Interview Investor

IMJ’s Morgan Speaks About E-Commerce and Making Tough Investment Decision

Venture capitalists around the world have rushed in to set up shops in Southeast Asia (SEA) in the past few years, mostly wanting to reap the benefits from the region’s rapidly growing e-commerce space. But what happens when they realise that e-commerce is not penetrating SEA as fast as expected?

“People here still don’t buy online,” said Manabu “Morgan” Miyazaki, who is a principal at IMJ Investment Partners, when discussing about the e-commerce landscape in Southeast Asia.

IMJ Investment Partners is a Japanese venture capital (VC) firm. It was first established in January 2012 in Tokyo with the intention to focus its investment in Japan and Silicon Valley, US.

However, upon realising the growth potential of SEA, within six month of the firm’s establishment, IMJ Investment Partners shifted its attention to what many would describe as an e-commerce wonderland. Subsequently, in February 2013, the firm moved its headquarter to Singapore, concentrating its full resources to unearth new investment opportunities in SEA’s rapidly growing internet and mobile economy.

Morgan is tasked to do exactly that. Before joining IMJ Investment Partners, Morgan worked as a digital marketing consultant in a Japanese international advertising and public relations company, Dentsu. He spent a great amount of time consulting clients from financial institutions, e-commerce companies and fast-fashion companies. These experiences give him an added advantage in his role to find new deals in the e-commerce sector.

“I have had marketing experience and am familiar with the kind of conversion rate e-commerce should need and what kind of life time value each customer should bring. I would say that people here still don’t buy online,” Morgan expressed after two years spent searching for the right startups to invest in this region.

“It is taking more time for e-commerce to penetrate the market than expected. People come to the website, browse but don’t buy. It may be because of trust issue, payment issue, or other factors that we don’t know. But it is a big challenge.”

Indeed, the market needs some time to mature, but we can always find ways to help accelerate the process.

Creative Business Model to Speed up Penetration

For example, in Indonesia, 80% of Indonesians don’t have a bank account and most of them still prefer cash payment. In this situation, e-commerce simply stands a very slim chance to survive if nothing is done about it. Creative ways must be deployed to bridge the gap. After all, startup and entrepreneurship is all about solving market problems.

Morgan pointed to one of IMJ Investment Partners’ portfolio companies, Kudo, an Indonesian startup that helps unbanked customers access and buy from online marketplace. Kudo’s service is known as “assisted online shopping”.

While many e-commerce platforms are trying to attract end users to make purchases online, Kudo, which is an an acronym of the Indonesian words “Kios Untuk Dagang Online (online shopping kiosk), sends “agents” to literally set up physical kiosks across Indonesia (or some agents simply move around with a mobile tablet) to allow people to browse the online and make a purchase with cash. These “agents” then make the transaction online and receive a commission for every product they manage to sell.

Currently, Kudo has recruited more than 100,000 agents and 50% of them are based in Java, 30% in Sumatra and 20% in Kalimantan and other parts of the country.

According to The Jakarta Post, Kudo has raised 8-digit funding from Indonesian media conglomerate Emtek Group in September 2016. Apart from IMJ Investment Partners, Gree Ventures, East Ventures and 500 startups had also participated in Kudo’s previous funding round closed in May 2015.

Apart from payment solutions, Morgan also emphasised on the lack of logistics infrastructure in the region as another key factor that may contribute to the less-than-ideal pace of e-commerce market penetration in SEA.

But so Many Startups, How to Choose? 

Solving a market pain is certainly one of the criteria Morgan looks at when making investment decision, but he also put a lot of consideration into whether the product or service has been validated by the market, whether the company can achieve high growth, and many other factors.

“We are sector agnostic, but we prefer to invest in high growth company like those in the consumer internet vertical.”

When we talk about high growth, that also means rapid market expansion.

“Regional expansion is extremely challenging for companies in SEA. Unlike Europe and other markets, SEA is fragmented with different cultures and regulations. Founders always say that ‘after we raise enough money, we will move into the next market’. I am usually sceptical if they can really do that. How much do you know about other countries? If you have a company in other market doing the same thing, can you compete with the local company?” Morgan explained.

Making the final decision does not come easy at all, especially when there are many startups solving the same problems. “How can I choose and pick up the one? Even when the talent is good, but if the company can’t raise enough money, the company can be killed soon too,” Morgan continued, “If I choose a company based on traction, maybe there will be a better company with better traction tomorrow. You will never know.”

“If I really have to pick one key factor when it comes to investment decision, it has to be talent, especially the founder.”

“Sometimes, I would ask some founders if they would like to hang out with me. A good founder would usually say ‘I have something to do’. One of my favourite companies, Kudo, the founder never comes to my party. A lot of founders like to hang out with investors. But they’ve got to have the right mindset and be able to set priority,” Morgan revealed.

Morgan meets about 50 startups a month, and each month, he will pick one to invest in. Since 2013, IMJ Investment Partners have made 30 deals, with 40% of them in Indonesia, 20% in The Phillipines and the rest in Thailand, Vietnam, Malaysia, Singapore, Bangladesh, Hong Kong and China.

Besides capital, according to Morgan, his firm also provide mentoring and linkages with Japanese corporations.

“The situation in SEA is pretty unique, and that make it very interesting,” concluded Morgan.

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