Issue 49

Golden Gate Ventures opens KL office, commits $18m to Malaysian investments

Singapore-headquartered early-stage venture capital firm Golden Gate Ventures has opened its Malaysia office in Kuala Lumpur, it said in a statement on Friday. 

According to its managing partner Vinnie Lauria, the VC firm plans to commit about $18 million of its recently closed $100-million Fund III to back Malaysia-based startups. It has previously invested about a quarter of its $60-million Fund II – closed in 2016 – into Malaysian startups. 

The Kuala Lumpur office is the firm’s third, after Singapore and Indonesia. Golden Gate Ventures hit the final close of its third fund at $100 million in mid-September. The fund was oversubscribed and anchored by existing LPs, including Temasek Holdings, South Korea’s Hanwha, Naver Corp and EE Capital. 

New LPs included Japanese entrepreneur Taizo Son’s Mistletoe and Korea Venture Investment Corp. In a phone interaction with DEALSTREETASIA, Lauria said the VC firm will be spending more time and capital in the Malaysian market after the opening of the Kuala Lumpur office. “Malaysian companies are doing very well, which is why we’re looking into it so closely. 

If you look at some of the stronger regional startups, they have Malaysian founders and have moved out [from Malaysia] but when I look at Malaysia in terms of the size, it’s a country that is very different than Indonesia. “In Jakarta, the companies have to be in-country-focused for many years before you think about moving out. But Malaysia is similar to Singapore, where the founders are thinking going beyond Malaysia from day 1 – so the DNA of entrepreneurs in Malaysia is very different from the ones in say Vietnam, Thailand or Indonesia,” he said. 

Golden Gate Ventures partner Justin Hall said that Malaysia’s diverse mix of ethnic and cultural influences as well the country’s consistently growing economy makes it a microcosm of the greater Southeast Asian economy. 

“With the diversity of its people, culture and economy; Malaysia is truly Asia, and that makes it the perfect platform for businesses to expand across ASEAN, as the products and services created for this market can take advantage of the country’s built-in potential for scalability,” he added. 

Founded in 2011, Golden Gate Ventures has built a portfolio comprising about 40 companies in over seven Asian countries in the consumer internet space. In Malaysia, it has backed e-commerce startup GoQuo and on-demand home services platform ServisHero. 

Some of the firm’s exits so far include Singapore’s grocery startup Redmart, Taiwan’s Woomoo, Indonesia-based fintech startup Mapan (formerly known as Ruma), carpooling startup TemanJalan and Thailand’s dating app Noonswoon. 

One of its portfolio companies, Singapore’s home-based care-giving startup Homage, told DEALSTREETASIA that it is expanding to Kuala Lumpur in early 2019. The firm, which raised a $4.15-million Series A round in July, provides licensed practitioners with a platform to offer on-demand services for the elderly. Homage CEO Gillian Tee said the startup plans to have 1,000 caregivers on its platform by the end of 2018. It is also seeking to enter new markets such as Australia, Thailand and Indonesia in the near future. 

From – Deal Street Asia

Malaysian fintech Jirnexu raises $10m Series B extension led by Experian

Malaysian fintech startup Jirnexu has raised a $10-million Series B extension round led by global information services provider Experian, it said in a statement on Monday. 

Existing investor SBI Group, which led Jirnexu’s $11-million Series B round in mid-May, also joined the extension financing. 

The latest round brings the startup’s total funding amount to over $27 million. It owns and operates financial comparison sites RinggitPlus in Malaysia and KreditGoGo in Indonesia. The funding in Jirnexu is part of Experian’s ongoing investment in its marketplaces solutions, aimed at empowering lending institutions with better customer insights and consumers in the region with fairer access to credit. 

According to Jirnexu, the startup has continued to grow since its Series B in May, and is on track to hit 100 per cent revenue growth for this year. It added the Malaysian central bank has recently okayed Jirnexu’s request to expand their regulatory sandbox approval. The latest approval will enable Jirnexu to offer five types of insurance – motor, term life, travel, medical and health, and critical illness on its RinggitPlus website in Malaysia. 

“We are excited about this investment as it will enable us to personalise recommendations for our customers more accurately. The ability to match consumer profiles with suitable financial products or services will greatly improve access to credit. Besides technology from Experian, the investment will also be used to strengthen our services and fintech solutions portfolio,” said Jirnexu CEO Yuen Tuck Siew. 

