Editor’s note: the article first appeared on technode.com.

In this episode of the “Going-abroad” live program hosted by TechNode Group Founder and CEO Dr. Lu Gang (also the co-founder of BEYOND Expo), AC Ventures Managing Partner Helen Wong shared her views on Indonesia, the attractiveness the country has to offer. She also shared her investment strategy and AC Ventures’ future plans, among others.

Wong has over 20 years of investment experience from established firms including GGV and Qiming Ventures. She has a strong track record of identifying strong teams and high-potential sectors in China and Southeast Asia. She led investments in Akulaku and Reddoorz and has served on the boards of high-profile Chinese internet companies, including Tudou/Youku and Mobike. She was also recognized as one of China’s top 25 female venture capitalists by Forbes magazine in 2020, AC Ventures wrote in a statement last year.

Jakarta-headquartered AC Ventures was formed in 2019 as a merger between two leading venture capital funds in Indonesia – Agaeti Venture Capital and Convergence Ventures. AC Ventures partners have been investing in the early-stage Indonesian technology ecosystem since 2014 and have a portfolio of over 100 companies across its funds, making it one of the largest Indonesia-focused early-stage venture capital firms.

Among its early investments, two companies, Indonesia-based payment startup Xendit and Malaysia-headquartered used car platform Carsome, have already emerged as unicorns. Its other portfolio companies include e-commerce firm Ula, logistics and warehouse aggregator Shipper, fisheries commerce startup Aruna, FinTech firm Buku Warung, among others.

TechNode Group Founder and CEO Dr. Lu Gang (Left) and AC Ventures Managing Partner Helen Wong.

Below are the edited excerpts of the interview: ​​

From your perspective, what unique advantages does Indonesia have, and why is Indonesia so attractive?

Apart from its large population – Indonesia being the world’s fourth-most populous country – Indonesia also boasts a relatively favorable overall macroeconomic environment. Its GDP growth is around 5 percent, with relatively low inflation rates. The government and private sector debt ratios are well-controlled, and the country has maintained a trade surplus for 33 consecutive months.
Furthermore, Indonesia’s population is very young, with an average age of around 30 years. This youthful demographic is highly-receptive to social media and digital technologies, making it a conducive environment for technology companies to thrive.
Moreover, Indonesia’s entrepreneurial atmosphere is distinct from other Southeast Asian countries. The presence of a significant ethnic Chinese community has led to numerous second and third-generation entrepreneurs actively engaged in business.
The stock market in Southeast Asia may not be as extensive as in China, but Indonesia’s stock exchange has shown significant development in recent years. Three technology companies have already been listed, all of which were previously unicorns. From an investment perspective, Indonesia is quite attractive.

Which stage is Indonesia currently in?

Indonesia’s venture capital environment follows global trends, and its valuation system has also begun to return to more reasonable levels. However, exceptional companies can still secure substantial funding. For instance, Akulaku, a company I invested in, recently raised $200 million. Nevertheless, it may be more challenging for average companies to raise funds.

In the venture capital domain, we often witness cycles, and VC itself exhibits some level of periodicity. Therefore, this adjustment phase is relatively normal in my view. However, Southeast Asia may have some unique characteristics. Compared to China, its development is relatively lagging. Consequently, we may see the emergence of unicorns driven by the current mobile internet boom, and a surge of capital will flow into the top-tier companies.

I believe this adjustment is a positive development because it makes everyone more rational, and the next batch of startups is likely to be more exceptional. After all, they have experienced the initial adjustment phase and may be relatively stable moving forward.

What industries in Indonesia do you find promising, and do you anticipate any changes in the future?

In recent years, the opportunities in Indonesia resemble global trends to some extent. For example, there are numerous e-commerce companies like Shopee and Lazada that have thrived. But because the Indonesian market is relatively lagging behind, early-stage companies mainly focused on infrastructure, such as payment and logistics.

Currently, the “low-hanging fruit” opportunities are not as abundant as before, and the trend of replicating overseas models in Southeast Asia is over. Therefore, identifying opportunities in the next wave is all about understanding major trends and seizing them.

Climate technology appears to be a significant trend, with various sub-sectors to explore. Electric vehicles, especially two-wheelers, represent a massive market in Indonesia, given that the country has around 120 million motorcycles that have the potential to transition to electric vehicles.

We also pay attention to TikTok-related brands. TikTok has grown rapidly, and Chinese companies venturing into Southeast Asia have a competitive edge, particularly in terms of cost-effectiveness and their understanding of e-commerce, especially live-streaming e-commerce and short videos. Therefore, we are optimistic about brands that can localize effectively.

Lastly, we explore niche markets, including SaaS software and AGI (Artificial General Intelligence) opportunities, and we are open to making experimental investments.

From an investment perspective and based on your experience, what are the differences between investing in a Chinese unicorn and investing in a Southeast Asian unicorn?

The most obvious difference lies in China being a unified market. If you invest in a 2C (business-to-consumer) company there, it is relatively easy for it to become a unicorn. In contrast, the challenges in Southeast Asia are greater because the market is relatively fragmented. However, Indonesia, as the largest market in the region, is relatively more conducive to producing unicorns. Having said that, it is still not easy for Indonesian companies to achieve unicorn status. Many fintech companies have emerged because their business models are relatively scalable and avoid the complexities of fields like logistics. To become a unicorn, companies need to tackle the right problems and pain points, consider market capacity, and plan for scalable growth.

