for foreign investors and business owners, but changes in its complex political scene may affect foreigners’ perceptions of the country’s long-term stability. The government’s focus has appeared to be on traditional industries, such as Agriculture, Manufacturing, Garments, and Construction. While technology can play a significant role in digitising these industries and transforming them, it will be difficult for startups to enter these industries predominantly occupied by large players unless they are offered more opportunities to obtain the resources needed to compete effectively with these players. Although some of these efforts are targeted towards specific industries, it is heartening to know that there have been more initiatives from both the private sector and the government in the form of accelerators and funding.

Nevertheless, the startup ecosystem, while making significant progress over the years, may be at too early a stage for many foreign companies and angel investors to confidently enter and provide the resources it requires. It still needs greater support from the local community first before more foreign investors and companies are willing to step in and complement local efforts with their own.

---

Laos

Overview

A landlocked country with a small population of 7.2 million, Laos is often overshadowed by its neighbours, yet it has had comparable economic growth despite being one of the poorest countries in Southeast Asia. Having been given a status upgrade by the World Bank and transiting from a low income to a lower-middle income economy[32], Laos’ real GDP has been steadily rising[33].

Its small domestic market has raised investors’ doubts on whether the market is large enough to support sustainable growth[34]. To mitigate them, Laos has increasingly engaged in international trade, namely through its entrance into the World Trade Organization (WTO) in 2013. This has allowed the landlocked country to gain access to more trade partners and negotiate for more advantageous trade terms[35], introducing the closed economy to a trove of resources and opportunities. Yet at the same time, this may also expose the country to instability in the international economy that it was previously rather shielded from, especially if it becomes increasingly dependent on foreign consumption and investments. Nevertheless, it is undeniable that Laos has much to gain from greater international trade, and in particular, the startup ecosystem which has benefited both small and large countries all around the world.

Startup Community and Ecosystem

1. Co-working Spaces

Laos has progressively seen a stronger startup support system in its capital city, Vientiane, through the increased number of co-working spaces to facilitate interactions between startups. Modelled closely after other reputable co-working spaces in the world, Tohlao set up a co-working space in Vientiane in 2016, followed closely by Toong in 2019[36]. These spaces provide a conducive environment for intra and inter-party communication between startups, as well as invaluable opportunities for growth. Despite being a relatively new concept to the community[37], it has seen considerable success and support from local businesses.

2. Mentorship and Training

To tackle the lack of education and skills among the Laotian population, appropriate guidance needs to be provided as even startups with the most extensive resources will be unable to flourish without relevant expertise. While sufficient funding is indeed an enabling factor for businesses, mentorship plays a pivotal role in the long-term development of the business.

As part of Tohlao’s efforts to strengthen the local startup community and promote entrepreneurship, Startup Weekend[38], a competition for startups to hear from successful businessmen and develop a business plan, was organised. The winning teams will then be given the opportunity to participate in Tohlao’s startup incubation programme[39], which has birthed successful startups such as Book Delivery, Bizgital and LOCA. Similar programmes will definitely aid the growth of businesses in Laos, where there is still a weak presence of strong incubators and accelerators catered to small companies.

The importance of training and developing future generations of skilled workers has also been recognised. Such training has been particularly catered to the technology sector in order to enable strong growth in the digital economy. One notable training programme is the AC STEM Lab[40], supported by the United States Embassy and multinational technology companies including Facebook. While increasing the pool of skilled labour in Laos, such programmes also attract large conglomerates to its undervalued resources and diverse opportunities.

3. Funding and Investments

The limited investments in Laos has been attributed to the rather nascent stage of the startup scene in the country, where startup founders have little experience and resources. Angel investors thus often overlook the country in exchange for economic hubs in neighbouring countries, at the detriment of the startups in Laos.

Nevertheless, investors are starting to recognise the growth potential of the small country. In 2016, the Mekong Angel Investors Network (MAIN) created a new chapter in Laos, led by the Australian government and comprising investors from regions including Europe and Australia[41]. Although this signals positive change to the startup scene, more investment opportunities need to be created in Laos in order to retain and attract investors who will otherwise take off for more attractive deals in its neighbouring countries. Potential startups in Laos need to tap on their strengths which, unlike many startups in other countries, may not lie in the technology sector, at least not for now.

Potential Challenges

1. Lack of Sizeable Talent Pool

Laos’ small population has, from the start, restricted its talent pool of knowledgeable and skilled workers. This is further dampened by the poor financial literacy and financial inclusion among its citizens. The unbanked population in Laos makes up more than 60% of its total population[42], as they mainly engage in informal financial services. As a result, they are largely unaware of the functioning of the financial markets and the proper processes needed to secure funding for their business.

The language barrier also poses an issue for local startups to secure foreign funding, whose founders may be unable to eloquently present their business plan to overseas investors in English[43] – the dominant language of businesses[44]. This thus reduces their ability to facilitate communications and build relationships with foreign investors whose primary means of communication could be in English. Consequently, there needs to be greater investments in human capital by the local government in order to attract long-term foreign investors to the country.

2. Underdeveloped Technological Infrastructure

The underdeveloped technological infrastructure is exceptionally evident in two areas: (1) internet usage and (2) financial technology (Fintech) solutions.

The internet penetration rate in Laos is one of the lowest in ASEAN – a mere 39% in 2019[45]. This low take-up rate has hindered businesses from harnessing technology to maximise efficiency, and has reduced their ability to raise awareness of their business ideas through social media and networks. A stronger technological infrastructure is needed to support businesses through their conceptualisation and operational phases, and help them compete with similar companies in the global arena.

Fintech advancements in Laos are also scanty, signalling the lack of exploration into the field by individuals and small businesses. The financial services sector in the country is still in its infancy stage, with advancements mainly led by financial institutions. The state-owned commercial bank, Banque pour le Commerce Exterieur Lao (BCEL), partnered with CyberSource in 2013 to offer a secure online payment gateway for merchants and customers[46]. But such developments are few and far between, and may be deemed insufficient to keep Laos up with the pace of global technology advances, contributing to its large unbanked population as well.

Rising Sectors

1. Edtech

Edtech is one sector poised for growth, and whose growth has been accelerated in this COVID-19 landscape. Laos’ neighbouring countries, including Vietnam and Thailand, have implemented several of such solutions including Topica and OpenDurian even before this pandemic. As the adult literacy rate in Laos remains the lowest among the CLMV countries at 58.3%[47], there definitely remains a gap in the education market that startups have the ability to fill although Laos’ technological infrastructure and uptake needs to increase tremendously.

The need for localisation and customisation of this sector raises the barrier to entry to foreign companies, who may also overlook Laos’ underserved market in favour of other larger markets. This represents a good opportunity for local startups as education solutions need to be tailored to local needs. Such needs are best understood by the locals, rather than foreign companies that may not have a good grasp of the market unless they have local staff on the ground. Locals who are looking to set up a business can definitely consider delving into this space with the lack of competition in Cambodia.

2. Agritech

Agriculture is still one of the main drivers of the Laotian economy although it is gradually contributing less to the economy over the years, making up 15.29% of its GDP in 2019[48]. Due to the unpredictability of the weather and other natural variables in the region, Agritech can mitigate the impacts of these variables and help farmers improve their productivity. The use of drones is a cost-efficient way to monitor the condition of crops over vast areas of land, yet this has hardly been implemented in Laos due to low uptake and regulatory restrictions[49]. Farmers in the country make up a large underserved group that startups can definitely target and aid in the process. Should startups be able to roll out solutions that are able to bypass these regulations and raise greater awareness of their benefits, they will definitely be able to reap the potential of the shift from traditional agricultural methods to digitalised ones.

Conclusion

Laos’ small domestic market may be seen as an impediment to growth in the eyes of foreign investors, but its size should not be the ultimate obstacle to its growth. Laos can learn from the successes of small, developed nations like Singapore – whose population is even smaller – in terms of harnessing the full potential of its population through greater dedication of financial and physical resources to its human capital.

In order to further its pursuit for economic growth, Laos needs to contribute more towards startups who may have brilliant solutions to its long-standing problems and which are scalable in nature. Currently, the infrastructure and resources required to create a robust startup ecosystem in Laos are still lacking. There are few available incubators and accelerators that would otherwise immensely benefit the locals in terms of the capital and mentorship they require. Moreover, only 39% of the Laotian population had subscription to internet services as of 2019[50]. A larger proportion of the population needs to have regular access to the internet in order for companies to reach out to them with new technological solutions. Only when these issues are addressed can the startup ecosystem truly flourish.

---

Myanmar

Overview

As the largest country in mainland Southeast Asia, Myanmar is a country known for its long history and rich culture. The country stands to benefit from its large young population where 55% of its population is aged under 30[51], thus granting them access to a large talent pool who can enact various changes in the future and bring about stability to its social structure.

The country has experienced positive GDP growth every year for the past 30 years ever since its liberalisation[52], and it is expected to remain positive at 1.8% in spite of the pandemic’s effect on the global economy[53]. Myanmar’s economy has traditionally been centred around Agriculture, which hires 48.85% of its working population[54] and provides a stable contribution to the country’s GDP[55], although this number is now on a decreasing trend. Its Industrials sector, consisting of manufacturing, mining and hydropower, is another key source of revenue for the country as it harnesses the benefits of its natural endowment.

Startup Community and Ecosystem

While the startup ecosystem is still in its early stages, it has made significant headway in generating acceptance of innovation and entrepreneurship within the community. Digitalisation has played a great role in expediting this progress, with the SIM penetration rate in Myanmar multiplying from 10% in 2013[56] to 105% in 2019[57]. Greater digital connectivity has enabled startups to connect with a larger target audience and expand their reach, contributing to the digital economy in return[58].

1. Co-working Spaces

The first co-working space established in Yangon was Phandeeyar[59]. Since its establishment, the importance of such cost-efficient spaces for freelancers and startups has been recognised. This has led to more co-working spaces being set up over the years to meet the demand for flexible work arrangements and locations. Another similar space is Seedspace Yangon, an entrepreneurship hub opened in 2019 which offers co-working spaces and boosts collaboration among startups and with external partners[60].

2. Mentorship and Training

Many incubators and accelerators have been established in the local community in order to support startups in their early phases. Incubators, such as Impact Hub Yangon and Kanaung Hub, organise workshops for entrepreneurs in order to realise their ideas. Accelerators, such as Phandeeyar Accelerator[61], help startups at a slightly later stage of development by organising various programmes and competitions to provide them with resources to further their growth. The GSMA Ecosystem Accelerator Innovation Fund also provides grants and equity-free funding to the startups selected for its annual programme[62]. Such programmes provide tangible benefits to startups who lack the resources and expertise to grow their innovative ideas, and are particularly important for the emerging economy.

Several facilities in Myanmar also dedicate themselves to the training and development of the population’s skills in order to equip locals, especially youths, with the necessary knowledge and mindsets to launch a successful business. One example is the Myanmar Young Entrepreneurs Association (MYEA) which aims to empower youths to pursue entrepreneurship[63]. The Myanmar Women Entrepreneurs Association (MWEA), which promotes women entrepreneurship and gender inclusivity, recently established the Women’s Entrepreneurship Development Center to further encourage women’s pursuit of entrepreneurship through their ability to balance work and family[64]. It is commendable to note that organisations are putting in immense effort and resources to enhance the entrepreneurial ecosystem in the country while pursuing sustainable development goals at the same time. Some of these initiatives have been set up by foreign companies as part of their corporate social responsibility programme. For example, the Samsung Tech Institute launched by Samsung Myanmar in 2016 provides vocational training to high school students in various technology fields, exposing them to more career options and linking them up with networks of successful entrepreneurs.

3. Funding and Investments

The amount of private investments in Myanmar has been expanding, in the form of private equity, venture capital, and angel investors. The number of private equity deals has been steadily increasing for the past five years, from just three deals in 2015 to 15 deals in 2019, although the size of the deals has largely varied especially in 2016 and 2018 which received mega-deals[65].

Several companies have led these private investments in Myanmar. Delta Capital Myanmar has been at the forefront of the scene since its establishment in 2013 with USD 120 million of assets under management, making it the largest asset manager in the country[66]. Its second fund has had a large focus on economic, social and governance (ESG) investments[67], taking advantage of the increasing popularity of impact investing in Southeast Asia[68]. Venture capital firms have also been reaping the benefits of investments in early-stage companies and startups. Seed Myanmar and EME Asia are two such companies that have concentrated their portfolio solely on Myanmar startups, as they believe in the startups’ deep knowledge of the challenging local market and ability to leverage their networks.

Angel investors make up another group of private investors that has contributed to the accelerating growth of the economy by investing in seed stages of startups. These investments are often made through angel investment networks such as the MYEA Angel Network, or the ASEAN Angel Alliance. Myanmar is in a strong position to benefit from this group of investors as angel investors have begun eyeing the Southeast Asian region for growth opportunities[69].

Challenges

1. Slow Acceptance of International Trade

Myanmar’s slow acceptance of international trade has largely been attributed to its large domestic market, the main source of its current economic growth. Its exports as a percentage of its GDP, at just 30.4% in 2019[70], is among the lower percentages in ASEAN, including landlocked Laos which arguably has less access to international economies due to its geographical positioning.

Trade is a factor crucial for economies to thrive and will prove to be beneficial in the long run. Given its strategic location, Myanmar should harness its geographical advantage to become a key exporting hub in the region. As the regulations surrounding exports become more relaxed and Special Economic Zones (SEZs) are established, there is greater incentive for both trade and investments. These developments signal that the importance of trade is gradually being recognised in Myanmar, with new bilateral projects and agreements being established regularly. The liberalisation of Myanmar’s economy is quickening, and will soon achieve rapid growth should it be able to sustain its existing momentum and should local companies be able to gain greater traction in foreign markets.

2. Political Instability

Politics in Myanmar has long been rife with corruption, control, and power. Being poorly ranked at 130 out of 180 countries on the 2019 Corruption Perceptions Index by Transparency International[71], Myanmar’s relatively high levels of corruption could pose an obstacle towards attracting foreign direct investments (FDI) to the country, as investors question the legitimacy and transparency of the bureaucracy.

Though significant political headway was finally made in 2015 after half a century, the NLD has seen its support dwindle due to its poor relations with minority groups[72]. While initially revered as a public icon, Aung San Suu Kyi has been criticised for her dealings with the minority ethnic groups in the country. Internal clashes have intensified instead of ameliorating, even requiring interference from the International Court of Justice[73]. Fighting in the Shan and Kachin states, as well as the Rohingya crisis in the Rakhine state, have displaced minority groups and disrupted internal peace – a factor crucial to stimulating the country’s tourism industry. It is likely that these conflicts will have an impact on other aspects of the economy too, including the inflow of FDI. For Myanmar to sustain strong economic support from the international community, it is imperative for it to continue working towards political stability through collaboration agreements between the NLD and the Tatmadaw, and with minority ethnic groups.

Rising Sectors

1. Healthcare

The ongoing pandemic has reinforced the need for reliable healthcare services. Myanmar’s health worker density of 1.49 health workers per 1,000 people[74] is well below the World Health Organization’s recommendation of 2.3 health workers per 1,000 people[75], thus necessitating more resources to be allocated to the sector in order to compensate for its low healthcare coverage.

Several large pharmaceutical companies, including DKSH Group, have already entered into partnerships with the government to embark on programmes that aim to increase access to high-quality healthcare among the local population[76]. Likewise, there have been startups who are developing solutions to back-end issues in the healthcare sector such as poor custody of patients’ medical records and personal data. Klenic Software Co. is one startup that has aimed to protect such information through digital solutions and Software as a Service (SaaS) technology[77], adding value to the support network. With a growing need for a strong healthcare system, startups can capture the opportunity and bridge the gap between the existing healthcare infrastructure and those not covered by the healthcare network.

2. Financial Services

Myanmar’s low financial inclusion has made Financial Services a rising sector. Currently, more than 70% of Myanmar’s population remains unbanked[78], a far cry from the much lower 31% of unbanked global population recorded in 2018[79]. At the same time, the country has had a high smartphone penetration rate of 80%, signalling the potential to gain the population’s acceptance of such under-explored services through the digital realm.

Several companies have tried to bridge this gap in Myanmar, including Wave Money, a joint venture between Telenor, Yoma Bank, and First Myanmar Investments, which allows for quick and secure electronic funds transfer across the country[80]. Myanmar’s Central Bank has also piloted MMQR, which enables the use of QR code payments at local businesses and banks, bringing it a step closer to digitalising payments and becoming a cashless society[81]. Nevertheless, the outreach by existing providers needs to be greater – a gap which can be further narrowed by startups.

Conclusion

With greater liberalisation of the economy and advancements in the political scene, Myanmar is now making its way to become an attractive destination for investors. The nascent startup scene in Myanmar is gaining a lot of attention not just within the domestic economy, but also among the international community. Currently, the economy has a greater focus on the development of early-stage businesses, and the community has benefited from startups who have developed solutions to solve local problems which they have personally experienced. As such early-stage startups grow and prove profitable, investors will be more willing to dedicate capital and resources to later-stage developments in the economy, enabling the ecosystem to flourish as a whole.

---

Vietnam

Overview

Vietnam has achieved immense success over the past three decades, experiencing rapid economic growth and establishing strong relationships with other countries. The introduction of the Doi Moi Policy in 1986 during the country’s economic crisis shifted them from being a communist economy to a “socialist-oriented market economy”[82]. Consequently, their private sector has become a large contributing factor to their economy, and the country’s GDP is projected to grow 2.8% this year in spite of the ongoing pandemic, ranking it the fifth in the world in terms of speed of growth[83].

Its strong growth can be attributed to its healthy relationships with large global economies as it strives towards achieving an open economy. The many foreign agreements signed by Vietnam have enabled its admission into the ASEAN Free Trade Area, World Trade Organization, and the recent EU-Vietnam Free Trade Agreement[84]. Such agreements have allowed the country to enjoy tax benefits, thus promoting the implementation of pro-business regulations and policies in order to attract foreign investment and facilitate trade.

Startup Community and Ecosystem

As one of Southeast Asia’s fastest growing economies, the startup ecosystem has been a great contributor to its dynamic nature. The country has been constantly improving its ranking on the Global Innovation Index, achieving 42nd place out of 129 countries in 2019 and exceeding expectations for its “Lower-middle Income” group[85].

1. Co-working Spaces

Vietnam is increasingly being dotted with startup facilities, especially startup hubs and co-working spaces. They are mostly found in Hanoi and Ho Chi Minh City in order to cover ground in both the North and South of the country. Familiar names in the field include WeWork, Dreamplex, and Toong. UPGen is also another local co-working space that has thrived over the past few years, opening its first workspace in 2016 and 17 more in the following years. In fact, it caters its space to both startups and corporations as it often dedicates around half of each space to an anchor tenant, who will then occupy a greater space as it grows larger over the years[86].

The growth of co-working spaces has been phenomenal, with the sector growing 55% annually from 2013 to 2018, pushing Vietnam into the top 50 global rankings in 2019 for coworking growth[87]. Such a business model has gained significant traction among the Vietnamese, where its youthful population has a strong entrepreneurial mindset and thirst for success. These facilities catered especially to startups and SMEs will provide them with greater flexibility and a conducive environment to exchange innovative ideas.

2. Mentorship and Training

Mentorship to startups in Vietnam have mainly come in the form of accelerators and conferences. These involve different types of exposure, ranging from seminars to hands-on workshops and networking sessions. Techfest Vietnam is a prominent conference organised for the startup community which attracts thousands of attendees, enabling startups to expand their network and outreach[88].

A tremendous amount of support has been provided by the government in terms of building accelerators and forming partnerships with innovation hubs worldwide to encourage and grow entrepreneurship. One fresh example is Grab Ventures Ignite, Grab’s newly launched accelerator programme under their “Grab for Good” development plan, which is partnering with Vietnam’s National Innovation Center among other prestigious names[89]. Saigon Innovation Hub, a government-backed agency, has also facilitated a partnership with Quest Ventures and Enterprise Singapore as part of the Global Innovation Alliance (GIA) network which increases awareness of both countries’ startup ecosystems through exchanges and market access programmes[90]. Such cross-border collaborations will definitely spur startups to explore new frontiers and boost innovation within the ecosystem.

