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Asian tech companies ahead of US rivals in redefining traditional business models, investor says

Head of Sequoia Capital India sees the next wave of disruption in fintech

PUBLISHED : Wednesday, 21 March, 2018, 10:55pm
UPDATED : Thursday, 22 March, 2018, 5:10pm

Asian technology start-ups have shown that they are better able to “reimagine” traditional businesses than their US rivals and are quicker to become mainstream players by moving into offline areas, according to a leading investor in nascent firms.

Shailendra Singh, managing director for Sequoia Capital India, told the annual Credit Suisse Asian Investment Conference in Hong Kong that Asia firms also benefited from not facing as much competition from incumbents as their counterparts have in the US.

“In the US, you have so many strong incumbents in every industry … in Asia, especially in China, the incumbents are not strong. Hence, tech companies have a chance to reimagine the business and compete head on (with the incumbents),” he said.

He said that so far the only comparable example in the US has been Amazon’s US$13.7 billion takeover of Whole Foods last year, which was seen as a disruptive force in grocery retailing, introducing changes in areas such as delivery and distribution, pricing, and adding new sections to sell electronic gadgets.

Singh noted that in Asia, examples included Indian budget hotel booking start-up Oyo Rooms, which has reimagined the operating models of budget hotels and has since taken that know-how to China’s budget hotel market. Oyo Rooms is backed by Sequoia Capital and Japanese tech firm Softbank.

Indian video learning app Byju’s has also demonstrated its ability to develop a successful education business, partially modelling it on streaming media player Netflix’s subscription system and offering proprietary educational content.

Singh said the next wave of disruption would likely be led by fintech firms, and banks and non-bank finance companies would increasingly face the threat from platforms that use technology to compete in insurance and lending.

Sequoia Capital is reportedly raising its sixth India-focused fund, targeted at US$650 million to US$700 million. While Singh did not comment on the reports, he said that the increasing trend for venture capital to raise mega funds – as evidenced by Softbank’s US$100 billion vision fund – is something that Sequoia was likely to be cautious about.

“We are in an unprecedented era of large private financing. One driver for this is that companies are choosing to stay private for longer,” Singh said.

The trend for mega-sized financing is also driven by corporate players who are increasingly competing with venture capital investors to invest into tech start-ups. Some industry observers have said the trend towards mega funds has in turn pushed the valuations of tech start-ups further above recent record highs.

“From a funding standpoint, it’s time to be cautious,” said Singh.

Other companies in Sequoia’s India portfolio include cab-hailing app Ola and restaurant search app Zomato.

For its last India-focused fund, its fifth, Sequoia raised US$920 million.