In the Asia-Pacific, about 47 per cent of adult population in low and middle-income countries still do not have a bank account where digital financial marketplaces play a pivotal role in facilitating more access to credit, said Experian, citing a report by the International Monetary Fund. 

“Our mission is to empower consumers and the financially excluded through data. With a booming digital economy in Asia Pacific, there is a tremendous opportunity to match end-consumers with the financial services they need. With this investment, we continue to build on our promise of matching the demand and supply of financial access through enhanced financial marketplaces in the region,” said Experian CEO for Asia Pacific, Ben Elliott.

From – Deal Street Asia


China’s Tencent Music presses play on US$1.2 billion US IPO

Tencent Music Entertainment launched its hotly-anticipated US initial public offering (IPO) of up to US$1.2 billion on Monday after global stock markets were boosted by a truce brokered by US and Chinese leaders in their trade conflict.

The music arm of tech giant Tencent Holdings is looking to raise between US$1.07 billion and US$1.23 billion in a New York Stock Exchange IPO, according to a filing with the US Securities and Exchange Commission.

The company originally planned to launch its offering in mid-October, according to an earlier report.

But it then decided to delay the IPO over worries the steep global stock market sell-off in the past few months would affect the pricing.

The decision by China and the United States to call a 90-day hiatus on their trade war over the weekend sent Asian shares soaring on Monday as markets breathed a sign of relief that tensions would ease, at least temporarily.

The music streaming giant is selling 82 million American Depositary Receipts (ADRs) in a range of between US$13 and US$15 each, according to the filing.

Tencent Music could sell an additional 12.3 million shares if an over-allotment option is exercised.

The US$1.23 billion figure is smaller than the US$2 billion that was earlier mooted as a fundraising target, though the company never confirmed such a number.

A source close to the deal said Tencent Music was keen to get itself listed this year because it was worried US-China trade tensions would worsen, not because it desperately needed fresh money.

“It’s not worth waiting any longer for a potentially higher valuation if they have to deal with so many uncertainties,” said the source.

At US$1.23 billion, the IPO would still be one of the largest by a Chinese company in the United States this year, behind the US$2.4 billion raised by video streaming company iQiyi in March and the US$1.6 billion garnered by online group discounter Pinduoduo in July.

In total, Chinese companies have raised US$7.8 billion from US IPOs so far this year – the biggest amount since 2014 – according to Refinitiv data.

Tencent Music owns streaming apps QQ Music, Kugou and Kuwo as well as karaoke app WeSing, and claims more than 800 million monthly active users.

The company is targeting a valuation of between US$22 billion and US$25 billion, according to a source close to the deal, roughly on par with that of its Swedish music streaming counterpart Spotify Technology, which went public in New York in April and has a market value of US$24.3 billion.

Tencent Music, which has a cross shareholding deal with Spotify, offers more in the way of socially interactive services that makes it profitable.

It reported a 244 percent jump in profit in the first nine months of this year to $394 million from $114 million in the same period in 2017. By comparison, its Swedish peer posted a net loss of $520 million over the first nine months of the year.

The company will open its books on December 4 and shares will begin trading on December 12, according to the source.

Bank of America, Deutsche Bank, Goldman Sachs, JPMorgan and Morgan Stanley are the lead sponsors of the deal.

From – South China Morning Post

What’s next for Huawei as New Zealand becomes latest US ally to reject 5G bid?

Huawei Technologies, the world’s largest telecommunications equipment supplier, could be facing tough prospects in its overseas markets amid reports that the United States has put pressure on its closest allies to block the Chinese company from taking part in 5G mobile network projects because of security concerns.

Questions about the security of Huawei’s equipment re-emerged this week after Spark, the biggest telecoms network operator in New Zealand, said in a statement on Wednesday that the country’s intelligence agency blocked its proposal to use the Chinese firm’s equipment for its 5G development plans.

National security was also the reason behind the decision made by the government of neighbouring Australia in August to bar Shenzhen-based Huawei and ZTE Corp from supplying 5G equipment to the country’s telecoms carriers.

New Zealand’s ban on Huawei network equipment followed last week’s Wall Street Journal report, which cited anonymous sources, about the US government exerting increased pressure on foreign allies to ditch Huawei gear that it considered a threat to cybersecurity.