3. Funding and Investments

With many initiatives from both the public and private sectors, Vietnam’s startup ecosystem is certainly experiencing rapid growth and attracting various types of investors. These include private equity firms and angel investors. In the case of angel investors, their investments are made via networks such as the Vietnam Angel Investor Network (iAngel) and Vietnam Angel Network (VAN), or perhaps even through the angel investment reality show Shark Tank Vietnam.

Private equity plays a pivotal role in advancing the innovation ecosystem in Vietnam. With a mix of domestic and foreign players respectively making up 36% and 64% of private equity investments[91]. In Vietnam, between 2017 and 2019, private equity firms had reaped USD 1.8 billion from 139 deals across the country[92]. They are now on par with Indonesia in terms of deal value and their growth is projected to accelerate in the years to come. Key players in private equity include Mekong Capital and Vietnam Investments Group.

There has also been a strong presence by venture capital firms in particular. IDG Ventures Vietnam (IDGVV) spearheaded the development of venture capital in Vietnam in 2004, with its 35 portfolio companies today including notable investments like VNG, Webtretho, and Vietnamworks[93]. Ever since, Vietnam has seen the entry of multiple funds from all over the world, especially in recent years. Silicon Valley-based venture capital fund 500 Startups began its Vietnam chapter in 2016 and was oversubscribed with a fund size of USD 14 million and 42 portfolio companies as of May 2019[94]. Regional venture capital firms such as Quest Ventures, Cento Ventures, and Monk’s Hill Ventures have also been actively involved in investing in early-stage companies in Vietnam.

Challenges

1. Slow Regulatory Reforms

Vietnam’s economy is fast-growing, yet its regulatory reforms seem to be lagging behind and are still unable to keep up with those of developed countries. Vietnam’s ranking in the Ease of Doing Business under the World Bank’s Doing Business Report has somewhat stagnated for the past few years, hovering around 68th place in 2017 and dropping to 70th place in 2019[95]. Its current economic prosperity is mostly attributed to past economic reforms such as the Doi Moi policy, and current reforms need to work in tandem to support this boom. New regulations need to be consistent and transparent to the masses[96]. It is imperative to continue providing assistance and greater protection for investors and taxpayers in order to entice them to local businesses[97].

2. Poor Enforcement of Intellectual Property (IP) Rights

The enforcement of IP rights is crucial for an economy to continue developing and attracting investors. While more than 300 businesses in Vietnam have made their first moves in legalising softwares, thousands continue to stick with piracy softwares[98] – a red flag for poor enforcement and abuse of rights despite existing regulations[99]. Without strong protection of IP rights, businesses may be deterred from conducting research and development as their new solutions can easily be copied by competitors. This in turn results in a vicious cycle where innovation is hindered, causing the economy’s growth to slow down and plateau. Fortunately, this has been recognised as a problem and the government has released a national Intellectual Property Strategy till 2030 as it works towards sustainable growth and development[100]. Government agencies need to be proactive when enforcing IP rights and also aim to build respect and awareness of the importance of such rights within the community[101].

Rising Sectors

1. Fintech

The Fintech sector in Vietnam is rapidly growing, with Vietnam’s growing middle class contributing to an increase in internet usage and demand for such services. Vietnam’s Fintech Startup Map 2019 shows the many companies in each Fintech segment, of which Payments and Peer-to-peer lending are the two largest segments[102].

However, a whopping 69% of its population remains unbanked[103]. Despite the many Fintech companies in Vietnam aiming to bridge this gap, there is evidently a still a need for more companies to serve the local population in the financial services field. The sector has been receiving strong support from investors, increasing its share of Southeast Asia’s total Fintech investments from 0.4% in 2018 to 36% in 2019[104]. With the strong support from investors and with the government working towards building a cashless society[105], businesses who aim to venture into this sector are thus poised for growth.

2. E-commerce

With the rising smartphone and internet penetration rates in Vietnam, e-commerce is becoming an increasingly common mode of transaction among the local population. The Vietnamese e-commerce market amounted to USD 5 billion in 2019 and is projected to hit a staggering USD 23 billion in 2025, with a compound annual growth rate of 7.1% for its revenue[106]. This has put it as one of the fastest-growing internet economies in Southeast Asia alongside Indonesia[107], presenting a significant opportunity for online marketplaces and local merchants. While international companies such as Shopee and Lazada are large players in the Vietnamese market, local platforms including Thegioididong and Tiki are faring strongly as well by improving their value propositions to customers[108]. The government has also laid out an e-commerce development plan for the nation, focusing on the sector’s growth while also keeping sustainability in sight[109]. Companies that are able to incorporate these goals in their business while keeping costs low and remaining competitive will eventually emerge out top.

Conclusion

Vietnam is on an upward trajectory, showing no signs of faltering. Their startup ecosystem is at a relatively advanced stage as compared to Cambodia, Laos, and Myanmar, and the entrepreneurial mindset is being ingrained in a larger proportion of its population. Vietnam is constantly ahead of its neighbours, and its growth is even expected to overtake several developed economies in the region too.

With its strong human capital and governmental support, more local and foreign investors view it as a vibrant hub and emerging market that is worth exploring. Certainly, failures are inevitable along the way and businesses need time to harvest the fruits of their labour. However, opportunities await investors who are willing to invest in patient capital and who believe in the country’s long-term prospects.

---

Citations

1. World Bank. (2019, October 29). Cambodia: Reducing Poverty and Sharing Prosperity. Retrieved from https://www.worldbank.org/en/results/2019/10/30/cambodia-reducing-poverty-and-sharing-prosperity
2. Asian Development Bank. (2020, April). Poverty Data: Cambodia. Retrieved from https://www.adb.org/countries/cambodia/poverty#:~:text=Poverty%20Data%3A%20Cambodia&text=In%20Cambodia%2C%2012.9%25%20of%20the,Cambodia%20is%200.7%25%20in%202019.
3. ASEAN Briefing. (2019, March 1). Cambodia’s Investment Outlook for 2019. Retrieved from https://www.aseanbriefing.com/news/cambodias-investment-outlook-for-2019/
4. Xinhuanet. (2020, February 26). Cambodia’s tourism makes 4.92 bln USD revenue last year. Retrieved from http://www.xinhuanet.com/english/2020-02/26/c_138820873.htm
5. EastAsiaForum. (2020, June 12). Cambodia’s COVID-19 success and economic challenges. Retrieved from https://www.eastasiaforum.org/2020/06/12/cambodias-covid-19-success-and-economic-challenges/
6. Khmer Times. (2019, July 4). American Tech Companies Grow Cambodia’s Digital Economy. Retrieved from https://www.khmertimeskh.com/620474/american-tech-companies-grow-cambodias-digital-economy/
7. e27. (2019, October 22). Cambodian tech ecosystem adds new co-working space SmallWorld Realty, collaborating with creative office development Raintree. Retrieved from https://e27.co/in-photos-cambodian-tech-ecosystem-adds-new-co-working-space-smallworld-realty-collaborating-with-creative-office-hub-raintree-20191022/
8. e27. (2018, June 27). Young but growing, Cambodia startup ecosystem is ready to step up. Retrieved from https://e27.co/young-growing-cambodia-startup-ecosystem-ready-step-20180627/
9. United Nations Development Programme Cambodia. (2020, February 19). The Launching of “SHE Incubator and Accelerator Program”. Retrieved from https://www.kh.undp.org/content/cambodia/en/home/presscenter/speeches/2019/remarks–by-dr–rany-pen–assistant-resident-representative–und.html
10. Khmer Times. (2019, April 10). Government-funded business startup centre launched. Retrieved from https://www.khmertimeskh.com/595046/government-funded-startup-incubation-centre-launched/
11. ASEAN Briefing. (2019, March 1). Cambodia’s Investment Outlook for 2019. Retrieved from https://www.aseanbriefing.com/news/cambodias-investment-outlook-for-2019/
12. Khmer Times. (2020, July 10). New investment law to attract more investments. Retrieved from https://www.khmertimeskh.com/50743474/new-investment-law-to-attract-more-investments/
13. Council for the Development of Cambodia. (n.d.). Investment Trend. Retrieved from http://www.cambodiainvestment.gov.kh/why-invest-in-cambodia/investment-enviroment/investment-trend.html
14. Kem, B., Sou, J., Ng, Z., & Chan, P. (2019, January 1). Startup Kingdom: Cambodia’s Vibrant Tech Startup Ecosystem in 2018. Retrieved from https://static1.squarespace.com/static/56a87acd05f8e263f7b16c7f/t/5c9b0762085229887ba9af72/1553663849501/Cambodian_Tech_Startup_Report_Final_250319.pdf
15. The Phnom Penh Post. (2018, March 6). Funding is the biggest hurdle for Cambodia’s technology startups. Retrieved from https://www.phnompenhpost.com/supplements-special-reports/funding-biggest-hurdle-cambodias-technology-startups
16. Southeast Asia Globe. (2017, November 15). Smart Axiata announces the first three investees of its digital innovation fund. Retrieved from https://southeastasiaglobe.com/smart-axiata-innovation-fund/
17. e27. (2019, March 1). Cambodia-grown VC firm Ooctane secures US$55M from country’s logistic giant. Retrieved from https://e27.co/cambodia-grown-vc-firm-ooctane-secures-us55m-from-countrys-logistic-giant-20190301/
18. KrASIA. (2019, March 27). Cambodia pledges $5m to strengthen tech startups. Retrieved from https://kr-asia.com/cambodia-pledges-5m-to-strengthen-tech-startups
19. Forbes. (2020, January 22). Cambodia’s Democracy On Trial. Retrieved from https://www.forbes.com/sites/oliviaenos/2020/01/22/cambodias-democracy-on-trial/#3df5e1a0158b
20. The Japan Times. (2020, January 21). Cambodia is criminalizing democracy. Retrieved from https://www.japantimes.co.jp/opinion/2020/01/21/commentary/world-commentary/cambodia-criminalizing-democracy/
21. European Commission. (2020, February 12). Trade/Human Rights: Commission decides to partially withdraw Cambodia’s preferential access to the EU market. Retrieved from https://ec.europa.eu/commission/presscorner/detail/en/ip_20_229
22. Royal Government of Cambodia. (2015, March 6). Cambodia Industrial Development Policy 2015 – 2025. Retrieved from https://policy.asiapacificenergy.org/sites/default/files/IDP-English-Version-FINAL1.pdf
23. SME Magazine Asia. (2020, February 26). Cambodia sets up Fund to Enhance SMEs’ Access to Finance. Retrieved from https://sme.asia/cambodia-sets-up-fund-to-enhance-smes-access-to-finance/
24. The Phnom Penh Post. (2019, February 13). First startup professional service alliance launched. Retrieved from https://www.phnompenhpost.com/business/first-start-professional-service-alliance-launched
25. e27. (2019, February 14). Cambodia catches up with launching of startup professional service alliance. Retrieved from https://e27.co/cambodia-catches-up-with-launching-of-startup-professional-service-alliance-20190214/
26. Fintechnews Singapore. (2019, May 1). Fintech is the Single Largest Sector in Cambodia’s Startup Scene. Retrieved from https://fintechnews.sg/30413/cambodia/fintech-cambodia-startup-largest/
27. Khmer Times. (2019, July 4). American Tech Companies Grow Cambodia’s Digital Economy. Retrieved from https://www.khmertimeskh.com/620474/american-tech-companies-grow-cambodias-digital-economy/
28. World Bank. (n.d.). Cambodia: Agriculture, forestry, and fishing, value added (% of GDP) – Cambodia. Retrieved from https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?locations=KH
29. Trading Economics. (n.d.). Cambodia – Employment In Agriculture (% Of Total Employment). Retrieved from https://tradingeconomics.com/cambodia/employment-in-agriculture-percent-of-total-employment-wb-data.html
30. Phnom Penh Post. (2020, January 23). App to connect farmers to millions. Retrieved from https://www.phnompenhpost.com/national/app-connect-farmers-millions
31. Khmer Times. (2020, January 27). Farmers need new skills, technology and research to become international. Retrieved from https://www.khmertimeskh.com/50683980/farmers-need-new-skills-technology-and-research-to-become-international/
32. The World Bank. (2011, August 17). Lao PDR Now a Lower-Middle Income Economy. Retrieved from https://www.worldbank.org/en/news/press-release/2011/08/17/lao-pdr-now-lower-middle-income-economy
33. The World Bank. (n.d.). GDP growth (annual %) – Lao PDR. Retrieved from https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=LA
34. Good News From Southeast Asia. (2017, March 10). Startups in Laos on the Rise. Retrieved from https://seasia.co/2017/03/10/startups-in-laos-on-the-rise
35. The Diplomat. (2013, February 7). What Will WTO Membership Mean for Laos?. Retrieved from https://thediplomat.com/2013/02/what-will-wto-membership-mean-for-laos/
36. The Laotian Times. (2019, August 16). Toong: a Hub for Progressive Entrepreneurs in Vientiane. Retrieved from https://laotiantimes.com/2019/08/16/toong-a-hub-for-progressive-entrepreneurs-in-vientiane/
37. Vietnam Economic Times. (2018, February 28). BIM & Toong to open first co-working space in Laos. Retrieved from http://vneconomictimes.com/article/business/bim-toong-to-open-first-co-working-space-in-laos
38. Champa Meuanglao. (2017, May 1). On the table: building a startup community in Vientiane’s first co-working space. Retrieved from https://champameuanglao.com/on-the-table-building-a-startup-community-in-vientianes-first-co-working-space/
39. Investvine. (2019, May 8). Laos Set To Build Up A Startup Community. Retrieved from https://investvine.com/laos-set-to-build-up-a-startup-community/
40. Lao News Agency. (2019, August, 26). U.S. Supports Tech Skills Training For Lao Youth. Retrieved from http://kpl.gov.la/En/Detail.aspx?id=47744
41. Malcolm Turnbull. (2016, September 7). Opening remarks at the Launch of the Laos chapter of the Mekong Angel Investors Network. Retrieved from https://www.malcolmturnbull.com.au/media/opening-remarks-at-the-launch-of-the-laos-chapter-of-the-mekong-angel-inves
42. BOL, GIZ, OECD, & ADBI. (2018). Conference on the Role of Financial Education and Consumer Protection in Supporting Financial Inclusion . Retrieved from http://www.oecd.org/finance/financial-education/Lao%20PDR%202018%20Summary%20Record.pdf
43. OECD, & Economic Research Institute for ASEAN and East Asia. (2018, September 1). SME Policy Index: ASEAN 2018 Boosting Competitiveness and Inclusive Growth. Retrieved from https://books.google.com.sg/books?id=nHhsDwAAQBAJ&pg=PA299&lpg=PA299&dq=Few+startups+with+founders+who+can+pitch+in+English+laos&source=bl&ots=nPA-f5D6bC&sig=ACfU3U2BkOqytDBjeP9EYTRYHnOyOCtmOw&hl=en&sa=X&ved=2ahUKEwik3vmItLDpAhVJlEsFHdvdAtkQ6AEwAXoECAoQAQ#v=onepage&q=pitch%20convincingly%20in%20english&f=false
44. Harvard Business Review. (2012, May). Global Business Speaks English. Retrieved from https://hbr.org/2012/05/global-business-speaks-english
45. DataReportal. (2019, January 31). Digital 2019: Laos. Retrieved from https://datareportal.com/reports/digital-2019-laos?rq=digital%202019%3A%20laos
46. Fintechnews Singapore. (2017, June 2). The State of Fintech in Laos. Retrieved from https://fintechnews.sg/9709/laos/fintech-laos/
47. KrASIA. (2019, March 11). Edtech firms are filling crucial gaps in Southeast Asia. Retrieved from https://kr-asia.com/edtech-firms-are-filling-crucial-gaps-in-southeast-asia
48. World Bank. (n.d.). Agriculture, forestry, and fishing, value added (% of GDP) – Lao PDR. Retrieved from https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?locations=LA
49. ASEAN Today.(2019, February 1). Is ASEAN doing enough to harness agritech’s potential?. Retrieved from https://www.aseantoday.com/2019/02/is-asean-doing-enough-to-harness-agritechs-potential/
50. DataReportal. (2019, January 31). Digital 2019: Laos. Retrieved from https://datareportal.com/reports/digital-2019-laos
51. Oxford Business Group. (2019). Growth of incomes and Myanmar’s young population drive demand for nonessential goods. Retrieved from https://oxfordbusinessgroup.com/overview/buyers%E2%80%99-market-expanding-young-population-and-rising-incomes-drive-demand-non-essential-goods
52. GDP growth (annual %) – Myanmar. (n.d.). Retrieved from https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?display=graph&end=2018&locations=MM&start=1991
53. Asian Development Bank. (n.d.). Economic indicators for Myanmar. Retrieved from https://www.adb.org/countries/myanmar/economy
54. World Bank. (n.d.). Employment in agriculture (% of total employment) (modeled ILO estimate) – Myanmar. Retrieved from https://data.worldbank.org/indicator/SL.AGR.EMPL.ZS?locations=MM
55. Food and Agriculture Organization of the United Nations. (n.d.). Myanmar at a glance. Retrieved from http://www.fao.org/myanmar/fao-in-myanmar/myanmar/en/#:~:text=Myanmar%20is%20an%20agricultural%20country,percent%20of%20the%20labour%20force.
56. Oxford Business Group. (2019). Growth of mobile and internet usage make Myanmar ICT more competitive. Retrieved from https://oxfordbusinessgroup.com/overview/tech-transformation-mobile-and-internet-usage-rise-sector-set-expand-and-become-more-competitive
57. DataReportal. (2019, January 31). Digital 2019: Myanmar. Retrieved from https://datareportal.com/reports/digital-2019-myanmar?rq=digital%202019%3A%20myanmar
58. Asian Nikkei Review. (2018, June 12). Startups thrive in Myanmar as smartphone usage skyrockets. Retrieved from https://asia.nikkei.com/Business/Startups-thrive-in-Myanmar-as-smartphone-usage-skyrockets
59. Myanmar Times. (2019, June 24). The thriving co-working space industry. Retrieved from https://www.mmtimes.com/news/thriving-co-working-space-industry.html
60. Seedstars. 2019, March 22). Yangon, Myanmar: Seedstars announces its first hub in Southeast Asia. Retrieved from https://www.seedstars.com/magazine/yangon-myanmar-seedstars-announces-its-first-hub-southeast-asia/
61. SMyanmar Times. (2019, September 19). A cradle of local tech innovation. Retrieved from https://www.mmtimes.com/news/cradle-local-tech-innovation.html
62. GSMA. (2018, December 12). Announcing the third cohort of the GSMA Ecosystem Accelerator Innovation Fund. Retrieved from https://www.gsma.com/mobilefordevelopment/blog/announcing-the-third-cohort-of-the-gsma-ecosystem-accelerator-innovation-fund/
63. ThaiBiz Myanmar. (2019, September 6). Myanmar Young Entrepreneur Association launched a new portal which is called MYEA Member Portal in order to create a world class entrepreneurial ecosystem in Myanmar. Retrieved from http://www.thaibizmyanmar.com/en/news/detail.php?ID=2523
64. ThaiBiz Myanmar. (2019, May 14). Women Entrepreneur Association is planning to set up Women’s Entrepreneurship Development Centre in Yangon with the aim to make women’s lives better and provide the economic information in real time. Retrieved from http://www.thaibizmyanmar.com/en/news/detail.php?ID=2168
65. Private Equity International. (2019, November 13). Myanmar pins hopes for nascent PE market on ESG. Retrieved from https://www.privateequityinternational.com/myanmar-pins-hopes-nascent-pe-market-esg/
66. Delta Capital Myanmar. (n.d.). About Us. Retrieved from https://www.deltacapital.com/about-us/
67. DealStreetAsia. (2019, November 27). Delta Capital Myanmar to focus on ESG investing with second fund. Retrieved from https://www.dealstreetasia.com/stories/delta-capital-myanmar-esg-164293/
68. Nikkei Asian Review. (2019, November 23). Southeast Asian companies jump on impact investment bandwagon. Retrieved from https://asia.nikkei.com/Business/Business-trends/Southeast-Asian-companies-jump-on-impact-investment-bandwagon
69. KrASIA. (2020, January 31). What angel investors look for in the SEA market, according to industry insider Jiaway Koh. Retrieved from https://kr-asia.com/founders-are-key-for-angel-investors-says-banseas-associate-director
70. The World Bank. (n.d.). Exports of goods and services (% of GDP). Retrieved from https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS
71. Trading Economics. (n.d.). Myanmar Corruption Index. Retrieved from https://tradingeconomics.com/myanmar/corruption-index
72. The Business Times. (2018, November 5). Aung San Suu Kyi’s NLD party slapped down in by-elections. Retrieved from https://www.businesstimes.com.sg/government-economy/aung-san-suu-kyis-nld-party-slapped-down-in-by-elections
73. The Guardian. (2019, December 12). Aung San Suu Kyi pleas with court to dismiss genocide claims. Retrieved from https://www.theguardian.com/world/2019/dec/12/myanmar-military-incapable-of-looking-into-abuses-court-told
74. Asia IoT Business Platform. (2017, May 31). Tech-gather, we can find innovative solutions to improve Myanmar’s healthcare quality. Retrieved from https://iotbusiness-platform.com/blog/tech-gather-we-can-find-innovative-solutions-to-improve-myanmars-healthcare-quality/
75. World Health Organization. (n.d.). Density of community health workers (per 1 000 population). Retrieved from https://www.who.int/data/gho/indicator-metadata-registry/imr-details/85
76. DKSH Group. Making healthcare accessible to all in Myanmar. Retrieved from https://www.dksh.com/global-en/insights/tl-hec-making-healthcare-accessible-to-all-in-myanmar
77. Myanmar Times. (2019, June 20). Tech start-up offers solution for medical record-keeping. Retrieved from https://www.mmtimes.com/news/tech-start-offers-solution-medical-record-keeping.html
78. PaymentsJournal. (2019, April 29). Myanmar Drives Towards QR Codes With 74% Unbanked, This is a Large Step for Financial Inclusion. Retrieved from https://www.paymentsjournal.com/myanmar-drives-towards-qr-codes-with-74-unbanked/
79. The World Bank. (2018, April 19). Financial Inclusion on the Rise, But Gaps Remain, Global Findex Database Shows. Retrieved from https://www.worldbank.org/en/news/press-release/2018/04/19/financial-inclusion-on-the-rise-but-gaps-remain-global-findex-database-shows
80. Fintechnews Singapore. (2019, November 21). With 70% Unbanked Population, Myanmar Bets on Fintech to Improve Financial Inclusion. Retrieved from https://fintechnews.sg/35276/myanmar/myanmar-fintech-financial-inclusion/
81. Deloitte. (2020, January). The Myanmar Consumer Survey. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/sg/Documents/consumer-business/sea-cb-myanmar-consumer-survey-2020.pdf
82. The ASEAN Post. (2018, August 27). Vietnam’s reforms paying off. Retrieved from https://theaseanpost.com/article/vietnams-reforms-paying
83. Hanoi Times. (2020, July 30). Vietnam forecast to be fifth fastest growing economy in 2020: World Bank. Retrieved from http://hanoitimes.vn/vietnam-forecast-to-be-fifth-fastest-growing-economy-in-2020-world-bank-313569.html
84. AEC News Today. (2020, June 22). Why the EU-Vietnam Free Trade Agreement (EVFTA) is such a big deal. Retrieved from https://aecnewstoday.com/2020/why-the-eu-vietnam-free-trade-agreement-evfta-is-such-a-big-deal/
85. Cornell University, INSEAD, & the World Intellectual Property Organization. (2019). The Global Innovation Index 2019: Creating Healthy Lives – The Future of Medical Innovation. https://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2019.pdf
86. AllWork. (2020, July 28). Scaling a coworking brand in Southeast Asia: A Q&A with Nam Do, co-founder of UPGen. Retrieved from https://allwork.space/2020/07/scaling-a-coworking-brand-in-southeast-asia-a-qa-with-nam-do-co-founder-of-upgen/
87. Vivid Invest. (2020, March 10). Vietnam’s Coworking Boom. Retrieved from https://www.vividinvest.com/2020/03/vietnams-coworking-boom/#:~:text=From%202013%20to%202018%2C%20the,the%20opening%20of%20new%20spaces.
88. e27. (2020, January 9). Is Vietnam the new golden child of tech startups in SEA?. Retrieved from https://e27.co/why-vietnam-needs-to-embrace-technology-20200106/
89. Fintechnews Vietnam. (2020, February 28). Grab Launches Early-Stage Startup Accelerator in Vietnam. Retrieved from https://fintechnews.sg/38034/vietnam/grab-launches-early-stage-startup-accelerator-in-vietnam/
90. The Business Times. (2019, August 7). Govt support and young population set Vietnam’s startup scene abuzz. Retrieved from https://www.businesstimes.com.sg/asean-business/govt-support-and-young-population-set-vietnams-startup-scene-abuzz
91. Private Equity International. (2019, July 10). Vietnamese private equity: A beginner’s guide. Retrieved from https://www.privateequityinternational.com/vietnam-beginners-guide/
92. Private Equity International. (2020). Covid-19 calms Vietnam’s feeding frenzy. Retrieved from https://www.privateequityinternational.com/covid-19-calms-vietnams-feeding-frenzy/
93. Preqin. (n.d.). IDG Ventures Vietnam. Retrieved from https://pro.preqin.com/fundmanager/13582/dealsAssets#Venture%20Deals%20Breakdown
94. The Investor. (2019, May 17). What made 500 Startups invest in Vietnam. Retrieved from http://www.theinvestor.co.kr/view.php?ud=20190517000488
95. Trading Economics. (n.d.). Ease of Doing Business in Vietnam. Retrieved from https://tradingeconomics.com/vietnam/ease-of-doing-business
96. Cekindo. (2019, June 12). What are the Challenges of Doing Business in Vietnam?. Retrieved from https://www.cekindo.vn/blog/doing-business-in-vietnam-challenges
97. Viet Nam News. (2019, October 29). Regulatory reform a must to improve business conditions. Retrieved from https://vietnamnews.vn/economy/537581/regulatory-reform-a-must-to-improve-business-conditions.html
98. Open Gov. (2020, February 22). Businesses in Vietnam do away with pirated software. Retrieved from https://opengovasia.com/businesses-in-vietnam-do-away-with-pirated-software/
99. TMF Group. (2019, February 15). Top challenges of doing business in Vietnam. Retrieved from https://www.tmf-group.com/en/news-insights/articles/2019/february/top-challenges-business-vietnam/
100. Ministry of Science and Technology. (2020, May 14). Viet Nam’s Intellectual Property Strategy until 2030: Driving force for development of intellectual property assets. Retrieved from https://www.most.gov.vn/en/news/753/viet-nam%E2%80%99s-intellectual-property-strategy-until-2030–driving-force-for-development-of-intellectual-property-assets.aspx
101. Vietnam Law & Legal Forum Magazine. (2018, May 3). IPR protection and enforcement in Vietnam is not as strong as it should be. Retrieved from https://vietnamlawmagazine.vn/ipr-protection-and-enforcement-in-vietnam-is-not-as-strong-as-it-should-be-6217.html
102. Fintechnews Vietnam. (2019, June 11). New Vietnam Fintech Startup Map Showcases Vietnam’s Growing Fintech Landscape. Retrieved from https://fintechnews.sg/31122/vietnam/fintech-vietnam-startup-map-2019/
103. Today. (2019, October 30). 4 in 10 Singaporean adults ‘underbanked’; SE Asia ripe for picking by digital financial firms: Report. Retrieved from https://www.todayonline.com/singapore/4-10-singaporean-adults-underbanked-south-east-asia-ripe-picking-digital-financial-firms
104. ASEAN Today. (2019, December 19). Vietnam’s fintech industry growth is a model for Southeast Asia. Retrieved from https://www.aseantoday.com/2019/12/vietnams-fintech-industry-growth-is-a-model-for-southeast-asia/
105. Viet Nam News. (2020, January 6). SBV sets cashless payments as top priority for 2020. Retrieved from https://vietnamnews.vn/economy/570713/sbv-sets-cashless-payments-as-top-priority-for-2020.html
106. Tech Collective. (2020, April 24). Vietnam’s booming e-commerce market and the emergence of a “rising tiger”. Retrieved from https://techcollectivesea.com/2020/04/24/vietnams-booming-ecommerce-market-emergence-of-a-rising-tiger/
107. Think with Google. (2019, October). e-Conomy SEA 2019: Swipe up and to the right: Southeast Asia’s $100 billion internet economy. Retrieved from https://www.thinkwithgoogle.com/intl/en-apac/tools-resources/research-studies/e-conomy-sea-2019-swipe-up-and-to-the-right-southeast-asias-100-billion-internet-economy/
108. Vietnam Insider. (2020, March 10). What e-commerce marketplaces in Vietnam look like in 2020?. Retrieved from https://vietnaminsider.vn/what-e-commerce-marketplaces-in-vietnam-look-like-in-2020/
109. Tech Wire Asia. (2020, June 17). Vietnam is ready to supercharge its e-commerce market. Retrieved from https://techwireasia.com/2020/06/vietnam-is-ready-to-supercharge-its-e-commerce-market/

