How venture capital investors can find ASEANnovation:
- Arrive early for the freshest produce
- Simple solutions that solve big problems
- Ecosystem-building companies
- Aggregators leveraging dis-intermediating technology
- Native, rare “fruits” (new species)
Nestled in the Lok Baintan river on Banjarmasin island in the South Kalimantan province is Indonesia’s biggest floating market. Every day just after dawn, traders on their traditional boats, or klotok, sell their goods until mid-morning. Dating back to the 1600s, the Lok Baintan Floating Market is an enduring presence in South Kalimantan. It is not just a mecca of trade with a rich cultural heritage; it is also a dynamic ecosystem, influenced both by merchants and external factors. In a way, the floating market is a microcosm of Southeast Asia’s technology market. For investors looking at the region, there are some striking lessons to be learned from Lok Baintan and how it is changing — also potentially worth a trip once the opportunity arises!
(1) Arrive early for the freshest produce
Tourists flock to the Lok Baintan for various reasons. There is the sunrise view with a backdrop of prayers sung from nearby mosques. There is a variety of cheap fresh produce, and the hot ‘kopi’ is perfect for early mornings. There is the interactions with locals as they sell their goods. But, to enjoy all of these, you have to come in early. The same goes for investing in Southeast Asia’s technology market. Reaping the best returns means coming in early and committing to the endeavor. Sleeping in or hesitation can result in missing out on the fresher produce.
(2) Invest in Simple Solutions that Solve Big Problems
Ten years ago, transactions at Lok Baintan were all in cash. Today, a large number of the merchants use the Payfazz application for transactions. The shift from offline to online is inevitable, but what is interesting is how and why this transition is happening. In an area where most merchants have no bank accounts, companies like Payfazz built lightweight apps merchants could easily access on their first-generation smartphones. Solutions like these are not the stuff of science fiction or even deep tech, but they are effective at closing the gaps in basic services in disconnected markets.
“[Lok Baintan] is not just a mecca of trade with a rich cultural heritage; it is also a dynamic ecosystem, influenced both by merchants and external factors. In a way, the floating market is a microcosm of Southeast Asia’s technology market.”
(3) Invest in Companies that Foster Ecosystems
Chaos is a natural first impression of the floating market, with boats bumping into each other every so often. A closer look unveils order and collaboration. In this market, the “bumps” are necessary for them to communicate and trade with one another. There is also a culture of trust, with merchants bartering goods among each other.
This culture was formed over the years of existence and has allowed Lok Baintan to be more than just a floating market, but also a tourism hotspot. Most of the traders are women who fostered interdependence with local government and the greater community to market Lok Baintan beyond its traditional clientele, attracting buyers from the world over.
In Southeast Asia, working with complex ecosystems in local environments is part-and-parcel of the market entry of a technology venture. Communities have unique ways of communicating, and relationships that can be pivotal in introducing new technology. Startups collaborate with community fixtures like the warungs in Indonesia and the sari-sari stores in the Philippines to introduce online platforms for ecommerce and financial services.
Apart from collaboration with local communities for market entry, Lok Baintan also presents a model of entrepreneurial collaboration, where synergies and mutual respect among startups uplift the entire ecosystem as a whole. Investing in the region is about finding ecosystems that multiply the growth of entire markets.
“In Southeast Asia, working with complex ecosystems in local environments is part-and-parcel of the market entry of a technology venture.”
(4) Invest in Dis-Intermediating Technology
The merchants of Lok Baintan are mostly farmers who ply the river to sell their crops. Despite all the hard work that goes into those early mornings, these farmers do not make a lot of money. Other players along the value chain, from the one who leased their boats to resellers, take up most of the profits. These intermediaries are a result of long-standing fragmentation in the market.
Technology plays a large role in the dis-intermediation of these intermediaries. Farm-to-table startups have been using technology platforms to reduce costs and intermediaries. Producers make more, and buyers pay less. Even in an ecosystem like Lok Baintan, there are inefficiencies that, if addressed, can unlock better livelihood for the people who have broken their backs to keep the market afloat.
(5) Invest in the Rare Fruits
The goods traded on Lok Baintan range from fruits like rambutans and guavas, to vegetables like cassava leaves and water spinach, to traditional snacks like nasi bungkus. Among these are fruits rarely seen or sold in big cities today, like the Kalimantan mango or Kasturi, and the rambai. Just as many tourists come to Southeast Asia for its “exotic” appeal, the appeal of Southeast Asia’s technology market for investors abroad is born out of the acclimatization of existing business models to local environments. It is especially more exciting to go beyond the big cities and see the startup activity in second and third tier cities, where often, the most valuable technology companies created are the “new species”.
These are just five takeaways from a trip to the Lok Baintan Floating Market that illustrate where and how to invest in Southeast Asia’s technology market. If you look back in history, the most significant creation in market capitalization are caused by two primary shifts: (1) the rise of technology and (2) the rise of the middle class. In the US, the former mostly drove the market. In China, it was a combination.
In Southeast Asia’s internet economy, the rise of middle-class income has been the main driver, but in the last five years, the rise of technology has enabled more entrepreneurs to speed up digitalization especially in untapped areas. As much as the startup investment landscape has matured in the last five years, the rise of technology in the region clashing with the internet-consuming middle class will continue to open new doors.
The sun has risen on the market, but just like Lok Baintan, the market continues to evolve day-to-day, and it is never too late to be early. This book is an attempt to show everyone, till now, only a handful people got to see — the dawn of the Southeast Asia technology marketplace.
“If you look back in history, the most significant creation in market capitalization are caused by two primary shifts: (1) the rise of technology and (2) the rise of the middle class…In Southeast Asia’s internet economy, the rise of middle-class income has been the main driver, but in the last five years, the rise of technology has enabled more entrepreneurs to speed up digitalization especially in untapped areas.”
Yinglan founded Insignia Ventures Partners in 2017. Insignia Ventures Partners is an early-stage technology venture fund focusing on Southeast Asia and manages more than US$350 million from sovereign wealth funds, foundations, university endowments and renowned family offices. Insignia Ventures Partners is the recipient of two back-to-back “VC Deal of Year” awards for Payfazz (2019) and Carro (2018) from the Singapore Venture Capital and Private Equity Association and its portfolio include many other technology leaders in Southeast Asia. He also co-hosts the On Call with Insignia Ventures podcast, where he chats with portfolio founders and regional investors. An author on venture capital, startups and innovation, he recently published his fourth book, Navigating ASEANnovation (World Scientific, 2020). He also serves on the International Board of Stars – Leaders of the Next Generation, the Singapore Government’s Pro Enterprise Panel and is a Board Member at Hwa Chong Institution.