Thai Corporate VCs Are Sucking Up all the Oxygen

Thailand has a host of innovative startups, from artificial intelligence to agricultural technology, but their progress is hampered by a major problem that threatens the nation’s economic development: big business.

Corporate-linked investors dominate the nation’s funding scene, said Charle Charoenphan, co-founder of Techsauce, a Bangkok-based startup accelerator and organizer of an annual summit of the same name. That’s hurting the startup ecosystem, from funding to founders trying to build something new and unique.

Corporate venture capitalists are “all about numbers” and care less about innovation, he told me recently.

Around the world, young companies are often financed and guided by venture capitalists: teams of investors eager to support new businesses and make big money. The most common structure is for venture capital firms to be founded by entrepreneurs or finance specialists who raise money from private investors, known as limited partners.

Numerous innovative companies, from Nvidia Corp. to Uber Technologies Inc., have been able to grow and prosper because venture capitalists put in money and provide guidance, but largely leave them to their own devices. There are numerous flaws in this model, including the incredible ability of venture capitalists to turn a blind eye to misdeeds in their portfolio companies and act like sheep chasing the same investments as everyone else because they are afraid of losing them. But in general, it works.

Thailand is different. Venture capitalists and startup founders who spoke with me recently told a similar story: Corporate venture capitalists are sucking up all the oxygen and stifling innovation. They spoke on condition of anonymity because they worked for or were funded by a corporate VC.

While classic venture capitalists are funded by largely silent and hands-off investors, corporate venture capitalists are born and funded by established companies. In Thailand, these large amounts of money – from banks, agricultural conglomerates, retail groups and telecom providers – come with strings attached, making it difficult for fund managers and founders to move fast and create new products.

The two most active investors in Thailand, and six of the top 10, are corporate venture capitalists, according to data from Techsauce.(1) By contrast, the top eight venture capital investors globally are classic firms funded by LP, and only the ninth and tenth are corporate. , show data from CB Insights.

Because the Thai economy is dominated by such conglomerates and state-linked companies, these same companies hold a large part of the funds available, as well as the powerful business connections necessary for new companies to obtain clients or form partnerships.

That’s not to say that high-value companies can’t be born in that environment. Logistics company Flash Express and fintech Ascend Money are notable Thai unicorns with corporate venture capitalists as backers. They are among the rare breed to survive and thrive during the pandemic, even as the Southeast Asian nation emerged at a slower pace than regional neighbors. The economy rose 2.5% in the June quarter, less than estimated, as inflation fears offset gains from a resumption of tourism.

However, the story is invariably the same at both venture capitalists and the companies they back. The parent company hires a team to start a venture capital fund and then promises big money and full autonomy. That commitment lasts a few months to a year before the head office decides it wants to get involved and tell fund managers what to invest in, what to avoid and who to do business with. This affects startups who are often left with a choice of taking money from a corporate VC and changing the business to suit the boss, or sitting on the sidelines.

One of the biggest problems with such a corporate-driven approach is that innovation is frowned upon, because every decision must be justified with hard numbers and immediate benefits. However, in the world of venture capital, investments are often made based on intuition, a deep understanding of the market, and an assessment of the founders’ competence and skills. Such traits cannot be quantified. It’s hard to imagine what Fortune 500 company would throw money at an app that let strangers ride with other strangers for cash, but Uber became a game changer that kick-started the sharing economy.

One trickle-down effect is that many Thai startups limit their business scope, control their plans, and stick to a “safe” path to ensure funding and survival. As a result, there are few big exits, a crucial part of the startup formula that inspires founders to take the plunge to build a business and encourages investors to take a risk and spend money on a new, innovative idea.

Thailand could get caught up 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 confident enough to try something new and leap.

More from this writer and others at Bloomberg Opinion:

• The Vision Fund is more soccer mom than coach: Tim Culpan

• Tiger and Sequoia take SoftBank to the cleaners: Shuli Ren

• Billion-dollar tech unicorns dwarfed by centaurs: Lionel Laurent

(1) We classify dtac accelerator as a CVC as it is supported by dtac telecommunications.

This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

Tim Culpan is a columnist for Bloomberg Opinion who covers technology in Asia. Previously, he was a technology reporter for Bloomberg News.

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