Understanding the Successes and Potential of Impact Investing in Southeast Asia

Credits

INSEAD Analysts
Ms Arushi Mehta
Mr Ethan Zhang
Mr Sanya Goyal
Ms Paula van Brakel

Quest Ventures Analysts
Ms Elizabeth Tan
Ms Michelle Quek

Research
Mr James Tan, Singapore

Overview

This study is done as part of the INSEAD MBA Private Equity course and in cooperation with Quest Ventures, a VC fund that invests in technology startups that have scalability and replicability in the Digital Economy. It focuses on backing Southeast Asia and Emerging Asia’s startups in the post-seed to Series A stages in Southeast Asia and Emerging Asia. Main Purpose of the Project: Quest Ventures is launching a new sustainable impact fund, which actively invests in early stage, high growth and impact-driven startups in Emerging Asia (comprising Southeast, South and Central Asia). Through this project, we hope to assist Quest Ventures in raising further interest in its impact fund (targeted at $30mm) by providing a research-based study on the attractiveness of impact investing in Southeast Asia. We are looking for companies that have demonstrated track records of achieving dual sustained success of financial and social or environmental returns in the region.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

This impact research by INSEAD is an informative look at the nascent impact investment landscape in Southeast Asia. In collaboration with Quest Ventures sustainable impact team, the report evaluated investments in the region, their performance and most importantly, their impact.

This collaboration between the analysts of INSEAD, a top business school in Europe, and Quest Ventures, a top venture fund in Asia was, by all accounts, enjoyed by the analysts as they tapped into one another’s experience and perspective. We look forward to more joint collaborations.

---

Problem analysis

Given that impact investing in Southeast Asia is still a relatively nascent and niche space, there is limited data and publicly available information. Despite this we managed to conduct a research into the following:

• Which companies have successfully achieved strong financial returns, while remaining authentic to their impact intent?
• Which countries and sectors are these success cases concentrated in?
• What are key success factors of such firms?

Methodology and Approach

In our analysis, we have used a combination of approaches entailing both primary and secondary resources. We have conducted market, investing landscape and specific enterprise research to identify a few key success stories in the region. In order to do so, we primarily relied on well-known databases and other publicly available information. However, to substantially and meaningfully address the third issue of drivers of success for these enterprises, we reached out to 12 such companies and spoke to the founders of one.

Key Findings

Impact investing is becoming hot in the past years, and investors only recently started explicitly focussing on impact and financial returns. This is also why the number of impact businesses in Southeast Asia that received Series C+ funding or had a successful exit are still few. Most of the demonstrated successes so far are in Indonesia. Although sectors like Agri are big in Indonesia, it is remarkable that amongst the companies that received round C+ funding or did a successful exit, nearly all are in the tech space (fintech, health-tech or ed-tech).

The examples and particularly the deep dive into the CXA Group case study show how important the value proposition with a sound business model, the right partners and an excellent and driven team are. This does not sound surprising, since these are key success factors in any starting business. However, in similar businesses in other regions like the USA or India, where the space is more mature, companies and founders do not need to struggle as much to hit all criteria to the same extent as in Southeast Asia.

There is an emerging trend towards investing in education and healthcare as the middle class in the SEA countries expands and demands better basic services like education and healthcare. The ICT or tech component is underlying most of these ventures as access to internet and smartphone technology grows in the region.

---

Impacting Investing in Southeast Asia: An Introduction

The below is a summary of relevant insights of Southeast Asia’s impact investing landscape based on the extensive research done by the Global Impact Investing Network1.

Impact investing relatively new, growing market in SEA

SEA is a diverse region, consisting of 11 countries at different stages of economic development. Although the economic growth in SEA has been strong in recent years and shows great potential in the post-pandemic future, the imbalanced development among the countries faces a wide range of socio-economic challenges. Thus, such an imbalance creates a huge potential for impact investing in the years to come.

Despite its current relatively small size, the SEA’s impact investing ecosystem has developed significantly in the past decade. Since 2007, Private Impact Investors (PIIs) have injected more than USD 904 million through 225 direct deals, while Development Financial Institutions (DFIs) have deployed USD 11.3 billion with 289 deals. Just as the different economic stages, the entrepreneurial activities among the countries vary at a distinct maturity level so that the impact investing remains highly fragmented. Each country faces context-specific challenges.

The challenges can be further decomposed at the level of political freedom of the relevant country. Looser control, such as in Cambodia, leads to more PII investments. On the contrary, tighter control, such as in Malaysia, requires much more creative investment strategies and creates higher barriers for PII to enter and thereby invest. To bypass restrictions and have a stable operating environment, many social investors and enterprises choose Singapore as their home-base.

Large differences between countries – Indonesia ‘longest’ track-record

As the previous reasoning points out, the various stages in the countries brew divergent sectors to focus on. Indonesia has the highest GDP (PPP) in this region and a large and young population. The key sectors in Indonesia currently heavily skew to agriculture and financial services, with a promising future for workforce development, fisheries, education, and healthcare. DFI has traditionally been the major source for Indonesia. DFI activity has both the highest number of deals and the deployed amount in microfinance, commercial banks, and the energy sector.

Because of the long track record of impact investing and the more mature intermediate infrastructure, supply-side opportunities have emerged in Indonesia, which has the only impact-focused angel network in the SEA region. The network strives to fill the funding gap in the country and sets a good example for others to follow.

Early stage investments seem underfunded due to challenges

Like many other investment opportunities, impact investing in SEA faces problems as well. For instance, the seed funding investment does not seem to be widely available for social enterprises. The difficulty can be largely divided into 3 perspectives:

1) Supply-side: poor corporate governance, high cost of deal sourcing and due diligence, and the lack of sufficient local investors, all create a harsh environment to get funding

2) Demand-side: Many social entrepreneurs still see their effort as a charity and rely on grant capital, instead of focusing on organic financial sustainability. Furthermore, the new market does not provide enough network opportunities to connect entrepreneurs and investors. And, many early-stage enterprises cannot even pay for support services such as an incubator

3) Ecosystem: Fund managers currently lack local knowledge to make necessary judgements and, as a result, forbid themselves to invest continuously in the region. Additionally, most of the VCs investing in the region don’t have local offices making it even more difficult to understand the local culture and landscape. Lastly, most of the governments here are outside the rank of “top 100 on the Ease of Doing Business rankings”. These facts work together to disincentivize many investors.

The market is looking for more evidence of ‘double bottom line’ success

Quest Ventures believes that there is immense potential at the intersection of financial stability and social or environmental impact. However, it remains challenging to create more interest in this space from investors and push for more capital. Quest Ventures has asked for our support in a study that underlines the attractiveness of the impact space. The main goal of the study is to attract more investment interest and capital in early stage impact startups by showing successful investments are possible in terms of both financial returns as well as social or environmental impact returns (‘double bottom line’).

GIIN and Quest Ventures also signal that there is a lack of demonstrated success cases: “Although several exits have been disclosed since 2017, the industry needs more examples of success”.

---

Defining Success: The Double Bottom Line

Looking for the holy grail: good social AND financial returns

“Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.”

Website of the Global Impact Investing Network (GIIN)

It sounds like a dream. However, there is more and more evidence that impact and financial returns can be mutually reinforcing, for example shown by the importance of focus on ESGs for corporations. On top of that, the trend in the current world is increased attention for these aspects. But what is a measurable social and environmental impact and what is a good financial return?

Defining impact: broad definition using SDGs, just ‘jobs’ not enough

A complication is that the space of social and environmental impact is hard to define, because of the definition of what this impact is and what it is not. Many agree that measurement of this impact is one of the key factors, which can be very challenging. Greenstone, a provider of non-financial reporting solutions, recently conducted an extensive research on social and environmental impact reporting. They conclude that the application of qualitative techniques would be a safe starting point for many organizations2. In this early phase, organizations should not limit themselves to specific techniques and methods, but rather an individual customized approach should be applied to different projects, programs, investments and activities. It is then important to understand the differences and relationships between outputs, outcomes and impacts of activities for businesses: e.g. number of people trained is an output, number of jobs created an outcome, improvements in community well-being and impact (Figure 1).

Source: Private Equity & Venture Capital Benchmarks: Southeast Asia3

Another difficulty with the definition of impact is, as Claudia Zeisberger, Senior Affiliate Professor of Entrepreneurship and Family Enterprise and Academic Director, Global Private Equity Initiative at INSEAD, puts it, “As a private equity investor in an emerging market, by definition you have impact.” So how to differentiate between ‘regular’ and ‘impact’ investing in these regions? Elizabeth Tan, Venture Partner for Sustainable Impact at Quest Ventures, says that it is important to weigh the intentionality and expertise of any founding team. “We have a hands-on approach in helping our startups go to market and in this case, to scale impact. When considering the latter, we look at which segment their product or service targets and if positive impact is woven in the underlying fundamentals of the business model. The entire process is screened with this lens at every stage.” Quest Ventures measures impact on a case-by-case basis, relating it to the 17 SDGs of the United Nations, because many of the more sophisticated metrics that may exist are difficult to standardize and apply across early stage startups, which may need a more subjective and customized lens to assess impact. What is important is that the founders have a strong intention and drive to make a positive impact. We will use this broad definition of impact with a case-by-case assessment, not just on output but towards the impact, and the input (steering direction). The impact explicitly must go beyond the mass of companies, so just broad ‘job creation’ is not enough.

Defining financial success: growth and successive investments

Many impact investing funds have target returns close to average returns of non-impact funds in the same region. The logic: the positive impact and image will cost effort but will also reinforce financial returns. In the years 2011-15, median return of venture and private equity capital in Southeast Asia varied between 10-30% in the region (Figure 2). According to Bridgestone and their experience, most venture investors seek a 30% IRR on their successful investments4.

Title: Examples of social enterprises with successful series C funding or exit through
M&A | Source: Crunchbase16

However, there is often lack of data to enable measuring successes in terms of return, particularly for early stage investments and over the typical 5-10-year time span. Therefore, we will focus on successful growth of the investments. Growing and being able to attract successive investments is an indicator of the success of a company. If a company can get at least round C funding or exit successfully via M&A/ IPO within 10 years of the early-stage investment, the investment was likely successful for the investors, the business and the magnitude of their impact.

---

Recent Trends in Countries and Sectors

Microfinance receives most impact capital, growing interest in ICT & Agriculture

The SEA impact start-up landscape is varied as the definition of ‘impact’ itself is quite broad. However, there are some clear observable trends in the space. As mentioned previously, there are two major categories of investors – PIIs and DFIs. The former category includes a range of investors funnelling private capital into impact start-ups, while the latter are government backed financial institutions that provide capital to start-ups to promote development. The top two sectors of investment for both investor types in the region have been financial services and clean energy1.

The financial services sector has received the most impact capital, accounting for roughly 60% of all private capital deployed. Microfinance institutions account for over 80% of the capital deployed in financial services, while some capital has been allocated to insurance and commercial banking for SMEs1. Most of the start-ups in this space either operate in the micro-finance space or work with the rural and poorer regions in their country to provide access to basic financial services. For example, FinAccel is a fintech that provides access to retail credit and unsecured lending across South East Asia.

