Gobi Partners Chairman Thomas Tsao on Southeast Asia’s innovation and the next big wave

Shanghai-based Gobi Partners, with over USD 1.1 billion of assets under management, was one of the first venture capital firms to make its way from China to Southeast Asia. It now has offices in six ASEAN countries. Its latest investments in the region were for Indonesian startups: P2P lending platform Julo and fintech company SuperAtom.

Gobi Partners has invested into a regional portfolio of more than 50 startups and achieved six exits, including names such as DeClout (Singapore), Tripfez, Hermo (Malaysia), and Mainspring Technology (Indonesia).

KrASIA spoke with Gobi Partners’ chairman and founding partner Thomas Tsao to hear about his thoughts behind Gobi Partners’ early vision in Southeast Asia and why the region holds promise for the years to come.

KrASIA (Kr): Gobi Partners is one of the first Chinese VCs setting its sights on Southeast Asia and officially opened an office in Kuala Lumpur in 2010. This was when many investors in this region actually turned their attention to mainland China. How did you identify Southeast Asia as the next land of promise at that point in time? 

Thomas Tsao (T): At Gobi, we did not build our business by doing what everybody else does. At the time, people told me, “Don’t waste your time in Southeast Asia. There’s nothing there. There’s no tech ecosystem.” People only do things when it’s obvious in the headlines. That’s the one thing I have learned in my career not to do. By the time things make it into the headlines, it’s already too late.

We came to Southeast Asia in 2010 because of the data coming from the Chinese companies that we were investing in. Tuniu, a Chinese company in the travel space, was generating 35% of its revenue in Southeast Asia. Forty percent of Camera360’s global user base came from Southeast Asia. We just followed the data. The conditions that we saw in China are occurring everywhere in Southeast Asia. The region is in a very unique position. It can take and learn from Silicon Valley and also how things develop in China. This is where the Chinese tech ecosystem and the US Silicon Valley tech ecosystems both operate. Isn’t that pretty cool?

Kr: Gobi Partners’ Southeast Asia headquarter is in Malaysia, not Singapore, which is often considered the obvious springboard for the region. Why Malaysia? 

T: I really think Malaysia’s diversity is a key strength. I view Malaysia as an universal adapter because you can plug into Malaysia and connect, first of all, to the Indonesian market because they kind of share a common language base. Given the Malaysian Chinese community, through Malaysia, you can connect to China. Because of Malaysia’s Indian community, you can connect to India. Malaysians speak English very well, you can connect to the Western world.

The government has been trying to make Kuala Lumpur the center of the VC ecosystem. Singapore is a great place but it is such a small market. There are fewer problems to solve.

Kr: Southeast Asia has attracted large amounts of capital and attention, giving rise to regional giants like Grab and Gojek. Gobi Partners maintains a regional portfolio of more than 50 startups and achieved six exits. What can we expect more from Southeast Asia? Will the excitement continue? 

T: Everybody right now focuses on Grab and Gojek. I think the real excitement will come from the next wave of innovation. That’s what people should be focusing on. That’s where the big money is going to be made. The interest from Northeast Asia will only continue. Indian companies are also looking at Southeast Asia. The US companies have not started yet but they will. Amazon has not yet bought any company here but it will.

Fifteen years ago, people told me: How can you prove that exits can happen in China? You have to understand that by the time the exit happens, it’s already too late. In Silicon Valley, VCs generate money because there are serial acquirers. The US started very early and China needed time. When the big tech giants—Alibaba, Tencent, Baidu—got big enough, they started buying companies in China. Last year, Gobi had seven exits in China alone. There will be such demand from the big tech unicorns like Tokopedia, Gojek, Traveloka. Once that cycle hits, the domestic guys will be buying lots of companies. That’s where the exits are going to happen. I don’t even view it as a trend. It’s just going to happen.

Southeast Asia is definitely the biggest beneficiary of the trade war. Think about all the Chinese funds that raised money to invest in the US. All the American companies want to reduce their reliance on the Chinese supply chain. Where are they going? Vietnam, Malaysia, Cambodia.

Kr: You mentioned that Southeast Asia can learn both from China and the US. Are we, then, capable of true innovation? 

T: We totally are a big believer in homegrown innovation, just like we believe in China and its ability to develop homegrown innovation. Every region when it’s developing, it makes sense to “copy.” The real magic happens when you copy the principle and concept but then you localize it. That’s when homegrown innovation occurs.

Look at China’s Alibaba and Baidu, they tweak the model and adjust it for local market conditions. The same thing is already happening in Southeast Asia with Grab and Gojek.

Kr: How can governments in the region balance regulation with innovation? 

T: Let the innovation happen first, and then go and regulate. People talk about Airbnb and Uber. Did the US have regulations at that point? No. Governments can always go and regulate it later. The reason why the tech industry is going to become more exciting is despite the politicians’ push for nationalistic agendas, technology is making us even more global. We are all now in one marketplace. If you are a great tech startup, the entire world is your addressable market.

Kr: What’s the key in seeing trends before others?

T: You gotta be a contrarian. You gotta listen and you have to observe. Over times, you build a sense. You can sense things before other people. The best early-stage venture capitalists are like the antennae of society. At Gobi Partners, have we been wrong about certain companies? Of course. Have we been wrong on certain trends? The big trends—no.

The interview has been edited for brevity and clarity. 

Disclaimer: Gobi Partners invests in 36Kr, KrASIA’s parent company.