Washington’s campaign on strong telecoms safeguards appear to focus on the countries belonging to the intelligence alliance known as the Five Eyes, which comprise the US, Canada, the United Kingdom, Australia and New Zealand. Three of those five allies have now made a stand against Huawei.

Last month, US lawmakers urged Canada to drop Huawei from the country’s 5G network development plans. The UK, so far, remains a market where Huawei technology is welcome.

Europe is not expected to abandon Huawei and Chinese telecoms equipment in general, according to a recently published report by Jefferies equity analyst Edison Lee.

“We believe the key now is Europe, in which Huawei has an estimated [telecoms equipment] market share of 40 per cent,” said Lee, who covers Hong Kong-listed ZTE, China Mobile, China Unicom and China Telecom.

Maintaining its business ties in Europe would be a big deal for Huawei because Lee estimated the continent’s share of global telecoms capital expenditure is between 25 per cent to 30 per cent. Huawei has been a major supplier of 4G network equipment to many telecoms carriers in Europe.

“Technologically, all European telecoms operators are planning on migrating from 4G to 5G Non-Stand-alone (NSA) only,” he said.

Telecoms network operators adopting 5G NSA will be able to protect their legacy mobile network because this set of specifications is “backward compatible” with 4G. Operators will be able to hook up new 5G base stations with their 4G networks to provide higher data speeds and greater capacity for consumer services, without making any substantial changes in the infrastructure.

“Therefore, the risk of using a different 5G vendor from its 4G system is very high for potential interoperability problems,” Lee said. “Based on our understanding, no operator migrating to 5G NSA would like to switch vendors (assuming there are no non-commercial considerations).”

In spite of the security concerns raised by the US against it, Huawei said at a mobile broadband conference in the UK earlier this month that it had already signed 22 5G equipment supply contracts.

“Since China has not even made 5G spectrum decisions, we assume those 22 contracts are all overseas,” Lee said.

Privately held Huawei, caught in a vortex between the world’s two largest economies amid an escalating trade and technology war, has faced several setbacks for its global businesses this year.

The US government has blacklisted almost all of Huawei’s business in the country, apart from ramping up efforts to persuade allies to do the same. Washington has maintained that Huawei’s close ties with the Chinese government pose fundamental threats to national security.

Huawei has denied all the security claims as well its ties with the Chinese government.

“As a leading global supplier of telecoms equipment, we remain committed to developing trusted and secure solutions for our customers,” Huawei said in a statement, adding that its 5G equipment is already being deployed by major carriers around the world.

Eric Xu, one of the rotating chairmen at Huawei, told CNBC in an interview on Thursday that the move by US to bar the company from its market could end up hurting the country’s ambitions in 5G.

"For Huawei, as leader in 5G technology, we don't have the opportunity to serve the U.S. consumer with 5G solutions and services, then the U.S. market is a market without full competition while still blocking leading players from participation,” Xu said in the interview. “Now, I'm not sure whether they can really deliver their objective of becoming the world's No. 1 in 5G.”

In a recent list commending 100 extraordinary contributors to China’s economic development that was published by the Chinese government mouthpiece People’s Daily, Ren Zhengfei, the 74-year-old founder of Huawei, was not included, which drew wide public speculation that the company was distancing itself from any association with Beijing. Huawei declined to comment on the list.

Huawei, which has 170,000 employees and operations in about 160 countries and territories, still must contend with US pressure.

In a recently published 53-page report, the Office of the US Trade Representative singled out a number of entities, mostly based on publicly available material, as proof of China’s long-existing technology transfer and intellectual property theft.

The report included an article from The Weekend Australian, which cited a national security source as confirming Huawei’s role in cyberespionage. It also cited a report from Sankei Shimbun that the Japanese government was considering a ban on Huawei in a bid to prevent cyberattacks and align with the US and Australia’s recent restrictions.

“While the Trump administration is demanding free and fair trade, it is suppressing a private enterprise in another country,” Liu Guohong, a research centre director at Shenzhen-based think tank China Development Institute, said in a telephone interview.

From – South China Morning Post

Upstart Chinese apps use aggressive clickbait and
free cash tactics to win over new users 

Cai Li, a janitor in Shanghai, developed a serious addiction to news app Qutoutiao, lured by gossipy articles about celebrities and the cash she gets from reading them. 