It is interesting to note the divergence in the sector preference between private and public investing after financial services and clean energy. The private sector prefers Information and Communications Technology (ICT) and Agriculture. For example, ImpactTerra based out of Myanmar is a venture that exists at the intersection of agriculture, ICT and financial services. It is a platform for farmers which offers real-time, personalised information about local crop prices, weather-based advice like flood or drought warnings, and pest risks. The platform also collects data on farmers, such as their location and details about crops, which helps financial service providers deliver financial products that meet their needs and correspond to their specific risks. This enables these farmers to get the capital they need to improve or expand their farms at accessible rates. Another example is EcoZen, an agritech startup based in Kerala, India but targeting the SEA market. It aims to improve farm-to-fork movement of perishable goods by providing solar-based cold rooms at the farm level (The Independent, 2018)

Alternatively, the public sector prefers to invest in manufacturing and infrastructure. This is understandable as both manufacturing and infrastructure are CAPEX-heavy sectors where investment periods might be considerably longer.

While social impact ventures are growing across SEA, we looked at shifting trends in two major countries in the region: Vietnam and Indonesia.

Vietnam taking off, recent trend towards health-tech and ed-tech

Traditionally, private money went into financial services and health care. There are multiple examples of health tech platforms like MediTank which provides a data management platform for medical practitioners to classify and store medical data and Vicare which is a listing and discovery platform for health care facilities, health care service providers as well as testing facilities in Vietnam14.

However, there has been a recent boom of education/ ed-tech platforms. Vietnam has 17 million K-12 students, making it a massive market for ed-tech. Investors are noticing the potential in the country’s e-learning market and a growth of 50% is expected annually. Some examples of ed-tech platforms to watch for are Edmicro, Everest Education, ELSA speak, and Tesse10.

Indonesia further developing, expanding agri-& fintech to also health-& edtech

In a country where agriculture contributes to almost 14% of its GDP growth, it is not surprising that impact ventures and funding have been focused on agriculture/ agri-tech. An example is Vasham, which assists smallholder farms with financing, technical expertise and income security, has created a vertically integrated agribusiness model that can be replicated by smallholder farmers3.

There is no dearth of fintechs in SEA and Indonesia is no exception. There is a boom of fintechs aiming to provide everything from basic banking services to the majority of the population to more complicated lending products to support employment. Along with FinAccel, mentioned earlier, Akulaku which is an e-commerce platform with a specific focus on card-less instalment shopping on products like car loans, bill payment, top-ups, travel and other leisure packages. Cashlez offers a mobile POS sales system, which allows SMEs and smaller vendors to accept card-based transactions (including Visa and Mastercard) on card readers which are connected to their smartphones12.

However, like Vietnam there is an increased preference for health-tech and ed-tech in Indonesia. As these economies develop and the population has access to more resources, the demand for better health care and education is increasing exponentially. It is therefore not surprising that back in October 2018, Indonesia’s Minister of Communication and Information Rudiantara mentioned that both health-tech and ed-tech verticals are set to become the country’s next unicorns11.

Some well-known names in the health-tech space are HaloDoc, AloDokter, PesanLab and Homecare24. In the ed-tech space, enterprises like Ruangguru, PT Zenius, and HarukaEdu have gained substantial recognition14.

However, even as the impact venture activities in the SEA grow, Singapore remains the hub for start-up and funding activity for the region. It is the market of choice for most ventures looking to expand and a lot of VC funding in the neighbouring countries is managed through Singapore.

To summarize, there is an emerging trend towards investing in education and healthcare as the middle class in the SEA countries expands and demands better basic services like education and healthcare. The ICT or tech component is underlying most of these ventures as access to internet and smartphone technology grows in the region.

---

Successes Stories in SEA

Number of success stories still limited, mainly because space still nascent

Although there has been growth in impact investing firms in Southeast Asia, the market is still largely very nascent and fragmented. The growth of this space in SE Asia is evinced by a rising demand from early-stage (typically Seed and Series A) impact enterprises across the region. In spite of this trend of growth, impact ventures in the region still remain grossly underinvested in and lack adequate visibility. Particular challenges that lead to these are:

• Lack of adequate demonstrated success in the region: While there are several cases of enterprises that successfully raise multiple rounds of funding, and even manage to raise Series B funds, there are very few demonstrated success stories of firms that have managed to either exit successfully or raise funds Series C and beyond. Part of the reason for this is simply that it is a young space and most of the start-ups have been around for less than a decade. Companies making it up to round C+ have been around for 7.3 years on average (based on our sample). In order to bolster investments in impact enterprises in the region, more data is required and perhaps it may be more relevant to look at evidence on returns and impact performance.
• High risk perception: Traditionally, impact initiatives and strong financial returns have not been considered to go hand-in-hand. This is because most social enterprise ventures rely on grants and this prevents them from focusing on independent financial sustainability. Further, because social entrepreneurship is so nascent in the region, there is a high-risk perception associated with it.
• Lack of incentive to invest: The sparse data on returns of social enterprises coupled with the fact that the cost of conducting due diligence on these early stage ventures requiring relatively small investments is very high, dissuades investments in the space.

Yet, in spite of these challenges, a few key sectors in the region have managed to successfully expand (i.e., raise Series C or more) and exit (M&A, etc.). We have identified three such sectors (Healthcare & Wellness, Fintech and Financial Services, Ed-tech & IT) in a sample study of the top three countries (Indonesia, Singapore, Vietnam) with an actively growing portfolio of for-profit social enterprises in SE Asia.

---

Companies making it up to round C+: 7 examples of success stories

PT Ruma (now Mapan) – fintech in Indonesia

Headquartered out of Jakarta, Indonesia and founded in 2009, PT Ruma is a leading seller of mobile minutes, community-based lending and savings networks in rural areas of Indonesia. At the moment, it has over 3 million members and about 115 branch offices in Java and Bali. Its objective is to enable low-income communities to access products that they couldn’t previously afford by building upon technology that leverages the bonds within these communities.

It is one of the few firms in Southeast Asia that has been able to successfully exit via acquisition by Gojek in December 2017. Prior to its acquisition, Mapan had successfully raised a Series B round of funding from a.o. Patamar Capital. According to Beau Seil, partner at Patamar Capital, the deal is their most successful one. “There is now a chance for Gojek to become the most impactful company in SEA, but the question is do they have that mindset.”

It had several key reasons for its successes, which eventually enabled it to become a strong acquisition target:

• Backed by strong investors like Omidyar Network and Patamar Capital
• Measurable and tangible track record of financial and social returns
• Unique product and niche positioning within region / country of operation
• Strong team; culture for innovation and commitment to mission
• Proof of synergies and past collaboration with acquirer – Gojek

Ruangguru – Ed-tech in Indonesia

Ruangguru is a leading education-technology start-up headquartered out of Jakarta, Indonesia. Founded in 2014, by Adams Belva Syah Devara and Iman Usman, the company offers online video subscriptions, a marketplace for private-tutoring, on-demand tutoring services, online mock exams and corporate learning. It has grown to serve more than 15 million students and actively manages more than 300K teachers. The firm raised $150mm in its Series C fundraising effort and has expanded into the Vietnamese market in 2019 through its platform called Kien Guru. The firm’s focus is to expand its products and services in the Southeast Asian region and it further plans on providing artificial intelligence-driven personalized teaching. This Uber-like model for online learning in Southeast Asia has immense potential and Ruangguru, if it continues on its projected trajectory, is well-poised for successful exits whether through acquisitions or an IPO.

Alodokter – health-tech in Indonesia

Alodokter is fully integrated healthcare ecosystem, where patients can connect with doctors, handle their medical records, schedule appointments, access content and maintain their lifestyle. Headquarter in Jakarta, Indonesia, the firm is looking to address the problem of access to quality and unbiased information pertaining to healthcare providers, medical services and doctors. Alodokter is in both English and Bahasa and is backed by Softbank Ventures Korea. It has up to 16mm users and has expanded its service to Thailand under the name Pobpad.com. Again, with an Uber-like model for the healthcare ecosystem, Alodokter’s biggest challenge was obtaining buy-in from consumers for a combination of artificial-intelligence driven chatbot and real-doctor interaction. It has raised a total of $45.1mm in funds so far with Series C being $33mm. Again, given its focused growth, strong leadership and impact-driven approach, it is another venture that may be well-suited for an exit in the near term.

FinAccel (Kredivo) – fintech in Indonesia

FinAccel is a financial technology company that is disrupting the financial services landscape by providing meaningful and relevant products in retail credit. It is currently focusing on disruption in the unsecured lending space for the underbanked in Southeast Asia through its credit app – Kredivo. FinAccel successfully raised $90mm in Series C funding for Kredivo only 3.5 years into its existence. Further, as of 201916, Kredivo had acquired over a million customers in Indonesia and was noted to be growing at a staggering 300% YoY. FinAccel has already evaluated more than 3 million applications and granted approximately 30 million loans. For further expansion and to promote financial inclusion, FinAccel is also working on low-interest education and healthcare loans. It is projected to expand its users to at least 10 million and gain strong footholds in other Southeast Asian markets like the Philippines, Thailand and Vietnam. With its fundraising success, broad product portfolio and proof of business model, it can be expected that FinAccel has the potential to be a rewarding investment as it may see future exit opportunities.

Akulaku – fintech in Indonesia, Malaysia, Philippines and Vietnam

Akulaku is a financial services provider for the urban working class in the South East Asian market. Although headquartered in Indonesia, Akulaku also operates in Malaysia, Philippines and Vietnam. It is a multinational e-commerce platform that offers online services such as card-less instalment shopping, cash loans, bill payments, etc. It has disbursed around $850mm in loans and has an employee strength of nearly 2,500. So far, it has raised about $220mm in funds, out of which $100mm was raised via Series D in early 2019. Backed by giants like Alibaba, Alukaku has already begun to invest in local banks (PT Bank Yudha Bhakti TbK) in Indonesia and help them digitize7. Through integrating its platform and technology with local banks, not only is Alukaku’s survival guaranteed in the face of increasing competition in the fintech landscape, but also its ability to thrive is practically made certain. It would be unsurprising to see the young enterprise IPO in the near future.

CXA Group – health- and insurtech in Singapore

CXA Group is on its way to become Asia’s leading Insurtech start-up. A one-stop shop, it enables employers to provide employees to proactively manage their health through a self-service platform with access to an increasing range of health, wellness and wealth offerings personalized to the individual’s own health data. By eliminating middlemen such as brokers, etc., CXA allows more efficient use of employer-provided insurance policies, wherein employees can directly draw down on the existing policies provided by their employers and the funds can be accessed via the platform’s e-wallet to make transactions efficient and effective. It serves more than 500 enterprises: servicing around 800K employees in Southeast Asia, Hong Kong and China. The company’s mission is to go global with capturing all of Asia and then expand to North America and Europe as well. It has already acquired two brokerages and raised about $58mm in financing. It is amidst raising a bridge round before raising Series C early next year. They are backed by powerful investors like Gojek’s early investor Openspace Ventures, HSBC, etc. The firm is well-positioned for a successful exit via either an IPO or trade sell in the future.

Pharmacity – health in Vietnam

Pharmacity is Vietnam’s largest pharmacy retail chain and is dedicated to improving the quality of healthcare for each customer. As of March 2020, it has more than 280 stores in the 6 major cities of Vietnam; and the company aims to achieve 1,000 stores across the country by the end of 20218. Pharmacity has witnessed a growth of 127% in sales in 2019 vis-à-vis 2018. For 2020, prior to the COVID-19 crisis, the company had set a revenue target of around $130mm. Backed by private equity firms like Mekong Capital, Pharmacity has succeeded in raising $31.8mm for Series C funds.

In the next chapter we will deep dive in one of the success cases – CXA group.

Successes so far mainly Tech in Indonesia – with clear market need

Although sectors like Agri are big in Indonesia, it is remarkable that amongst the companies that received round C+ funding or did a successful exit, nearly all are in the tech space (fintech, health-tech or ed-tech). According to Beau Seil, Partner at Patamar Capital, this may be due to the scalability. The problem with more traditional vertical integrated companies, like Big Tree Farms, is that they are much slower to grow. These businesses take much longer to scale, and the scale is not anywhere near the same as a tech-company like PT Ruma, reaching thousands of people rather than millions.

Crucial with all businesses seems addressing a true market, that can actually pay for the product or service, not just an idealistic viewpoint like the original underpinning of how many impact companies have started in the past. The philosophy is that by not just focusing on the very low-income population, the businesses are much more sustainable, and the eventual developmental impact is likely higher. These are great business ideas within the area of social impact.

---

MINI CASE: CXA Group

CXA Group is a transforming healthcare and health insurance in SEA

CXA Group is a unique venture that stands at the intersection of healthtech, insurtech, fintech and social impact. It attempts to lower the rising cost of healthcare in SEA by eliminating the traditional one-size-fits-all benefits structure of employer covered insurance. It is digitizing the benefits and wellness value chain and connecting all the players in the wellness ecosystem like health check- ups, screening, clinics, insurance reimbursement, maintenance of medical records, etc. on one platform and eliminating the need for insurance middlemen/ brokers that drive up health costs.

Founded in 2013, CXA Group has grown from just three Fortune 500 clients to having over 500 clients and 350,000 enterprise clients. It can be safely said that CXA is a start-up that has moved into the scale-up stage.

As CXA Group gets ready for its next round of funding, we had an opportunity to speak with founder and CEO, Rosaline Chow Koo who helped us understand the unique challenges a firm like hers faces in this region.

Key challenges around funding, sufficient talent and geographical expansion

Like any start-up, CXA Group faced several challenges in all spheres of the business, be it fundraising, recruiting top talent, expanding, regulation, repeated product iterations and even more recently the consequences of the COVID-19 crisis.

Funding: After investing a very sizable amount from her own savings to start CXA Group, Rosaline admits that fund raising was quite challenging especially for a novice like her. She laughed about how she spent time googling term sheets to understand what to expect. The fact that she had made a massive personal investment ~$10mm to start the firm made it impossible in her mind to let the venture go belly-up. During a very painful 9-month period in 2017-2018, CXA Group came very close to this scenario with funds that would last only 2 more weeks. Thankfully, HSBC stepped in as both clients and investors. While she is more comfortable with fundraising now than her first round, she refuses to pigeon-hole herself in any one specific category or sector, in order to maximize her access to available investors and funds.

“Knowing that product is all you have, and you know that it will work, then you keep going and see it through!”

– Rosaline Chow Koo, Founder & CEO

Talent Resources: Having lived and worked in Iowa, New York, and Los Angeles, Rosaline mentioned that it is generally easier to acquire and retain talent in the U.S. versus in Southeast Asia. Most students are awarded for compliance and risk averse behaviour, making start-ups an unfavourable employment opportunity. However, she did acknowledge that this is changing and the landscape for start-ups is becoming more positive.

Geographic Expansion: Rosaline has a laser sharp focus and wants to capture the Southeast Asia market completely before moving to the rest of Asia and then Europe and North America. However, with a limited team and constrained time she wonders how she will achieve this expansion without overextending herself. Additionally, HSBC now a major client and investor wants her to expand her platform in the UK, Mexico, India and France which puts further pressure on her limited resources. At the same time, she is already exploring opportunities in Thailand, the Philippines, Indonesia and India, while already having presence in Singapore, Hong Kong and China.

Regulation: Trying to simplify healthcare, insurance and banking may sound like a pipe dream but that is exactly what Rosaline is attempting to do with CXA Group. However, there is no denying the fact that all three industries come with heavy regulation that vary significantly based on the country of operation.

Competition and Internal Resistance: At the same time when CXA Group was struggling with funding in 2017, insurance companies had started to build out their own claim-apps. In addition, one of the brokerage firms acquired by CXA had a 68-year old founder, who was extremely resistant to any automation and change. As a result, receipts were being lost and data-entry was a manual process and did not reconcile. Individuals were not being reimbursed for their claims and CXA lost some clients.

Product: As CXA Group transitions from the start-up to a scale-up, the challenge has shifted from that of survival to solving the pertinent question of how to streamline and create a modular product across the different enterprise clients and geographies. The product is already at version 3.0 and CXA Group is now building the product to seamlessly integrate payments, connecting with clinics, testing and screening, disease management – in essence the whole insurtech ecosystem. They anticipate having a completed product by the end of 2020.

Exit opportunities: While she is not actively thinking about an exit yet, Rosaline does wonder where she and CXA will be in the next 10 years. She believes that CXA has the potential to be a unicorn but sees an IPO as a potential exit down the line.

Key success factors: value proposition, partners and team

In the face of insurmountable challenges, Rosaline leads CXA Group to its success. Driving this success are a number of factors that come together to harmonize and balance each other. In addition to its strong value proposition, CXA Group not only found the right partners, but also benefited from a natural competitive advantage of being a first mover. Lastly, and perhaps most importantly, Rosaline created a team and culture that worked together for the success of the business.

Strong value proposition: CXA Group has identified a gap in the market and significantly lowers the cost of insurance for its enterprise clients. By eliminating middlemen and brokers, and further directly connecting the entire ecosystem through a single point, i.e., the CXA product, the firm is able to cut down costs from the traditional 30-35% of fee to only $2. Further, through automation and leveraging technology, the company has successfully reduced the insurance reimbursement window from 90 days to just 7 days. Moreover, the CXA product enables enterprises to tailor healthcare insurance to the wallet and needs of each individual by making available an ever- widening bouquet of options and having each individual choose directly.

Competitive advantage: CXA Group has a clear first mover advantage in Southeast Asia. There is currently no direct competitor for the firm, and it is precisely this unique positioning that Rosaline seeks to leverage and capture value from. In addition, since Fintech, healthcare and insurtech are all very highly regulated industries, the barrier to entry is relatively high. As such, CXA Group has the luxury to be somewhat protected from the threat of imitators and other competitors.

Right partners: Although CXA Group struggled severely for a period of 9 months with respect to fundraising, it did form strategic partnerships and find a fit with their investors. One of their investors is Openspace Ventures, an early backer of Gojek and they have been of immense assistance with respect to technology and building out the micro services for the Group. Additionally, banks like HSBC, serve as both investors and clients and are willing to sign long contracts (~11 years for $25mm). Such strategic alliances enable CXA Group to not only have a strong foundation as an enterprise through providing the firm with access to resources that go beyond the pure funds, but also enable it to traverse the scale-up phase relatively smoothly. CXA Group is currently closing out a bridge financing before raising Series C early next year.

Team and people: Rosaline is a visionary and knows the importance of streamlining leadership at CXA Group. She has a diversified C-suite with a 50-50 gender balance. CXA’s CTO came from Lazada and had scaled up 8 different start-ups before. The Head of HR had worked with Rosaline at 3 different companies before. Similarly, 75 of the firm’s current employees had all worked with Rosaline at Mercer previously and chose to move with her. Over time, CXA Group evolved its hiring-firing to match the dynamic environment of the firm. For instance, individuals who had performed terrifically during the early start-up phase of the Group were either re-staffed or let go. The individualistic workstyle and inability to work with / report to others was non-conducive to the scale-up and growth phase at the firm, which required increasing collaboration.

“If you don’t have the right people, you’re dead. If you do, it’s magic.”

– Rosaline Chow Koo, Founder & CEO

Key Lessons from Growth Successes in SEA

Social and financial impact not seen as trade-off anymore

The underpinning of companies and investors in the impact space is moving from a purely ‘we want to change the world’ towards sustainable and financially attractive business models. Social impact investing is becoming hot in the past years, and investors only recently started explicitly looking for tremendous impact and financial returns. Both should be evaluated, both have their own risks, but impact and financial returns should not be treated as a trade-off. Successes of that are only just starting to show.

Successes so far mainly Tech in Indonesia – with a clear market need

The number of impact businesses in Southeast Asia that received round C+ funding or did a successful exit is still small, but likely many more will follow in the near future. The companies making it up to round C+ have been around for ~7 years on average, based on our sample.

Most of the demonstrated successes so far are in Indonesia. Although sectors like Agri are big in Indonesia, it is remarkable that amongst the companies that received round C+ funding or did a successful exit, nearly all are in the tech space (fintech, health-tech or ed-tech). Crucial with all businesses seems addressing a true market, that can actually pay for the product or service.

Scalability is at the core of sustainability and attractiveness to investors. The digital-based and relatively light capital expenditure enables tech ventures to scale up rapidly in SEA. Business models with such characteristics are easier to achieve financial soundness.