You mentioned that AC Ventures is also paying attention to AGI opportunities. But is it too early to invest in the AGI industry in Indonesia or Southeast Asia at this juncture?

From my perspective, if you want to build large-scale models, Southeast Asia is probably not the ideal place because it lacks the necessary talent pool. However, for application-level AGI opportunities, there may be good prospects. For instance, we are looking at a company that develops AI tools for the financial industry, empowering sales representatives to serve more clients. Previously, these representatives faced challenges in organizing information and delivering it quickly to clients. With this tool, their pain points can be addressed effectively, making it worth considering.

Moreover, we hope these companies will not be limited to Indonesia but rather become global enterprises, with Indonesia merely being one of their markets. We also consider companies with such potential.

What’s your view on agritech in Southeast Asia?

Agriculture will undoubtedly be a significant and important industry in Southeast Asia. However, the number of excellent opportunities may not be plentiful because it is challenging to profit from farmers, especially considering the vulnerability to external factors like weather conditions.

Comparatively, the United States has a higher level of agricultural mechanization, resulting in more investment opportunities. Like China, Southeast Asia has relatively small and fragmented farms, which makes it necessary to be cautious when assessing opportunities.

What is your investment strategy? Do you lean more towards Chinese companies expanding into Southeast Asia or local Southeast Asian companies?

When it comes to investing in entrepreneurs, I believe it is essential to assess their backgrounds and see if it aligns with what they aim to achieve. I do tend to favor Chinese entrepreneurs because they possess several advantages, such as having experienced intense environments, accumulated valuable experience, and being capable of rapidly building companies.

However, not all Chinese entrepreneurs coming to Southeast Asia will succeed. One reason is that some may not fully commit to the region and may not frequently come here. Second, they might lack sufficient localization, viewing Southeast Asian consumers solely from a Chinese perspective.

This factor may not matter much in high-tech fields, but for consumer brands, understanding local consumers’ insights is crucial. In addition, managing a localized team in Southeast Asia can pose challenges when the management style is not compatible with the local work culture.

So, if Chinese entrepreneurs can overcome these obstacles, I am open to investing in them. However, local Southeast Asian teams are also improving, and we are also interested in executives who come from large Southeast Asian companies like Gojek or Grab and decide to start their ventures, especially in the current environment where their resilience may be better.

What industries in Indonesia are suitable for Chinese companies which are expanding into Southeast Asia?

As mentioned earlier, TikTok-related brands represent opportunities we are interested in. Recently, we invested in a brand that specializes in small home appliances and is also looking into skincare brands. Additionally, we are exploring the consumer goods sector, which has shown promising growth in Southeast Asia.

Electric vehicles, including batteries and electric vehicles themselves, offer another promising track. The Indonesian government is promoting the development of the entire electric vehicle supply chain, making it a suitable field for Chinese companies due to their advantages in supply chain management.

Artificial Intelligence (AI) is another area we observe. Some AI entrepreneurs have been successful overseas, making them potential candidates for expansion into Southeast Asia. However, they need to address pain points. Many Southeast Asian companies may not have a high purchasing power for SaaS services, so these companies need to be globalized rather than limited to Indonesia or Southeast Asia.

Besides Indonesia, which other Southeast Asian markets are worth paying attention to?

From an e-commerce consumption perspective, Thailand is noteworthy. Vietnam is also receiving a lot of attention due to its relatively strong GDP growth and the dividend from supply chain shifts. The “VIP” acronym – Vietnam, Indonesia, and Philippines – is often mentioned, as their economic development levels are relatively similar.

If you aim to replicate success, focusing on Indonesia first and then expanding to Vietnam and the Philippines might be relatively straightforward. However, markets like Singapore and Malaysia have different economic levels, which could make expansion more challenging.

It’s worth noting that the Vietnamese market is relatively closed, with few Vietnamese entrepreneurs venturing abroad and foreign entrepreneurs finding it difficult to enter the market. Additionally, the infrastructure in the Philippines is not as developed, although some Philippine companies have managed to secure financing in recent years.

Finally, the choice depends on the specific industry. For example, the e-commerce sector might do well in Thailand, while online education might be more suitable for Vietnam due to cultural similarities between Vietnamese and Chinese consumers.

After experiencing the pandemic, how has the venture capital landscape in Southeast Asia changed compared to before?

The pandemic has brought about various changes, such as the development of e-commerce and the overall digitization process. For instance, dining at restaurants now involves QR code ordering and digital payments, making the process seamless. Over the past few years, Southeast Asia’s venture capital ecosystem has significantly improved and become more holistic.

Can you share more about AC Ventures’ future plans?

Moving forward, we will continue to be rooted in Southeast Asia and welcome entrepreneurs to engage with us here. Our focus will remain on early-stage venture capital, seeking companies that have the potential to grow significantly or exert a substantial influence in the future. AC Ventures’ positioning is unique due to its partners having both localized resources and an international perspective. This dual perspective is what sets us apart, and we aim to provide value to companies from this standpoint.

Tech sector may be in ‘funding winter’ but AC Ventures sees opportunities in EV, circular economy & sustainable agriculture, says Managing Partner [Q&A]