Logging on during breaks at work and sometimes at night when she cannot sleep, the 63-year old has earned a few hundred yuan (US$30-US$40) over several months, which she says is useful to supplement her income.

With its unusual pay-your-user strategy, Tencent Holdings-backed Qutoutiao – pronounced “chew-tow-ti-ow” – has drawn in 20 million daily readers. A leader board shows the top-earning user has raked in more than US$50,000.

Digital gold coins are earned by playing games that involve reading stories or by convincing others to join up. The current exchange rate is 1,600 coins for 1 yuan, with strong players receiving the title of ‘master’.

The payments are an extreme example of financial incentives from discounts to coupons employed by a new generation of Chinese internet firms as they seek to establish themselves in a market dominated by much bigger players.

“Acquiring new users if you’re competing with Alibaba, Baidu, Tencent and traditional mobile players, you need to come up with something new,” said Zhang Chenhao, Shanghai-based managing partner at technology-focused Prometheus Fund.

On one hand, it has worked. The news aggregator, which listed in the United States in September, tripled its number of daily users over the last year. Third-quarter revenue – nearly all of it from advertising – jumped more than six times from the same period a year earlier to just under 1 billion yuan (US$145 million).

But the strategy does not come cheap, even if individual amounts paid to users are ‘trivial’ – a word it used to describe the payments in its IPO prospectus.

Qutoutiao spent over 1 billion yuan on marketing in the last quarter – more than its revenue, nearly the amount of its net loss and over seven times what it spent in the same period a year ago.

“It is getting more and more expensive to get traffic,” Chief Financial Officer Wang Jingbo told Reuters in an interview, but said the cash giveaways were a key hook and a long-term strategy.

“It’s the eyeball economy. Previously, people had to spend money to see content, but with the changing internet they no longer have to pay … Not only are they not paying – users now need to earn something as well.”

Since surging on its trading debut, its shares have lost three-quarters of their market value, hurt by a wider economic chill that has hit Chinese stocks and disappointing earnings. It is now worth around US$1.3 billion.

Industry experts question how long firms like Qutoutiao can sustain cash-burning habits and how they will become profitable.

“It’s very messy. If you lower the amount of money, users will lose interest. But if you raise it, the cost is too high,” said Wei Wuhui, an academic and managing partner at tech-focused venture capital fund SkyChee Ventures.

More broadly, concerns are growing about how some Chinese tech firms, including household names, are generously using discounts and other means to subsidise customers while also taking on other costs in the pursuit of market share.

Meituan Dianping – a ‘super-app’ whose services include food delivery, restaurant reservations and ride-hailing – saw its stock plunge last month after quarterly operating losses tripled amid a bruising price war with its main rival.

Prometheus Fund’s Zhang noted venture capital funding was tightening due to the slowing economy, pressuring a key funding channel for tech firms.

“This (stage) is purely cash-burning to create a foundation. But in the end you have to deliver value and be profitable. If you do not make profits, no onewill subsidise you and finance you forever.”

Qutoutiao – whose name means “fun headlines” – targets smaller cities and rural areas with content that ranges from cooking tips to videos on how to dance.

CFO Wang said he hopes to have 200 million monthly users at some point, getting towards the estimated 250 million currently commanded by rival news aggregator Jinri Toutiao. Qutoutiao had 49 million monthly active users as of July.

ByteDance-owned Jinri Toutiao recently launched a lite version of its app targeting rural markets and users with smaller phones that includes cash games, a sign it’s taking Qutoutiao’s threat seriously. It even offers 25 yuan for persuading another user to join, trumping Qutoutiao’s 8 yuan.

Several Qutoutiao users said their main interest in the app was the money, but complained it was becoming harder to earn.

Zhai Liyun, 45, a temp worker who lives on the outskirts of Beijing, said she read “clickbait” stories before bed but so far had only earned 20 yuan because most of her friends were already on the platform.

Cai, the janitor, said she was cutting back after her eyesight suffered and she lost weight from going on the app too much – prompting an intervention from her husband and daughter.

“I’ll play in the evening if I cannot sleep but I will not lose sleep over Qutoutiao. I try not to think about it too much now,” she said.

From – South China Morning Post
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