Key success factors sound business model, right partners and team

The examples, and particularly the deep dive in CXA group, show the importance of the value proposition itself with a sound business model, the right partners and an excellent and driven team. This does not sound surprising, since these are key success factors in any starting business.

However, this may not be the case for social enterprises in the US or India. In both countries, the impact market is relatively more mature, and founders do not need to struggle as much to hit all three of the above criteria at the same time. While further investigation into this early hypothesis is required, it seems to be the case that social enterprises in more mature markets have an easier time to raise funding and therefore may get away with less. On the other hand, this would mean that there is still much more potential for successes in Southeast Asia.

In broader research for this report, it is apparent that the elite background of the founders and leadership team allows them to access precious entrepreneur resources such as early funding, government connection, and media coverage. Objectively, the access creates better M&A and exit opportunities for the ventures, thus ensuring continuous funding over different development stages.

Market opportunities looking forward likely in health- and ed-tech

There is an emerging trend towards investing in education and healthcare as the middle class in the SEA countries expands and demands better basic services like education and healthcare. The ICT or tech component is underlying most of these ventures as access to internet and smartphone technology grows in the region.

---

Citations

1. The Landscape for Impact Investing in Southeast Asia, GIIN, August 2018
2. Whitepaper ‘Beyond Sustainability Reporting’ by Greenstone, June 2018
3. Market in Focus: Private Equity & Venture Capital in Southeast Asia, Preqin, September 2019
4. Risk, Return and VC IRR Benchmarks, article by Bridgestone VC, February 2019
5. Who are the top EdTech startups in 2019, Tech Collective, January 2019
6. Kredivo’s parent firm FinAccel raises $90M…, TechCrunch, December 2019
7. Fintech Akulaku buys stake into a bank, Fintechnews Singapore, March 2019
8. Vietnam’s Pharmacity raises $31.8 million in a Series C funding round, Vietnam Insider, February 2020
9. Why the next wave of Vietnamese startups won’t be clones, TechInAsia, April 2019
10. Vietnam’s emerging edtech startups, TechCollectiveSEA, December 2019
11. Indonesia’s healthtech sector anticipates its first unicorn, e27.co, August 2019
12. 10 of the Top Fintech Startups in Indonesia for 2019, FinTechNews Singapore, April 2019
13. StartUp News Asia, Quarterly Archives, Q2 2019
14. HealthTech Startups in Vietnam, Tracxn Explore
15. EdTech Startups in Indonesia, Tracxn Explore
16. Crunchbase, consulted in March and April 2020

An approach for emerging Asia

Credits

Analysts
Ms Khor Qianyi, Senior Analyst
Mr Zhou Yang, YLP Analyst

Research
Mr James Tan

Overview

Impact investing is an area that is quickly gaining traction all over the world, with more than 450 investors allocating US$1.3 trillion to impact investing worldwide1. Seeking the dual goals of profit as well as social impact, it is a market based approach to resolving critical problems faced by communities worldwide – from access to education to poverty alleviation. By leveraging the power of the market, impact investments achieve outcomes that would have been enormously costly if attempted by traditional methods of philanthropy. Take d.light design for example, a startup that only had a solar lantern prototype when the Acumen Fund first invested in them, which has to date brought lighting to over 100 million people2.

While there have been many frameworks already crafted to guide the process, it is tenuous to apply existing frameworks directly to early stage investing due to the diversity of portfolio as well as limitations on quantitative data available. Moreover, there are many iterations of different frameworks, so impact measurement and reporting remains fragmented across different organisations. This report seeks to survey existing methods available and piece relevant metrics to guide impact investing in the different phases of early stage venture capital.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

With more than US$1.3 trillion allocated to impact investing worldwide, the world is seeing an influx of capital that is increasingly comfortable with measuring successes and returns not by financial metrics alone but by a combination of that and other factors. The dual goals of profit and social impact are now broadly termed the double bottom line. While the financial element – profit – has clear measurement guidelines such as the IFRS or GAAP, the social impact element does not. In fact, many impact measurement frameworks are available and the world has not settled on a definitive one to use. To the detriment of meaningful projects, this means that when they fund raise across the globe, their definition of social impact success has to be explained ad nauseum.

This report aims to change that.

We fundamentally believe that if the measurement of success is correct, then the inputs will be correctly deployed. Conversely, if the measurement of success is wrong, then the inputs will be wrong. When outcomes are measured in lives and the betterment of lives, then getting the measurements correct could not be more important.

We are therefore “open sourcing” our investment measurement framework with this publication and welcome inputs from all interested parties to refine this. We are excited that we now have a measurement framework tailored to emerging Asia based on our experience in this region. We look forward to its implementation and continued refinement in many investments from here on now.

---

Overview of the Impact Measurement Process

The three main reasons to measure impact are firstly to guide investment decisions, secondly to determine and monitor how impactful the investments actually are and lastly to report to stakeholders in the impact fund. Different methods are used to serve each of these purposes at different phases of impact measurement. In the report “Measuring the “impact” in impact investing”, Ivy So & Alina Staskevicius of Harvard Business School accurately divided the process into 4 phases. Starting with Estimating Impact, followed by Planning Impact and Monitoring Impact, then finally Evaluating Impact3.

 

Firstly, estimating impact involves performing a thorough due diligence on the startup that the fund is investing in. The due diligence process is similar to traditional investing, but with an additional responsibility of analysing the potential impact of the investment. For early stage investing, there will not be an abundance of quantitative data that can be provided in the due diligence process so other objective standards have to be referenced. One standard that we have found to be useful is the Nesta Standards of Evidence4, which will be analysed in further detail in a later part of the report. This is the phase of impact measurement that will guide investment decisions.

Secondly, planning impact involves devising specific metrics for data gathering. This will depend on the portfolio of the fund, and its investment thesis. Once again for early stage investing there will not be much data initially, so this process is rarely used to guide investment decisions. However for startups that the fund has made an investment in, this phase will be relevant in monitoring its progress towards its impact goals, as well as in reporting to key stakeholders. While there are many different metrics available, we have found the IRIS catalogue of metrics by Global Impact Investment Network (GIIN)5 particularly useful in determining the areas of impact to monitor at a portfolio level. The IRIS standards provide a wide range of metrics, of which the most relevant ones to individual funds can be picked to form its own metrics. For example, a fund that specifically targets impact in the bottom of the pyramid sector can choose relevant metrics as such.

Thirdly, monitoring impact will involve data collection based on the metrics that were determined in the previous phase. Data collection would involve enforcing periodic impact reporting based on a template as provided by the fund. This phase is important for the fund to keep track of the progress of its investments, to ensure that its portfolio is in line with its initial mission. This data would also be useful in impact reporting to key stakeholders in the fund, and to justify the investment decisions that were made.

Lastly, evaluating impact involves a deeper analysis of the data collected. The purpose of this phase is to evaluate whether there has been real impact from the investment, taking into account factors including whether the impact outcomes would have been achieved with or without the investment into the startup.

These four phases will be further discussed in section 5.

Importance of measuring impact

Impact measurement and management (IMM) is an integral part of impact investing. If an impact fund has no protocol to track the impact of investments made then it is akin to a traditional fund not tracking their profit/loss. IMM allows impact investors to keep track of the progress towards its impact objectives. Consistent management of impact tracking directly shows what kind of investments work and what does not. Over time it allows the fund manager greater ability to discern the investments with better impact value6, and this is particularly important for early stage investing, when fund managers have to make decisions even when quantitative data is scarce.

Another purpose of IMM is to allow clear reporting of the progress of the fund. Investors into impact funds usually have their own impact targets as well, and when clear reporting standards are observed, it builds trust with investors. If this is communicated effectively, through yearly reports or other forms of outreach, it demonstrates the competency of the Impact Fund, which would naturally come in handy during the next capital raise phase.

---

Survey of existing frameworks

IRIS by Global Impact Investing Network (GIIN)

The IRIS catalogue of metrics provides a wide range of metrics which can be used to quantify the level of impact achieved in environmental and social factors. It originated from the GIIN, and is largely built upon existing industry accepted metrics, compiled together for fund managers to access7. It aims to increase the consistency of impact reporting methods, and to bolster the credibility of the impact investing sector as a whole.

In general, such methods involving assigning metrics and scoring the investee based on it can be referred to as Mission alignment methods8. Such methods track how the execution of a project measures against its mission goals over a period of time. They are relevant in the planning impact and monitoring impact phase of the impact process.

The IRIS framework is the closest we have towards a widely accepted standard for impact investing. According to a study published by GIIN in 2020, 65% of impact investors surveyed use the IRIS metrics in the impact measurement process9. One reason for its widespread adoption is that the diversity of metrics catalogued allows it to be adapted and used by a wide variety of funds with different impact objectives. A curated set of metrics also allows the impact fund to view, at a portfolio level its progress towards impact goals. It also allows the early stage investor to compare the growth of its portfolio companies using standardised yardsticks. For instance, a fund makes an investment of USD 500,000 into two different companies, and receives their impact report after a period of 1 year. One company reports that it created 100 jobs, while the other reports that it played a role in supporting 300 jobs. Due to different understanding of the terminology, it is difficult to compare the results of the 2 companies. It is also imprecise to add the 2 values together to gauge overall portfolio performance. This is where the IRIS metrics come into relevance, with its catalogue of metrics with standardised accounting methods.

Logical Framework Approach (LFA)

The logical framework approach is a general project management framework that is widely adopted internationally. It covers all phases of the project cycle, from design to implementation and monitoring and finally to evaluation, which makes it useful for impact measurement and management.

 

The Logical framework is able to communicate the essential elements of a complex project clearly and in simple terms for anyone to pick up10. Usage of such a framework by early stage startups is extremely beneficial in the growth stage. While using the LFA gives companies an efficient tool to clarify their goals and track progress, the measurables and outcomes are often unique to each startup, and cannot be collated with the results from other portfolio companies to give a portfolio level measurement of impact.

Thus while the LFA is a viable tool to track impact at the company level, additional frameworks are required to support such data in order to provide a portfolio overview of impact performance.

Nesta Standards of Evidence

The Nesta Standards of Evidence is a rough framework developed to gauge the levels of confidence in the evidence of an impact initiative, on a scale from 1 to 5. It was modified from the standards used in Greater London Authority’s Project Oracle11 to better fit the demands of venture capital.

 

In general the Nesta framework supports the strengthening of evidence to allow investors to be more certain that the intended impact outcome of investment is achieved. As a company moves up along the levels, more extensive data collection as well as external validation is expected. When a company reaches level 5, there is sufficient evidence that the business model is able to deliver strong impact at multiple locations – this means that it has achieved impact scalability, a key signal that venture capitalists look for13.

The Nesta Standards is useful for early stage venture capital in two phases: the estimating impact phase, as well as planning impact phase. Before committing an investment into a company that claims significant impact value, the investor can assess the evidence based on the Nesta scale to ascertain the strength of its claims. For a company to which an investor has already committed capital, the Nesta standards can guide the next steps in scaling impact planning.

However, at higher levels on the Nesta scale, more complex testing requiring external specialist assessment would be required. This is costly, and in many early stage startups not financially viable. Investors should consider whether to fund such assessments based on their priorities and cheque sizes.

---

Phase 1: Estimating Impact

Phase 1 of the impact investing process is where thorough due diligence is done on the potential investee to assess profitability and impact. As for the profit dimension we are looking for companies that are able to provide strong potential of generating risk adjusted market rate returns. We do not consider at all companies that have no promise of that, firstly to be responsible to our investors and secondly we do not intend to support ineffective business models that could bring more harm than good to the markets we want to grow. As for the impact dimension, we have found the Logical Framework Approach and the Nesta Standards of evidence particularly relevant, and have designed a simple matrix that draws on both frameworks to aid in decision making.

 

Companies that fall under the Impact Stars group have achieved a relatively high score on the Nesta scale, at 3-4. Based on their logframe, they have also demonstrated a potential to deliver high levels of impact in their respective areas. These are the prime targets of many venture capitalists, as they boast both high potential impact as well as the evidence to achieve it. However, few early stage startups will have the bandwidth to provide such robust standards of evidence, and we expect deals coming in from group A to be relatively scarce.

Safe bets on the other hand, while able to provide robust evidence for its impact, does not have an impact plan that can reasonably scale. We will still consider investments in this group, as they do have some degree of impact but we will have to look deeper into how closely linked it is to the fund thesis. The ability to administer such standards of evidence is also reflective of the financial ability of the company, which is a positive indicator for the profit dimension of the investment.

We expect most deals to fall under the Potential Impact Stars group where the company has fulfilled at least a level 1 on the Nesta scale, but provides an ambitious and realistic business plan with enormous impact upside. As with all early stage investments, it is understandable that there is not much quantitative evidence of either impact or profitability, which is why we are open to companies which have only achieved level 1 or 2 on the Nesta Scale. An example of a company that falls under this group would be a company with pioneering business models that have the potential to deliver sector level change. Due to the unprecedented nature of their business model, they usually have difficulty gathering evidence of their impact at the early stage. The company could be the first movers in a market with inadequate regulatory frameworks, consumers that are suspicious of the intentions and value of their product and a lack of industry specific talent. As the company ventures down this path, its efforts to de-risk the business pave the way for many future companies to follow, and while its own impact may be limited, the eventual scale of their impact brought about by future companies can be monumental. A prominent firm that has achieved this would be Grameen Bank with their pioneering microfinance model. These kinds of businesses are identified by Omidyar Network as “Market Innovators”14, and due to its high-risk nature, is where a huge funding gap lies. However we do expect them to move up the Nesta scale at an appropriate timeframe with the aid of our investment.

Common deals consist of companies with no significant impact plan, as well as weak evidence to prove they can achieve what little they have planned. We generally do not pursue investments in this group, save in exceptional situations where we are confident that the company is able to generate significant levels of profit.

Phase 2: Planning Impact

In the planning impact phase, the fund needs to devise the metrics which will guide the data gathering process for the firms. In this phase, it is important to ensure that the reporting criteria is not unnecessarily tedious, which would exhaust significant time and manpower resources and could prove to be a distraction from running the business. The fund also has to work on the appropriate reporting period, which can differ from startup to startup depending on the stage that the startup is at. There are two main frameworks which come into play in this phase – the Logframe and the IRIS metrics. It is important to note the distinction in the purposes served by the two frameworks – while Logframe is more applicable to planning impact at a company level, the IRIS metrics are more suited to providing a portfolio level overview of the fund performance.

Portfolio Level Planning – Usage of the IRIS Metrics

As the IRIS catalogue provides a comprehensive list of industry appropriate metrics, it is very helpful in guiding fund managers to come up with their own fund specific set of metrics, modified to suit the investment thesis of the fund. As our fund seeks to address problems faced by the Base of Pyramid in Southeast Asia, we have curated a set of metrics that we have found to provide the most accurate picture of our progress towards our goals. Our selection of cross-sector metrics, or metrics which can be applicable to any industry, is listed below. A mixture of IRIS metrics and Quest designed metrics are included, with metric IDs starting with “Q” denoting a Quest designed metric. The sector specific metrics covering education, healthcare, housing, agriculture, environment and financial services can be found in Annex A. These sectors are selected as we consider them most relevant to our impact mission – solving the problems faced by the Base Of Pyramid population in Southeast Asia. It is our hope that they can serve as a guide for funds with similar goals.

 

Company Level Planning – Logical Framework Approach

We rely on the Logical Framework Approach to plan impact in a more nuanced manner, at the individual company level. The company is expected to plan out their own logframe (Figure 2), and cover their impact plan at different levels, from the overarching goal, to the immediate purpose, then to the outputs required for the purpose and subsequently the activities required to produce the outputs. This allows the fund to have a more complete picture of the impact objectives, as a list of metrics may not be able to fully capture the level of real impact that is being delivered by the portfolio companies.

Specifically, at the planning impact phase we are looking at the second column “Indicators of Achievement”.

 

Phase 3: Monitoring Impact

Monitoring impact is a tricky task – we need a clear and standardised reporting framework which ensures accountability to our investors as well as guide us in future investments. Yet at the same time, excessive reliance on a checklist metric system can result in an overly narrow perspective on the performance of the company. To overcome this dilemma, we adopt two tiers of monitoring, one at the company level, another at the Portfolio level. At the company level we use the Logical Framework Approach to arrive at a more in-depth monitoring of the challenges and successes of each company, while at the portfolio level we use the IRIS metrics to provide a standardised overview of the performance of our portfolio.

Portfolio Level Monitoring

The metrics that decide the focus of monitoring has been curated in the previous phase, planning impact, and this phase will involve the collection of data based on those metrics. Typically this is done by providing the portfolio companies with a reporting template based on the metrics. While the cross-sector metrics (Table 1) are applicable across industries, the rest of the metrics are industry specific. Companies are only required to fill in a report on the industries relevant to their company.

In general, very early stage startups can take years to have a significant impact, so the timeline for reporting has to be adjusted as appropriate to the company. This is particularly so for our potential impact stars, which endeavour to bring brand new business models to the market.

As the reporting metrics are standardised, the individual reports can be simply added up to form the Portfolio level report, which can then be analysed to provide an overview of impact performance.

Company Level Monitoring

At the company level, we continue to monitor the impact progress of the company towards the goals, outcomes, and its indicators of achievement as outlined in the Logframe. This provides us with a more precise outlook on the company, covering areas which are unable to be captured by a general checklist. At this phase, it is also important to carefully analyse the sources and means of verification as outlined in the third column of the logframe.

 

Phase 4: Evaluating Impact

In this final phase of the impact investing process, we attempt to evaluate whether our investment has made a real change – whether the impact would have been achieved without our investment. Such evaluations involve experimental or quasi-experimental methods, which provide stronger justification of evidence of impact, and at the same time moves the company up on the Nesta Scale.

Experimental methods involve the use of Randomised Control Trials (RCTs), whereby a randomised control group, insulated from the effects of our investment is used as a counterfactual to assess the real impact of our investment. Other methods which utilise different counterfactuals are considered quasi-experimental, and are generally used when isolating the conditions for a randomised control group is not feasible, too costly or unethical, such as when random groups of people are denied access to healthcare15.

Both experimental and quasi-experimental methods are costly and manpower intensive – with experimental methods being the costlier of the two. It can seem hard to justify the relevance of this final phase in the impact investing process, especially for early stage startups which forms the focus of our thesis, but we maintain the stance that this phase is necessary, and will be beneficial to the fund in the long run.

Such methods build up our evidence of impact, bringing us higher up on the Nesta Scale, which is the evidence framework that we use to guide our companies’ impact assessment. Due to the high rigor of the experimental and quasi-experimental methods, it allows both ourselves, as well as our investors a greater level of confidence in the good work that we are doing. This would also serve us well in securing future funding to expand our impact.

That being said, investing in early stage startups can sometimes require up to years to see a degree of impact that justifies such a costly evaluation by external assessors. There is no need to rush to this phase, and the company should be allowed space to grow before we arrive here.

Conclusion

This framework has been crafted based on extensive research on existing Impact Measurement and Management (IMM) frameworks, as well as drawing on 9 years of experience in growing along with the startups we invest in. We are grateful for the resources provided by the Harvard Business School, the Global Impact Investing Network, the Omidyar Network as well the Acumen Fund from which we gleaned valuable insights that shaped the development of this framework. This framework is by no means a definitive rulebook for early stage impact investing, but we do hope that it demystifies the whole process, and lowered the barrier to entry for future early stage impact investors.

---

Citations

1. PRI, Impact investing market map. Retrieved May 13, 2019, from https://www.unpri.org/thematic-and-impact-investing/impact-investing-market-map/3537.article
2. D.light, About Us. Retrieved February 14, 2020, from https://www.dlight.com/about/
3. Ivy So & Alina Staskevicius, Measuring the “impact” in impact investing, Harvard Business School, 2015.
4. Nesta, Standards of Evidence for Impact Investing, 2012
5. IRIS+ System | Standards, Retrieved from https://iris.thegiin.org/metrics/
6. GIIN, A guide for impact investment fund managers. Retrieved from https://thegiin.org/integrating-impact-measurement-and-management
7. IRIS, Getting started with IRIS, 2013.
8. I. Soh, A. Staskevicius, Measuring the “Impact” in Impact Investing, Harvard Business School, 2015.
9. Rachel Bass et al., State of Impact Measurement and Management, GIIN, 2020.
10. World Bank, The Logframe Handbook, 2013
11. Investment & Performance Board, Project Oracle, 2013. Retrieved from https://www.london.gov.uk/moderngov/documents/s24085/11%20Project%20Oracle%20-%20Cover%20Report.pdf
12. R. Puttick, J. Ludlow, Standards of Evidence: An approach that balances the need for evidence with innovation, Nesta, 2013
13. R. Puttick, J. Ludlow, Standards of Evidence for Impact Investing, Nesta, 2012
14. M. Bannick & P. Goldman, Priming the Pump: The Case for a Sector Based Approach to Impact Investing, Omidyar Network, 2012.
15. Ivy So & Alina Staskevicius, Measuring the “impact” in impact investing, Harvard Business School, 2015.

