Corporate VCs are “all about numbers” and less concerned with innovation, he recently told me.
Around the world, early stage companies are mostly funded and run by venture capitalists: teams of investors looking to back new ventures — and make big bucks. The most common structure is that VC firms are founded by entrepreneurs or financial specialists who raise money from private investors – so-called limited partners.
Numerous innovative companies, from Nvidia Corp. to Uber Technologies Inc., have been able to grow and thrive because VCs invest money and provide guidance but largely leave them alone to do their thing. There are numerous flaws in this model, including VCs’ incredible ability to ignore misdeeds in their portfolio companies and behave like sheep, chasing the same investments as everyone else for fear of missing out. But overall it works.
Thailand is different. Venture capitalists and startup founders who spoke to me recently shared a similar story: corporate VCs suck all the oxygen and stifle innovation. They spoke on condition of anonymity because they either worked for or were funded by a corporate VC.
While classic VCs are funded by largely silent, contactless investors, corporate VCs are born out of established companies and funded by them. In Thailand, these big pools of money – from banks, agribusinesses, retailers and telecoms providers – come with strings attached, making it difficult for fund managers and founders to act quickly and create new products.
The two most active investors in Thailand and six of the top 10 are corporate VCs, according to Techsauce data.(1) In contrast, the eight largest VCs globally are classic LP-backed companies, with only 9th and 10th being corporate, show Data from CB Insights.
With the Thai economy being dominated by such conglomerates and state-affiliated companies, these same companies have an inordinate share of available funds as well as the strong business connections startups need to attract clients or form partnerships.
This does not mean that high-quality companies cannot emerge in such an environment. Logistics company Flash Express and fintech Ascend Money are remarkable Thai unicorns backed by corporate VCs. They are among the rare breed to survive the pandemic and thrive, though the Southeast Asian nation has been slower to emerge than regional neighbors. The economy expanded 2.5% in the June quarter, less than estimated as inflation fears erased gains from a resumption of tourism.
However, the story is invariably the same for both VCs and the companies that back them. The parent company hires a team to set up a VC fund and then promises big money and complete autonomy. That pledge lasts anywhere from a few months to a year before headquarters decides to step in and let the fund’s managers know what to invest in, what to avoid, and who to do business with. This is affecting startups, who are often faced with the choice of taking money from a corporate VC and adapting the business to the boss, or standing in the rain.
One of the biggest problems with such a company-led approach is that innovation is frowned upon, as every decision has to be justified by hard numbers and immediate returns. However, in the VC world, investments are often made based on gut feeling, a deep understanding of the market and an assessment of the competence and skills of the founders. Such properties cannot be quantified. It’s hard to imagine what Fortune 500 company would throw money at an app that lets strangers hitchhike with other strangers for cash, but Uber became a game changer, boosting the sharing economy.
One effect is that many Thai startups are restricting their business scope, curbing their plans and sticking to a “safe” route to ensure they can get money and survive. As a result, big exits are few — a crucial part of the startup formula that inspires founders to take the plunge in building a business and spurs investors to take the risk and throw money into an innovative new idea.
Thailand could get stuck in this self-perpetuating cycle until big corporate bosses decide to let their fund managers do what they do best and startup founders can feel safe enough to try something new and swing for the fences.
More from this author and others at Bloomberg Opinion:
• The Vision Fund is more football mom than coach: Tim Culpan
• Tiger and Sequoia bring SoftBank to the cleaning: Shuli Ren
• Tech’s $1 billion unicorns eclipsed by centaurs: Lionel Laurent
(1) We classify dtac’s accelerator as CVC because it is supported by the telecom company dtac.
This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.
Tim Culpan is a columnist for Bloomberg Opinion covering technology in Asia. He was previously a technology reporter for Bloomberg News.
For more stories like this, visit bloomberg.com/opinion