---

Annexes

1. Sector Specific Metrics (Education)

2. Sector Specific Metrics (Healthcare)

3. Sector Specific Metrics (Housing)

4. Sector Specific Metrics (Agriculture)

5. Sector Specific Metrics (Environment)

6. Sector Specific Metrics (Financial Services)

7. Sector Specific Metrics (Energy)

 

The insurance industry and its digital transformation

Credits

Analysts
Goh Jun Wei, YLP Analyst
Khor Qianyi, Senior Analyst

Research
Professor Paris de l’Etraz, Madrid
Mr James Tan, Singapore
Ms Jenell Lau, Tokyo

Overview

The 2018 Applied Innovation Institute Singapore Insurance Innovation and Digital Benchmark is Singapore’s first benchmark to measure a company’s ability to cope with disruptive innovation. In our first release, we examine and benchmark 25 insurers with consumer insurance products that operate in Singapore.

---

Foreword

Professor Paris de l’Etraz, PhD
Chairman of the Board
Applied Innovation Institute

Welcome to the inaugural edition of the Applied Innovation Institute Singapore Insurance Innovation and Digital Benchmark, a ranking that combines more than 80 data points to benchmark a company’s progress towards key industry innovation goals against its peers. This ranking allows us to develop a more coherent understanding of the insurance industry in Singapore, and allow us to develop key quantitative benchmarks towards innovation in leading corporates around the world. Taking on a retail-first perspective, we explore the progress of insurers in Singapore in developing consumer focused innovations.

As one of the world’s leading FinTech and InsurTech hubs, Singapore is the perfect place for insurers around the world to develop their innovation initiatives. A small and connected nation, it is an incredible test-bed for the development of new insurance technologies and models. From the blockchain to peer-to-peer insurance, risk-management platforms to big-data driven products, Singapore startups have done them all.

Here at the Applied Innovation Institute, we pride ourselves on bringing together global leaders in industries, government, and academic organizations to help each transform to address competition, disruption and innovation through education, consulting and partnerships.

In a world where disruption is the only constant, we believe that it is even more important for corporates to understand the incredible challenges that lie in their strategy roadmaps. With the average lifespan of an S&P company dropping from 67 years in the 1920s to 15 years today, we cannot emphasize the importance of developing an innovation model that works not just to boost your bottomline, but places you at the forefront of disruption.

---

Introduction

Mr James Tan
Managing Partner
Quest Ventures

The 2018 Applied Innovation Institute Singapore Insurance Innovation and Digital Benchmark is Singapore’s first benchmark to measure a company’s ability to cope with disruptive innovation. In our first release, we examine and benchmark 25 insurers with consumer insurance products that operate in Singapore.

In this benchmark, we look primarily at a company’s ability to cope with impending innovations such as direct-to-consumer (DTC) sales, data-driven risk-underwriting, mobile awareness and presence, and a service-first understanding of consumers. We then separate these criteria into three categories: online, social and innovation. The weightage of these categories in our comprehensive score are as follows:

This weightage allows us to develop a proxy for understanding an insurer’s ability to cope with disruptive innovations. An insurer that better understands the importance of its web presence, social media presence and innovation efforts will be able to better understand and compete with the hundreds of startups in the region.

To produce the ranking, more than 80 data points were recorded in 2017 and analyzed to develop a more coherent understanding of innovation in corporations. Here at Quest Ventures, we work with startups extensively and have applied the same standards that we use to evaluate startups in this benchmark. This allows us to develop an objective quantification of innovativeness in corporates.

In our benchmark, we also weighted the online experience of insurers relatively heavily as we believe that the distribution model of insurers is likely to undergo a fundamental shift in the next few years. We believe that a strong DTC insurer must have a comprehensive online platform that is reaching users well. This means a DTC insurer must perform well in all traditional ecommerce metrics.

By analyzing these metrics, we are able to provide a coherent understanding of an insurer’s ability to develop its web properties into quality DTC sales channels. We measure the quality of an insurer’s website and the value of various digital acquisition funnels to derive our online ranking. NTUC Income, for example, performed exceptionally well in this metric. It ranked on the first page of Google Singapore’s non-personalized search results in 7 of 7 relevant categories.

During our research, we realized that the majority of insurers were severely lacking in social media. Some were non-existent on social media. The act of localizing social media profiles by global insurers is rare. We found this to be extremely troubling, especially considering the recent shifts in distribution trends.

Many insurers have also abandoned active engagement social media platforms. In our research, only 9 out of 25 insurers have a Twitter account, and only 2 of the 9 Twitter accounts are active. Active engagement on social media platforms are exceptionally important as alternative sales and support channels. These channels are opportunities waiting to be exploited by insurers.

Our social media ranking is primarily the product of engagement rates. We recognize the importance of engaging one’s audience and believe that relative rates suggest more about an insurer’s social media performance than absolute numbers.

At Quest Ventures, we firmly believe that the future of insurance is mobile. A recent AXA Digital Lab study showed that 44% of all millennials are comfortable purchasing insurance directly through their mobile phones. What it doesn’t illustrate is the fact that this number will continue to grow as users continue to familiarize themselves with mobile insurance purchases. This sentiment was echoed in a recent survey conducted by Forrester. The fact remains that users who research insurers and insurance plans online are more likely to purchase insurance online. It is only logical, by extension, that users who research insurers and insurance plans on their mobile phones are also more likely to purchase insurance through their phones. With mobile phones becoming the preferred computing device, insurers need to be prepared with a comprehensive mobile strategy.

Some of the most innovative solutions we have seen from insurers combine sales and claims channels into a feature-packed application. Other insurers have also leveraged on the data collected by smartphones to incentivize policyholders to live healthier and safer lives, reducing underwriting risk and allowing insurers to better tailor their insurance products.

One of the most pressing concerns for insurers is the rapid development of new insurers with alternative business models. Unfortunately, few of the insurers in our benchmark have successfully captured the extensive potential for disruption by these startups. Our analysis indicates that companies typically figure out innovation over time, but they falter greatly in the face of disruption. With thousands of startups around the world hot on the heels of incumbent insurers, understanding disruption today is more than just an insurance policy for insurers.

---

NTUC Income: Overall First in the 2018 Applied Innovation Institute Singapore Insurance Innovation and Digital Benchmark

Mr Peter Tay
Chief Operating Officer
NTUC Income

We are delighted to be ranked first on the Applied Innovation Institute Innovation and Digital Benchmark. It is a testament to our strength as Singapore’s leading digital insurer and we are heartened by the recognition particularly with our lead position in innovation and online. Our impetus for innovation and digitalization has always been customer-centricity as we strive to offer our customers choices when they engage with us.

We understand that customers are accustomed to quick gratifications from online transactions that are often supported by a seamless user experience. As such, we are constantly challenging ourselves to ideate insurance propositions that play to the way customers access, engage and use information digitally these days.

To sharpen our offerings and engagements with our customers, we have also made calculated decisions to embark on and leverage specific customer engagement strategies and channels.

With an agile mindset, we are set to tweak our digital strategies and tactics to enhance customers’ experience with us constantly. We look forward to re-imagine our collective future via insurance.

---

Ranking

---

NTUC Income

Key Innovation(s)

Direct to Consumer, Online eClaims Processing, ‘Drive Master’ Application, ‘Orange Health’ Application, ‘Accident Reporting’ Application, and ‘Orange Travel’ Application

Ranking

Our Perspective

NTUC Income is one of Singapore’s largest home-grown insurers and for an incumbent, a surprisingly innovative and nimble player in the market. In Singapore, it runs an equity-free accelerator program, the ‘Income Future Starter’ to identify breakthrough founders and work with disruptive startups. Income runs a dedicated Digital Transformation Office, a key pillar of Income’s Goal 2020 roadmap to bring innovation as a digital insurer, and make insurance simpler and more accessible.

We were particularly impressed with Income’s online eClaims platform. While it has not been deployed for all insurance products and does not accommodate all types of claims, existing deployments — e.g. Income’s online travel insurance claims platform — were well executed. Income has recognized the importance of digitalization and is leading insurers in developing a comprehensive online presence. Income has a strong search presence, placing them on the first page of Google Singapore’s non-personalized search results in 7 of 7 relevant categories.

Our research shows that Income has the most number of frequently updated mobile apps on the Apple Application Store – 4 – compared to other regional players. With direct purchase of general insurance available through its website and mobile apps, Income has clearly made a push for the mobile-friendly millennial generation.

Income has also made a relatively large push in the InsurTech space, combining big data and behavioral science to reduce underwriting risk and improve the user experience. ‘Drive Master,’ for example, awards drivers for safe driving behavior. ‘Orange Health’ actively rewards healthy living, and Income’s ‘Accident Reporting’ application was the only accident reporting application among regional insurers.

Income also leads regional insurers in social media engagement. With a dedicated ‘Travel Made Different’ blog and relevant content on its Instagram accounts, Income is generating quality engagement. However, Income can benefit more from active social media engagement to further drive DTC purchases. While it owns a Twitter account, it has not been managed since October 2015. Like the majority of other insurers, it also lacks a Snapchat account, a key engagement platform for millennials.

---

AXA

Key Innovation(s)

Direct to Consumer, ‘MyAXA’ Application, ‘AXA Drive’ Application, and ‘My AXA Health’ Application

Ranking

Our Perspective

AXA is the leader amongst global insurers in our benchmark, and it isn’t surprising why. With numerous AXA Labs scattered across Asia, a startup studio (Kamet) which allows AXA to build autonomous startups, a corporate venture capital arm (AXA Strategic Ventures) that has invested in some of the most innovative InsurTech startups, and AXA Partners & AXA Digital Partnerships to engage startups and culture engineer, AXA has a comprehensive winning innovation strategy.

AXA’s suite of well-developed and well- thought-out applications, has helped AXA develop a strong online presence. This is further reinforced by AXA’s online search presence, where AXA is placed on the first page of Google Singapore’s non-personalized search results in 6 of 6 relevant categories.

Our research shows that AXA has a comprehensive suite of mobile applications that furthers its innovation ambitions. The ‘MyAXA App’, for example, allows users to file claims on mobile, view policies and make travel insurance purchases. While there is substantial room for improvement, with users complaining of poor performance and insufficient policy information, it is clear that AXA is actively attempting to address user concerns. Of the 6 negative reviews on the app, AXA has responded to 5 of them requesting for a follow up. The ‘AXA Drive’ App, for example, collects driver data and changes user behavior while reducing underwriting risk. The ‘My AXA Health’ Application allows users to locate nearby specialist clinics and even allows users to live chat with doctors through an integration with MyDoc.

AXA is leading insurers in Singapore when it comes to social media engagement. It actively manages its Facebook, Instagram and Youtube platforms. However, like most other insurers, AXA can benefit more from active social media engagement to further drive DTC purchases. As AXA’s Twitter account was not localized for Singapore, we were not able to factor that into our benchmark. This is because we strongly believe that localization of active engagement platforms allow companies to better tailor their user engagement strategy. AXA, like all of the other insurers in our benchmark, also lacks a Snapchat account, which is key to engaging millennials.

---

Aviva

Key Innovation(s)

Direct to Consumer, Online eClaims, ‘Aviva EzSnap’ Application, and ‘Aviva LMS’ Application

Ranking

Our Perspective

Aviva has been investing heavily in innovation, committing £100m to exceptional start-ups by 2020. Aviva has numerous innovation labs (Digital Garages) scattered across the globe, accelerator partnerships to identify breakthrough founders, and a corporate venture capital arm (Aviva Ventures), Aviva has committed itself to innovation in today’s increasingly disruptive economy.

Aviva has made an incredible effort in its push for millennials with a well established web presence. With a suite of well-developed and well-thought-out applications, coupled with a digital-first and service-first approach, Aviva allows users to make purchases and manage their policies directly online. Aviva also has a strong search presence, placing them on the first page of Google Singapore’s non- personalized search results in 6 of 6 relevant categories.

Through the ‘Aviva EzSnap’ and ‘Aviva LMS’ applications, advisors are able to provide a better experience for their clients. Though improving the client-advisor experience is commendable, Aviva can benefit from further developing Direct to Consumer (DTC) support. Its mobile eClaims functionality (ClaimConnect) is restricted only to corporate customers. Further, while Aviva had a mobile travel insurance application, it is not a native application. Aviva has also yet to introduce innovations such as the Aviva ‘Safe Drive’ Application into Singapore. We believe that by developing better mobile applications, Aviva has the potential to provide a more seamless customer experience, reducing customer friction and improving customer satisfaction.

While Aviva has created engaging content through the money Banter online blog, it can better leverage its content to engage its customers. Aviva can benefit more from further developing its social presence. While Aviva maintains a Facebook page, it does not have an Instagram account. Aviva is also completely absent in active engagement through Twitter and Snapchat. Again, platforms such as Twitter and Snapchat are key to engaging millennials; active engagement platforms are essential to a DTC insurer.

---

AIA

Key Innovation(s)

Direct to Consumer, ‘AIA Healthcare’ Application, ‘AIA Vitality’ Application, ‘AIA eCare’ Application, and LifeMatters Campaign

Ranking

Our Perspective

AIA has made an incredible effort in its push for millennials with a well established web presence. With a well-developed a suite of well-thought-out applications with a digital-first and service-first approach, AIA allows users to make purchases and manage their policies directly online. AIA also has a relatively strong search presence, placing on the first page of Google Singapore’s non-personalized search results in 2 of 4 relevant categories.

Through the ‘AIA Healthcare’ application, AIA allows users to access their policy information directly through their mobile phone. However, AIA is still in the process of digitizing their systems. For example, to change one’s email address in the ‘AIA Healthcare’ application, a user still needs to download a form, print it out, fill it up and send it back to AIA. Clearly, AIA is still in the process of updating their systems. That being said, they have made substantial strides compared to other insurers. ‘AIA Vitality,’ for example, rewards customers for living healthier lives. This could potentially reduce underwriting risk and allow AIA to collect valuable customer data to deliver new and customized products in the future.

Like the majority of other insurers, AIA also has room for improvement in the social space. While AIA actively manages and updates its Facebook and Instagram accounts, its Youtube account is rarely updated. We also believe that AIA can benefit more from active social media engagement to further drive DTC purchases. Platforms such as Twitter and Snapchat are key to engaging millennials.

---

Etiqa

Key Innovation(s)

Direct to Consumer Model, Online eClaims Processing (TiqConnect), and ‘sMiles by Etiqa Insurance’ App

Ranking

Our Perspective

Etiqa has made an extraordinary effort in its push for millennials with a well established online DTC platform. While Etiqa has developed a suite of well-thought-out applications with a digital-first and service-first approach, its web presence still has more room for improvement compared to other DTC startups. While Etiqa appeared in page 1 of Google Singapore’s non-personalized search results for 4 out of 6 relevant categories, its keyword search rank does not place it in the top half of the page. We are concerned that Etiqa’s push into DTC insurance is hampered by its less than ideal acquisition channels.

Through the ‘Etiqa TiqConnect’ service, Etiqa is one of the few insurers in Singapore that provides a comprehensive eClaims service. With settlement of general insurance claims, such as travel insurance claims, in less than a day, Etiqa is leading the charge in Singapore for rapid online eClaims. Etiqa’s push for millennials continues in the mobile space. The sMiles by Etiqa Insurance’ application attempts to change driver behavior for the better and collects crucial data to reduce underwriting risk on Etiqa’s end. However, we found it to be slightly concerning that Etiqa has yet to develop mobile applications that aids its DTC insurance push. Further, apps such as the ‘Etiqa Auto Assist’ application that provides drivers on-demand help have yet to be made available to Singaporean drivers.

Like the majority of other insurers, Etiqa also has room for improvement in the social space. While Etiqa actively manages and updates its Facebook and Instagram accounts, Etiqa’s Youtube account is rarely updated. We also believe that Etiqa can benefit more from active social media engagement to further drive DTC purchases. Platforms such as Twitter and Snapchat are key to engaging millennials.

---

AIG

Key Innovation(s)

Direct to Consumer Model, Online eClaims Processing, ‘AIG On the Go’ Application, and ‘AIG Assistance’ Application

Ranking

Our Perspective

AIG’s has developed a comprehensive online DTC portal and claims platform. With a clean, easily navigable and localized website, AIG has clearly recognized the importance of developing a coherent web presence. However, AIG’s SEO efforts have room for improvement. AIG only ranked in the first page of Google Singapore’s non-personalized search results for 2 of 5 relevant categories.

That being said, AIG has made a commendable effort in the mobile space. The ‘AIG On the Go’ application induces drivers to drive safer and reduces underwriting risk. The trove of data collected will also assist AIG in the development of more personalized insurance products in the future. The ‘AIG Assistance’ application, for example, provides up to date risk indicators about countries around the world and emergency support available in other nations, improving the customer experience. AIG has a number of relatively innovative applications that couldn’t be used in Singapore though. For example, the ‘Rapid Rater’ was not available in Singapore and could not be factored into our benchmark.

While AIG has a relatively strong social media presence in the US, we were not able to take into account AIG’s other social media accounts as they were not tailored for Singapore. For example, AIG’s Twitter account only responds between 9AM and 5PM eastern standard time. Like most other insurers, AIG does not have a Snapchat account. For global insurers, it is important to note that engagement strategies should be localized to specific geographies. Locally targeted social media accounts would better add value to customers and provide a more coherent engagement experience.

---

FWD Singapore

Key Innovation(s)

Direct to Consumer Model, Online eClaims Processing

Ranking

Our Perspective

FWD’s strength is its strong web presence. As one of the only few regional insurers with a comprehensive online eClaims service, FWD is leading the race when it comes to online DTC insurance. Its easily navigable website and user friendly interface coupled with its strong SEO efforts and commendable ad displays have made it one of the best, if not the best online DTC insurer in Singapore. FWD has a relatively strong search presence, placing it on the first page of Google Singapore’s non- personalized search results in 5 of 5 relevant categories.

Unfortunately, despite its strong online presence, FWD has room for improvement in the mobile space in Singapore. Key innovations such as the ‘FWD Max’ Application which changes consumer health behavior and the ‘FWD Drivamatics’ Application which collects driver data to better quantify risk have yet to be introduced in the Singapore market. As such, we were not able to include these innovations in our Innovation and Digital Benchmark.

FWD also has room for improvement in social media engagement. Without consistent posts across its social media platforms, FWD risks not engaging the millennial market — any DTC insurer’s primary target market. Interestingly, FWD does not have an Instagram account for the Singapore market despite running accounts for other markets in East Asia. FWD, like the majority of other insurers, does not have a Snapchat account as well. FWD, especially as it is a DTC insurer, can benefit substantially from active social media engagement to further drive purchases.

---

Tokio Marine

Key Innovation(s)

Direct to Consumer Model, Online eClaims Processing, and ‘TM iSwift’ Application

Ranking

Our Perspective

By building a comprehensive suite of web applications that allows policyholders to purchase and manage their insurance, Tokio Marine has done a commendable job at digitizing traditional insurance processes. However, Tokio Marine has room for improvement on its customer acquisition channels. For example, in our research, Tokio Marine only ranked on the first page of Google Singapore’s non-personalized search results in 1 of 7 relevant categories. With the impending shift in traditional distribution channels for insurers, insurance companies need to build a more comprehensive online presence to better attract leads.

Tokio Marine has made a decent mobile push to engage with its policyholders and build better sales processes for its agents. The ‘TM iSwift’ app, for example, provides easy mobile claims for users and allows policyholders to locate nearby clinics; such a service-first mindset improves the customer experience.

However, Tokio Marine has yet to develop a DTC sales channel on a native mobile application. We cannot emphasize how important it is for an insurer to have a dedicated mobile sales channel. We believe that there is tremendous opportunity for Tokio Marine in the mobile space.

Like the majority of other insurers, more could be achieved by Tokio Marine in the social space. While Tokio Marine updates its Facebook page relatively frequently, it does not manage a Youtube channel or Instagram account that is targeted at Singapore. Localization is key when it comes to social media engagement today. That being said, we commend Tokio Marine’s commitment to Twitter. Active engagement platforms are key to engaging and relating with customers and are essential to a DTC insurer.

---

Manulife

Key Innovation(s)

Online eClaims Processing and Manulife Move Application

Ranking

Our Perspective

Manulife Singapore’s lack of a push into the online DTC space is perplexing when Manulife Malaysia launched its online purchasing platform last fall. That being said, Manulife is one of the few insurers that offers an online claims process. While not the most comprehensive, it is certainly commendable when insurers take steps to digitize their processes. We were also relatively concerned by Manulife’s poor search presence. Manulife did not rank on the first page of Google’s non- personalized search results in 3 of 3 relevant categories.

We were particularly impressed with Manulife’s ‘Move App’ that was available on the iOS Application Store. The Manulife ‘Move’ program rewards customers for living healthier. It leverages on the data collected by connected devices to reduce underwriting risk and improve policyholder behavior. Manulife has also built out a mobile CRM for its agents. However, Manulife has yet to build out a DTC sales channel on a native mobile application. We cannot emphasize how important it is for an insurer to have a dedicated mobile sales channel in a mobile-driven age. We believe that there is tremendous opportunity for Manulife in the mobile space.

Like the majority of other insurers, Manulife has room for improvement in the social space. While Manulife is doing an incredible job on Instagram2 Youtube and Facebook, posting and engaging with users actively, Manulife does not have an account on any active engagement platform. Manulife would benefit greatly by building out a presence on Twitter and Snapchat. Active engagement platforms are key to engaging and relating with customers and are essential to a DTC insurer.

---

Sompo Japan

Key Innovation(s)

Direct to Consumer, Online eClaims Processing, and Sompo ‘Drive’ Application

Ranking

Our Perspective

Sompo has made an extraordinary effort in its push for millennials with a well established online DTC platform. While Sompo has developed a suite of well-thought-out applications with a digital-first and service-first approach, Sompo’s web presence was hampered by poor search optimization. Sompo did not rank on the first page of Google Singapore’s non-personalized search results in 6 of 6 relevant categories. We are concerned that Sompo’s push into DTC insurance is hampered by its less than ideal acquisition channels.

Sompo is one of the only few insurers in Singapore that provides comprehensive eClaims service across multiple product lines. The Sompo ‘Drive’ application attempts to change driver behavior for the better and collects crucial data to reduce underwriting risk on Sompo’s end. However, Sompo’s DTC purchase experience has substantial room for improvement. Unfortunately, other Sompo innovations such as the Sompo ‘HealthCare’ app, which connects users to doctors directly through the application, have yet to make their way to Singapore shores.

Like the majority of other insurers, Sompo also has room for improvement in the social space.

Sompo actively manages and updates its Facebook account, generating quality engagement for its policyholders and prospective customers. However, Sompo is relatively weak at other social media platforms. Sompo’s Youtube account is rarely updated. Sompo doesn’t have an Instagram account either. Sompo would also benefit greatly by building out a presence on Twitter and Snapchat. Platforms such as Twitter and Snapchat are key to engaging millennials. Active engagement platforms are essential to a DTC insurer.

Citations
1 We recognize that FWD has since launched international health and home insurance in early 2018. We look forward to factoring FWD’s foray into new insurance categories into our benchmark the following year.
2 While Manulife has an Instagram account, it was dormant in 2017. As such, Manulife’s Instagram efforts was not factored into its social score. We look forward to factoring Manulife’s Instagram efforts into our benchmark the following year.

Are the opportunities worth the challenges?

Credits

Analysts
Mr Chang Jun Hua, Analyst

Research
Mr James Tan, Singapore

Overview

There are many reasons which drive the demand for private jet ownership and charter. Some see it as a status of wealth, while others appreciate the flexibility private aviation services provide for their holiday itineraries or business schedules. Private jets also provide access to a far larger number of airports which are unable to accommodate larger commercial airliners – bringing passengers closer and faster to their destination. Neither do passengers have to risk getting stuck in long security lines or flight delays. Increasingly, private jets are also used to serve as private offices in the sky which raise productivity. For instance, NEXA Advisors’ most recent study on business aviation and the world’s top performing companies concluded that companies using business jets were likely to outperform non-users on revenue growth, innovation, employee satisfaction and market share1. With a variety of reasons justifying the consumption of private aviation services, coupled with rising global wealth, demand is likely to only rise.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

This horizon scanning report on aviation by Quest Ventures on the opportunities in Southeast Asia’s private aviation is the result of cross sectional research and analyses done on the vibrant private aviation sector. Our evaluation concludes that Asia’s large population and wealth is in a good position to tackle flexibility issues and empower efficient private travel. However, regulations hamper. Unless political will aligns with consumer demand, not much would change.

A new era for the private aviation industry will likely arrive once ASEAN governments commit to liberalising their airspace and airports, building and upgrading airport facilities and having a regional agency coordinating air traffic and setting implementable safety standards.

Until such conditions present themselves, new entrants would have to work within the operational constraints which perpetuates inefficiency. They would also have to compete against experienced operators and brokers who have eased such inefficiencies by establishing strong working relationships with various stakeholders around the region.

---

Market Trends and Insights

According to Wealth-X, the typical global jet owner is 63.6 years old, with an average net worth of US$1.66 billion. They spend about 1.0% of their net worth on private aircraft, with an average value of US$16.4 million per plane2. Operating it, however, would set you back another US$700,000 to US$4 million3. Those who have decided that plane ownership is out of their price range, but still want to enjoy its benefits may then opt to charter a plane. According to Singapore jet charter service provider, Paramount Business Jets, Light Jets4 start at US$2,200 per hour. Mid-Size Jets start at US$2,800 per hour. Super Mid-Size Jets start at US$3,800 per hour, and Large Cabin Jets start at US$4,500 per hour5. Brad Stwewart, CEO of XOJets, a private jet charter company, says that his clients spend several hundred thousand dollars on consumption of private aviation services each year – with net worths around US$30 million to US$40 million6.

While these figures may seem outlandish, new business models which allow for jet-sharing may just make private jet travel accessible to ordinary High Net Worth Individuals7 (HNWIs). As such, while it is unlikely that ordinary HNWIs may purchase their own plane or frequently charter entire private jets, we will include the growth of HNWIs in our analysis of overall future demand for private aviation services.

---

Growing Wealth

It is generally thought that a global increase in population of HNWIs and Ultra High Net Worth Individuals8 (UHNWIs) will generate growing demand for private jet orders and on-demand private jet charter9.

HNWIs

According to a Cap Gemini SA report, although growth has been modest, global HNWI wealth has continued to hit new record highs, with Asia Pacific overtaking North America as the top wealth market in the world10.

Global HNWI wealth is projected to nearly triple in size from 2006-2025 to surpass US$100 trillion by 2025, with China and Japan leading the pack – both registered double-digit increases in both the HNWI and UHNWI populations.

As such, Asia Pacific (APAC), and by cautious extension, Southeast Asia (SEA) is likely to remain a strong market, with the APAC region accounting for two-fifths of the world’s HNWI wealth over the next decade11.

UHNWIs

Excluding Latin America which has faced disappointing growth, global UHNWI wealth has grown more than the other wealth segments over the last few years. The ranks of Asian UHNWIs are set to expand by 66% over the next decade, compared with 27% growth in Europe12.

However, the results of The Wealth Report Attitudes Survey13 conducted by Knight Franks, which was based on responses from almost 900 of the world’s leading private bankers and wealth managers provide an important caveat.

The survey revealed that only 15% of UHNWIs use private aviation for the majority of their business and personal flights. Latin Americans were the biggest users, with 40% opting to go private. In Asia, just 9% of UHNWIs routinely travel on non-commercial flights.

Billionaires

A 71% surge in the number of Asian billionaires14 over the next decade will take the total to 832, nearly neck and neck with the US, where the population by then will be 840. Europe is forecast to be home to around 569 billionaires in 2025.

---

New Innovations

Hardy Sohanpal of international charter operator Global Jet Concept, believes that private jet numbers are likely to rise as the desire to travel efficiently with maximum privacy becomes more of a priority for corporations and private individuals.

Sohanpal adds that, “The introduction of new apps and charter models that are competing to become the Uber of the airways is also likely to attract those who shuttle frequently between cities travelling first or business class.”15

That is exactly what founder of JetSmarter, a digital/mobile private jet marketplace, Sergey Petrossov plans to do. Talking about the common underutilization of jets which have to fly routes empty to reposition itself, Petrossov explains that “those empty seats and flights can be offered to travelers for less than the typical price of chartering a jet and for a fee that may be at least in the same ballpark as the cost of a first class ticket.”16

JetSmarter, which allows members to book individual seats on private jets would also make flying on a private jet far more affordable. For example, it costs US$12,000 to charter a small 4 seater from New Jersey to Miami on a weekday, according to PrivateFly. A JetSmarter member would pay US$2,000 to book a seat, and other members can hitch a ride at no charge. Membership costs US$15,000 for the first year.

However, such business models are currently unavailable within SEA.

Despite the finding that just 9% of Asian billionaires travel by air privately, the expected increase in wealth across Asia and SEA is still an indicator that demand for private aviation services will only rise. With business models like jet-sharing drastically reducing the cost of private air travel and making it more accessible to the ‘merely rich’, demand is only set to grow. However, the question remains as to whether Asia, and consequently SEA, is able to keep up with the forecasted rise in demand.

---

The SEA Aviation Environment

To accommodate the forecasted increase in demand for private aviation services, there has to be appropriate increase in the capability and capacity of the aviation operating environment. Yet, surmounting challenges remain as we survey the existing conditions of SEA’s aviation environment.

Poor Regional Airspace Navigation Coordination

The US has the Federal Aviation Authority (FAA), which issues and enforces aviation safety regulations, operates air traffic management and air navigation facilities, as well as research and development for safer and more efficient systems17.

The European Union (EU) has the European Aviation Safety Agency (EASA), which develops common safety and environmental rules, monitors the implementation of standards and provides the necessary expertise, training and research for Member States18, while Eurocontrol coordinates the region’s air traffic control19.

Unlike the more developed US and European market, the Association of Southeast Asian Nations (ASEAN) has no regional regulatory body overseeing aviation safety or coordinating air traffic control20. This results in air traffic within the region not operating as efficiently and safely as it can be.

Poor state of Air-Traffic-Control Technology

Some traffic controllers in Asia still rely on information radioed in from pilots and other airports, manually entering the information and calculating aircraft spacing. This takes more time and occupies more mental capacity.

Even if countries like Singapore, Malaysia, Thailand and Indonesia modernize their air traffic management systems, connecting all these systems across Asia presents a further challenge. Countries are at different stages of development and governments have no incentive to cooperate21.

According to the Wall Street Journal, Asia has become one of the world’s most-trafficked areas for planes, and is set to become even busier, thereby further challenging local airlines, airports and air-traffic controllers to keep the skies safe.

Poor Airport Infrastructure

A PwC report22 on the state of Asia’s airport infrastructure found that most major Asian hubs are already operating above their planned capacity whilst even secondary hubs are starting to experience capacity strains. This has resulted in a rapid escalation of delays since 2010.

With the exception of airport passenger queues and security checks, private jets would not be exempt from long queues for take-offs, circling above the runway prior to landing, and an increasing scarcity for take-off and landing slots.

The WSJ reports that nations such as Indonesia and the Philippines have not invested enough in airport facilities to keep up with the demand, especially in second-tier cities. Some runways, adapted from old military airfields, are too short or are badly designed for good drainage, and some lack modern landing navigation systems or proper runway lights23.

Shortage of Aviation Professionals

There is an expected shortage of qualified and experienced aviation professionals (pilots, mechanics and engineers) in the future, which would likely drive up labour costs and reduce operational flexibility.

Boeing, one of the largest aircraft manufacturers in the world, projects that the Asia-Pacific region will need 216,000 new pilots in the next 20 years, more than in any other part of the world, accounting for 40 percent of the global demand24.

---

Business Models

Private Jet-Buying Market

Market Insights

Jet orders are forecasted to be a US$248b industry from 2016-2025, with Asia-Pacific taking 10% of total orders25.

While the US (12,717), Mexico (950) and Brazil (786) are the top three nations by some margin when it comes to fleet size, JETNET’s figures show numbers are rising fast in Asia. Hong Kong (+535%), Taiwan (+367%), China (+347%) and Macau (+300%) all feature in the top 10 list of locations where growth has been fastest over the past 10 years. China, with 277 jets, now claims eighth position in overall ownership levels26.

Richard Koe, Managing Director of industry analyst, WINGX, has also remarked that it would not be unusual for firms with a turnover of US$50m to have its own plane, further validating the demand for private jet orders. He adds that the Chinese market is set to see strong growth as the government begins to recognize the importance of business jets as a competitive tool to support corporations pursuing regional trade opportunities.

Demand for private jets in SEA is growing as indicated by Dassault Falcon senior vice-president of international sales Jean-Michel Jacobs, who sees rising demand in SEA compensating for China’s economic slowdown. “We have a lot of inquiries and deals in process… about twice as much activity as we had two years ago,” he told The Straits Times in 201627.

Private Jet Charter Market

Market Insights

On-demand jet charter, which allows use with no commitment and a pay-as-you use structure, remains the most popular option for clients in the industry28.

Typical jet charter clients tend to be casino operators, Fortune 500 companies and MNCs. As demand rises, clients would typically want to ensure operators have international-level qualifications: IBAC’s IS-BAO stage I,II,III, Wyvern Wingman, ARGUS Gold or Platinum or the Flight Safety Foundation’s (FSF) BARS audit29.

Jet charter demand in Asia tends to spike during public holidays (Chinese New Year and Western holidays), World Economic Forums (G8, G20, ASEAN meetings), ASEAN meetings and major sporting events (Super Bowl, World Cup, Olympics). It then tends to slow during the summer where charter demand shifts to Europe and the US30.

As touched on previously, infrastructure status, airspace limitations, and regulations remain the biggest challenges when operating a charter throughout the region. Many landing and takeoff slots are tightly regulated with long application processes. Further compounding operating conditions are unfriendly cabotage31 rules, aircraft overnight parking restrictions and long lead times for permit requests.

Hong Kong, Macau and Singapore are the most charter-friendly locations in the Asia-Pacific region as they are known for their free-market, efficient-regulation and respect of liberties. Despite a chronic shortage of parking space and take-off slots, Hong Kong remains the most convenient, efficient and preferred destination for charter clients due to its central location in APAC32.

For a glimpse of the application process, the extensive list of documents to operate a single charter flight in APAC can be found in Annex B. Aviation governing bodies in each country can also change the rules and requirements without prior notice at any time. This can affect not only the local charter market, but any foreign-registered aircraft chartering a jet into the particular country.

Traditional Jet Charter Operators and Brokers

Charter operators charter out their own or a partner network’s fleet to clients, while brokers are intermediaries who reach out to a network of operators, get a quote, mark it up, and sell it to clients. Operators usually carry out brokerage services as well.

The most common business models of traditional jet charter operators are on-demand charter, jet cards and memberships.

Luxaviation Asia (Singapore based, SEA operations)33

Began charter operations out of Singapore in 2014, catering to the whole of SEA. Operates more than 260 aircraft according to the most stringent safety standards. Provides brokerage services around the world, aircraft management, flight solutions and support34. Quotes only available upon request.

Asia Jet (Hong Kong based, international operations)35

Full service company which offers on-demand aircraft charter, Jet Card membership, consultancy and aircraft management services. Both the Black Card and Corporate Card offer access to the entire Asia Jet and global network fleet. Instant quotes available on site. A test search for a round-trip flight from Singapore’s Changi International Airport to Vietnam’s Tan Son Nhat International Airport begins at US$31,850 for a turboprop, and US$46,850 for a heavy jet.

Javajet (Jakarta based, Asia operations)36

Specialises in private jet charter in Asia. Quotes only available upon request.

Fractional Operators

Fractional operators buy private jets and then sell shares of the jets to several owners. Each shareholder then receives the right to fly the jet for a fixed number of hours.

Executive Jets Asia (Singapore based, Asia operations)37

Offers 6 shares per jet with one share costing US$800,000 for the Hawker 700 or US$1.2m for the Hawker 800. Each share entitles the owner to 70 hours of free usage of the aircraft, with an additional nominal fee of US$100,000 per year, from the first year onwards. Jet will be sold at the end of 5 years, with equal sharing in the sales proceeds.

NetJets Inc (US and Europe)38

A subsidiary of Berkshire Hathaway, NetJets was the first ever private jet charter company to come up with the fractional ownership model. The smallest share you can purchase is 1/16 interest, which gives you 50 hours of flight time a year for a cost of approximately US$550,000 with additional monthly management fees of US$9,600. The largest share possible is ½ interest, or 400 hours of flight time at an approximate cost of US$4.4 million with monthly management fees of US$60,000. Occupied hourly fees which covers fuel, maintenance, catering costs US$1,950 an hour. NetJets owners sign up for a two-year, two-and-a-half-year or three-year commitment, depending on the size of the aircraft, and NetJets has a guaranteed buy-back option after that commitment is up39.

NetJets also offer a pre-paid Marquis Jet Card which allows clients to buy 25 hours of flight time. A single year starts at US$119,000 for a light jet, excluding taxes and additional surcharges.

Jet Charter/Sharing Mobile Apps

According to JetSmarter CEO Petrossov, the average private plane has less than 30 percent load factor40 during trips, while 35 percent of trips are completely empty41. Jet Charter or Jet Sharing apps seeks to eliminate this inefficiency by providing a mobile platform which matches this excess capacity to demand. It also seeks to bypass traditional charter brokers by letting customers book a flight directly from plane owners/operators through the app. As a result, prices tend to be lower, making private aviation more accessible to a wider market.

APAC apps

JetSteals (India based, India, Dubai, New York operations)42

India-based mobile app is the first online marketplace for private jet and helicopter empty legs. Book a trip and finish the transaction online. Allows booking of individual seats. Traction appears slow, there was only a single sold-out listing on the site when this author visited on 9 June 2017.

Super First Class (China based, China operations)

No website available from Google search. Empty legs booking app which only functions in Chinese. Allows users to not only book individual seats and finish payment online but also request customized charter services by submitting an online order. However, government payment limitations only allow clients to pay 20,000 RMB or less via UnionPay and 50,000 RMB or less via Alipay or WeChat (two popular e-payment platforms in China)43.

International apps

Victor (London-based, international operations)44

On-demand private jet charter that allows you to compare, book, and manage jet charters. Unique selling point is that it discloses operator and aircraft details, which allows for transparency and complete financial protection. Nothing stops the user to bypass the app and go directly to the operator to ask for a competitive quote. From a consumer’s standpoint, the app serves as a good directory to all available options. Could open regional HQ in Hong Kong.

JetSmarter (US based, routes mainly between US, London, Dubai, opening up routes this year to India, HK, China, Brazil, Mexico)45

First started in 2012, JetSmarter is currently valued at US$1.5 billion after closing its US$105 million Series C round in December 201646. Investors include rapper Jay Z and the Saudi Royal family. Has four services, normal private charter, shared charter, JetDeals, which are spontaneous last-minute, one-way flights, and JetShuttle, which offers shared, scheduled flights between major cities. Currently charges members an annual fee of US$11,500 plus a one-time initiation fee of US$3,50047.

However, there are some limitations to fully “uberizing” the private jet market. Real-time on-demand jet charter or sharing would be tough as the majority of so-called charter fleets in Asia-Pacific are owner aircraft. This means that charters would still be subject to “owner’s approval”, which could potentially cause the upset of deals at the very last minute. There is also a challenge to provide accurate real-time availability, quotes and confirmations without a seamless integration and agreement between all players in the market.

Jet sharing apps also currently do not provide the experience of knowing the strengths and weaknesses of each operator – something experienced brokers can provide.

---

Status and Operational Challenges of major SEA countries

Operational challenges and regulation restrictions affecting the jet-charter industry in selected ASEAN countries.

Indonesia

As of 2016, Indonesia has 53 business jets with 16 being chartered out commercially.

The average lead time to receive landing and overflight permits is 3 days.

Infrastructure and Safety Issues

Airports have not kept up with the rise in passenger traffic – Soekarno-Hatta International Airport, designed for 22 million, is expected to receive 61 million by the end of 2017. While this stress might be alleviated by the expected completion of a new terminal and third runway48,49, other airports around the country are likely to remain operating way above designed capacity.

According to a 2015 PwC report50, Indonesia’s airport sector is expected to invest US$1.9 billion in 2017, and US$3 billion by 2025, growing at a rate of 5.8% per year. However, as the investment level required is beyond state-owned operators, Angkasa Pura I and II, government support for foreign or domestic private investors would have to be present to facilitate this growth. Provided investments continue pouring in, progress can be made for the expansion and redevelopment of airports in addition to refurbishment of air traffic control assets and ground handling51.

Private jets operating between popular airports would hence have to contend with such congestion and unexpected delays.

Unfriendly regulations52

The largest challenge remains the legal decree passed by the Indonesian Government in October 2015. Strict overfly cabotage rules prevent any private jet charter operator from conducting flights within Indonesia unless they are domestically registered53. Consequently, there has been increased demand for local charter solutions at higher prices.

In 2007, audits conducted by the International Civil Aviation Organization (ICAO) detected 121 loopholes in the Indonesian air safety oversight system54, leading the US and EU to ban all Indonesian aircraft entering their respective airspaces. The situation has since improved, with the EU lifting the ban for a handful of operators (Garuda, Mandala, PremiAir, Airfast, Air Asia, Citilink, Lion Air, Ekspres Transportasi Antarbenua, Batik Air55), and the FAA lifted the ban for all Indonesian operators in 2016.

In general, government regulations, poor airport infrastructure and a bad reputation for safety hinders Indonesia from being a global player in every aspect of the private jet aviation industry.

Malaysia

As of 2016, Malaysia has 49 business jets, with 8 used for business jet charters. The only Malaysian-registered jet run by Berjaya Air. The average lead time to receive a permit is 72 hours.

Grey market charters56 are more prevalent and unofficially tolerated in Malaysia57. The result is legitimate charter operators finding it tough to compete with the ad-hoc availability and friendlier prices from private jet owners, thereby depressing charter business opportunities.

Singapore

As of 2016, Singapore has 65 business jets, with 11 used for chartering. The mid-size, large, and long-range categories make up over 91% of this fleet, suggesting a need to fly mostly long distance. Average landing permit lead time is 7 working days while overflight permit lead time is 2 working days.

Generally charter friendly. All business jets based in Singapore are foreign registered, as the local aviation registry, the Civil Aviation Authority Singapore (CAAS), caters more to commercial aviation58.

Philippines

As of 2016, the Philippines has only 4 jets available for commercial charter. The average permit lead time is 3-5 days.

Landing and overflight permits are mandatory for all charter operations in the Philippines.

The Philippines government has plans to ban general aviation (non-scheduled, non-airliner aircraft) from the Manila Airport. All landing permit requests must come with a local business contact, with applicants having to provide an abstract of charter agreement, purpose of operations, type of aircraft, relationship of passengers and more.

Helicopter charter within Philippines’ thousands of small islands are an increasingly viable market amidst tight regulations imposed on private jet charters59.

In general, cumbersome administrative requirements and airport bans present friction for the private jet charter economy.

Thailand

As of 2016, Thailand has 37 business jets with 18 available for charter. Thailand had 727 UHNWIs and 24 billionaires in 2015. The average permit lead time is 3-5 days for landing permit and 2-3 days for an overfly permit.

“A 2015 International Civil Aviation Organization (ICAO) ruling putting the Thai registry under close scrutiny due to safety concerns has affected the local commercial charter operators. No new routes are being approved or aircraft are being allowed to fly to certain international destinations during this period, as local charter operators are put into the same category as low cost airline carriers.”

Foreign registered aircraft being chartered into Thailand requires a long lead time as the Civil Aviation Authority of Thailand (CAAT) will not issue landing permits without arrival or departure slot approvals and parking approvals. Chiang Mai International Airport and Phuket International Airport will not allow overnight parking, although pick up and drop off is permitted, while Don Mueang International Airport has a maximum parking time of 48 hours.

In general, unfriendly rules, regulations, and long lead times for permits prevent smooth and flexible operations by private jet charter operators. Scarcity of experienced business jet pilots is also an issue.

---

Future Outlook

Although current challenges remain large, it has been said that Asia’s large population and wealth is in a good position to tackle flexibility issues and empower efficient private travel60. This author, however, takes a more skeptical position that unless political will aligns with consumer demand, not much would change.

While organizations including ASEAN and APEC working with the International Civil Aviation Organization (ICAO), the International Business Aviation Council (IBAC) and the Asian Business Aviation Association (AsBAA) continuously raise the importance of improving transportation regulations in an effort to implement efficient solutions, success so far has been largely muted.

In the words of Jeffrey C. Lowe, Managing Director of Asian Sky Group, “The charter market in the Asia-Pacific region has yet to reach the size and scope necessary to provide cross benefits and industry wide stimulus. Like the business aircraft market itself in the region, charter is in its infancy and has yet to mature. This is also the case in terms of the charter products available i.e. membership programs and charter tools such as mobile applications. For example, most apps in the region do not provide live fleet updates or have the ability to confirm the flight and pay online, but rather are reduced to a messaging service where the user must “request a call back”.61

Before one attempts to jump in on the opportunity to provide better private charter services or introduce comprehensive jet-sharing solutions in Asia or SEA, one would have to seriously consider the challenging operational conditions that currently plague the region. Any player seeking to capture a slice of the SEA private aviation market would require deep knowledge and extensive networks to navigate and work with the multiple stakeholders involved. Having to contend and coordinate between multiple clients, private jet owners, airspace and safety regulators, governments, airport services, aircrew, competitors and even the weather itself exposes one to an incredibly huge amount of uncertainty and risk.

A new era for the private aviation industry will likely arrive once ASEAN governments commit to liberalising their airspace and airports, building and upgrading airport facilities and having a regional agency coordinating air traffic and setting implementable safety standards.

Until such conditions present themselves, new entrants would have to work within the operational constraints which perpetuates inefficiency. They would also have to compete against experienced operators and brokers who have eased such inefficiencies by establishing strong working relationships with various stakeholders around the region.

---

Annex A

Light Jet

Typical Flight – 800 to 1,500 miles

These aircraft have interiors comparable in size, comfort, and luxury to those of stretch limousines. They are quite economical for regional and medium-length flights, typically having a range of around 1500 miles nonstop. Light jets may seat 6 passengers comfortably and 8 or 9 at maximum capacity. External baggage space may be small, making it difficult to bring skis or large golf bags. However, you will certainly enjoy the flight as light jets are typically outfitted with excellent in-flight entertainment centers, a mini-galley, and luxurious leather and hardwood interiors.

Mid-Size Jet

Typical Flight – 1,500 to 3,000 statute miles

The term refers both to the jet’s cabin and its exterior and engines. With a larger cabin comes grander, roomier seating and more space to move around. Interior features are similar to light jets, but have more layout options, such as spacious divans, and provide stand-up space. At least 8 passengers can be seated on midsize jets, and some can even accommodate 12 or 14. Most all come with a private lavatory behind a solid door. Midsize jets also offer greater capabilities, including a wider range – on average 2100 miles or about 4 to 5 hours. Some even offer nonstop coast-to-coast flight possibilities.

Super Mid-Size Jet

Typical Flight – 1,500 to 3,700 statute miles

These aircraft provide features on a level between standard midsize and larger jets. Seating capacity is on the high end of typical midsize jets (10 to 18), but with even roomier stand-up cabins, many luxury amenities seen in heavy jets, and often a full galley. Some luxury options include a private lavatory with dressing area, spacious internal/external luggage compartments, and advanced entertainment and information centers. Super-midsize jets operate with the efficiency of midsize aircraft and the greater range and speed of heavy jets, making them suitable for coast-to-coast or international flights with a small to moderate size party.

Large Cabin Heavy Jet

Typical Flight – 2,000 to 5,000 statute miles

Known as the kings of private jet aircraft, heavy jets have got it all – the biggest interiors, most luxurious amenities, and longest nonstop range. They can carry anywhere from 8 to 20 passengers and as much luggage as you could possibly need. Interiors can be arranged to accommodate practically any configuration, from full galleys to private offices and bedrooms – not to mention plenty of regular seating in spacious comfort. Full-size lavatories with dressing rooms are standard, and service is best-managed by the inclusion of a flight attendant in the regular crew. These aircraft can be employed for coast-to-coast or intercontinental flights ranging from 6 to 12 hours nonstop.

Source: https://www.marmaladeskies.com/jets/classifications#

---

Citations

1. Private air travel: a luxury or a necessity? (n.d.). Retrieved from http://www.klasjet.aero/en/news/view/private-air-travel-a-luxury-or-a-necessity
2. Private Jets and Ultra Wealthy Individuals – Wealth-X Study. (n.d.). Retrieved from http://www.wealthx.com/private-jets-ultra-wealthy/
3. Parker, T. (2020, January 29). The Economics of Private Jets. Retrieved from http://www.investopedia.com/articles/personal-finance/063015/economics-private-jet-charters.asp
4. Description of different jet classifications can be found in Annex A.
5. Singapore Private Jet Charter Flights, Prices and Aircraft for Hire. (n.d.). Retrieved from https://www.paramountbusinessjets.com/cities/singapore-singapore.html
6. (n.d.). Retrieved from https://www.bloomberg.com/news/articles/2016-04-26/hey-stranger-do-you-want-to-borrow-my-private-jet
7. HNWIs are defined as those having investable assets of US$1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.
8. UHNWs are defined as those having investable assets of US$30 million or more, excluding primary residence, collectibles, consumables, and consumer durables.
9. Asian Sky Group: Asia-Pacific Business Jet Charter Report Summer 2016 https://static1.squarespace.com/static/583cff1a59cc68a8c3ce896f/t/58be30b99de4bb249cb0d9a8/1488859357451/Charter+Report.pdf
10. (n.d.). Retrieved from https://www.bloomberg.com/news/articles/2016-06-23/asia-pacific-region-wealth-exceeds-north-america-for-first-time
11. (n.d.). Retrieved from https://www.worldwealthreport.com/Global-HNWI-Population-and-Wealth-Expanded
12. The Wealth Report 2020. (n.d.). Retrieved from http://www.knightfrank.com/wealthreport/2016/wealth-distribution/uhnwi-growth-2016
13. Knight Frank: The Wealth Report 2017 (n.d.). Retrieved from http://content.knightfrank.com/research/83/documents/en/the-wealth-report-2017-4482.pdf
14. Individuals with a net worth in excess of US$1 billion.
15. Knight Frank: The Wealth Report 2017 (n.d.). Retrieved from http://content.knightfrank.com/research/83/documents/en/the-wealth-report-2017-4482.pdf
16. Skift Website: JetSmarter Is the Latest On-Demand Private Jet Company to Raise Millions (n.d.). Retrieved from https://skift.com/2016/02/22/jetsmarter-is-the-latest-on-demand-private-jet-company-to-raise-millions/
17. Federal Aviation Authority Website (n.d.). Retrieved from https://www.faa.gov/about/mission/activities/
18. European Aviation Safety Agency (n.d.). Retrieved from https://www.easa.europa.eu/faq/19224
19. Eurocontrol Website (n.d.). Retrieved from http://www.eurocontrol.int/articles/our-role
20. CNBC: Southeast Asia’s aviation boom shows a patchy safety framework (n.d.). Retrieved from http://www.cnbc.com/2015/01/08/southeast-asias-aviation-boom-shows-up-patchy-safety-framework.html
21. Wall Street Journal: Five Major Risks to Flying in Asia (n.d.). Retrieved from http://graphics.wsj.com/asia-aviation/
22. PwC: Airport infrastructure in Asia Coping with the demand surge (n.d.). Retrieved from http://www.pwc.com/gx/en/capital-projects-infrastructure/pdf/pwc-airport-infrastructure-in-asia.pdf
23. Wall Street Journal: Five Major Risks to Flying in Asia (n.d.). Retrieved from http://graphics.wsj.com/asia-aviation/
24. The San Diego Union Tribune: Rapidly-growing Asian airlines race to find qualified pilots (n.d.). Retrieved from http://www.sandiegouniontribune.com/sdut-rapidly-growing-asian-airlines-race-to-find-2015feb04-story.html
25. JetCraft 10 Year Market Forecast 2016 (n.d.). Retrieved from http://jetcraft.com/outlook/Jetcraft-10-Year-Market-Forecast-2016.pdf
26. Knight Frank: The Wealth Report 2017 (n.d.). Retrieved from http://content.knightfrank.com/research/83/documents/en/the-wealth-report-2017-4482.pdf
27. Straits Times: Private jet makers upbeat on S-E Asia amid China slowdown. Retrieved from (n.d.). http://www.straitstimes.com/singapore/private-jet-makers-upbeat-on-s-e-asia-amid-china-slowdown
28. Asian Sky Group: Luxury Chartering Jan 2017 . (2017, January 1). Retrieved from https://static1.squarespace.com/static/583cff1a59cc68a8c3ce896f/t/58b3edd68419c27c67263eed/1488186944080/Luxury Charter Launching EN.pdf
29. Asian Sky Group: Luxury Chartering Jan 2017 . (2017, January 1). Retrieved from https://static1.squarespace.com/static/583cff1a59cc68a8c3ce896f/t/58b3edd68419c27c67263eed/1488186944080/Luxury Charter Launching EN.pdf
30. Asian Sky Group: Luxury Chartering Jan 2017 . (2017, January 1). Retrieved from https://static1.squarespace.com/static/583cff1a59cc68a8c3ce896f/t/58b3edd68419c27c67263eed/1488186944080/Luxury Charter Launching EN.pdf
31. Cabotage, “formally defined as “air transport of passengers and goods within the same national territory.”Aircraft Owners and Pilots Association Definition
32. Asian Sky Group: Luxury Chartering Jan 2017 (2017, January 1) Retrieved from https://static1.squarespace.com/static/583cff1a59cc68a8c3ce896f/t/58b3edd68419c27c67263eed/1488186944080/Luxury+Charter+Launching+EN.pdf
33. Luxaviation Website. (n.d.). Retrieved from https://www.luxaviation.com/en/
34. Asian Sky Group: Luxury Chartering Jan 2017. (2017, January 1) Retrieved from https://static1.squarespace.com/static/583cff1a59cc68a8c3ce896f/t/58b3edd68419c27c67263eed/1488186944080/Luxury+Charter+Launching+EN.pdf
35. Asia Jet Website. (n.d.). Retrieved from https://www.asiajet.com/en/
36. Javajet Asia Website. (n.d.). Retrieved from http://www.javajetasia.com/
37. Executive Jet Asia Website. (n.d.). Retrieved from http://www.executivejetsasia.com/
38. NetJets Website. (n.d.). Retrieved from https://www.netjets.com/Home/
39. Forbes Travel Guide: How much does a private jet flight cost with NetJets? (n.d.). Retrieved from http://www.forbestravelguide.com/partner/netjets/how-much-does-a-private-jet-flight-cost-with-netjets
40. Load factor is a measure of how well an airline is utilizing its capacity and is used to assess how efficiently an airline operator is filling seats in return for fares.
41. CNBC: JetSmarter partners with XOJet to offer more flights, as the sector comes under pressure. (2016, September 20). Retrieved from http://www.cnbc.com/2016/09/20/jetsmarter-partners-with-xojet-to-offer-more-flights-as-sector-comes-under-pressure.html
42. JetSteals Website. (n.d.). Retrieved from http://jetsetgo.in/jetsteals/list
43. Asian Sky Group: Asia-Pacific Business Jet Charter Report Summer 2016. (n.d.). Retrieved from https://static1.squarespace.com/static/583cff1a59cc68a8c3ce896f/t/58be30b99de4bb249cb0d9a8/1488859357451/Charter+Report.pdf
44. Victor Website. (n.d.). Retrieved from https://www.flyvictor.com/en-gb/#/
45. JetSmarter Website. (n.d.). Retrieved from https://jetsmarter.com/
46. Crunchbase, JetSmarter (n.d.). Retrieved from https://www.crunchbase.com/organization/jetsmarter#/entity
47. South Florida Business Journal: Another South Florida startup is officially a ‘unicorn’, valued at $1.5 billion. (n.d.). Retrieved from http://www.bizjournals.com/southflorida/news/2016/12/13/another-south-florida-startup-is-officially-a.html
48. Bloomberg Technology: Why Indonesia Remains One of the World’s Worst Places to Fly (2015, December 7) Retrieved from https://www.bloomberg.com/news/articles/2015-12-07/why-indonesia-remains-one-of-the-world-s-worst-places-to-fly
49. Indonesia Investments: Indonesia: Passenger Capacity Soekarno-Hatta Airport (n.d.). Retrieved from https://www.indonesia-investments.com/news/todays-headlines/aviation-infrastructure-indonesia-passenger-capacity-soekarno-hatta-airport/item7158?
50. PwC Report: Indonesia’s airports sector expects investments of up to US$25bn in 10 years, double the present level due to 4.8% expected increased air traffic growth. (n.d.) Retrieved from http://www.pwc.com/id/en/media-centre/press-release/2015/english/issues-challenges-for-airport-investment.html
51. PwC Report: Connectivity and growth Issues and challenges for airport investment (n.d.). Retrieved from http://www.pwc.com/gx/en/capital-projects-infrastructure/publications/assets/connectivity-growth-airport-investment.pdf
52. Universal Weather & Aviation Inc: Indonesia Landing and Overflight Permit Requirements for General Aviation. (n.d.). Retrieved from http://www.universalweather.com/blog/2016/01/indonesia-landing-and-overflight-permit-requirements-for-general-aviation/
53. Asian Sky Group: Luxury Chartering. (n.d.). Retrieved from https://static1.squarespace.com/static/583cff1a59cc68a8c3ce896f/t/58b3edd6841 9c27c67263eed/1488186944080/Luxury+Charter+Launching+EN.pdf
54. Indonesia Investments: Ban on Indonesia’s Airlines Entering US Airspace lifted (n.d.). Retrieved from https://www.indonesia-investments.com/news/news-columns/ban-on-indonesia-s-airlines-entering-us-airspace-lifted/item7102?
55. European Commission: LIST OF AIR CARRIERS WHICH ARE BANNED FROM OPERATING WITHIN THE UNION, WITH EXCEPTIONS (n.d.). Retrieved from https://ec.europa.eu/transport/sites/transport/files/modes/air/safety/air-ban/doc/list_en.pdf
56. The informal renting of jets which are usually unregulated and tend to compromise on safety and legality
57. Air Charter Service: GREY MARKET CHARTERS, AND WHY YOU SHOULD AVOID THEM (n.d.). Retrieved from http://www.aircharter.sg/about-us/news-features/blog/grey-market-charters-and-why-you-should-avoid-them
58. Asian Sky Group: Luxury Chartering Jan 2017. (2017, January 1) Retrieved from https://static1.squarespace.com/static/583cff1a59cc68a8c3ce896f/t/58b3edd68419c27c67263eed/1488186944080/Luxury+Charter+Launching+EN.pdf
59. Asian Sky Group: Luxury Chartering Jan 2017 (2017, January 1) Retrieved from https://static1.squarespace.com/static/583cff1a59cc68a8c3ce896f/t/58b3edd68419c27c67263eed/1488186944080/Luxury+Charter+Launching+EN.pdf
60. Asian Sky Group: Asia-Pacific Business Jet Charter Report Summer 2016. (2016) Retrieved from https://static1.squarespace.com/static/583cff1a59cc68a8c3ce896f/t/58be30b99de4bb249cb0d9a8/1488859357451/Charter+Report.pdf
61. Asian Sky Group: Asia-Pacific Business Jet Charter Report Summer 2016. (2016) Retrieved from https://static1.squarespace.com/static/583cff1a59cc68a8c3ce896f/t/58be30b99de4bb249cb0d9a8/1488859357451/Charter+Report.pdf