The emergence of more sophisticated startups, increased capital into PropTech and supportive governments means Cento Ventures see abundant opportunities in the Asia Pacific region. I sat down with Pauline Chong, who heads up the PropTech fund for Cento, one of the leading Southeast Asian VC firms specialising in under-invested emerging digital markets.
ND: Tell me about Cento Ventures, when and why was it founded?
PC: Cento Ventures has had a near decade of investing into early stage startups in SE Asia. Cento’s investment strategy was to look at digitizing sectors and invest early, with a goal of building regional winners. This has led to two SE Asia focused funds. As of 2017, we noticed the emergence of startup activity around specific sectors to solve sector-specific issues. This led Cento to launch our first industry fund for Fashion in 2017 which then followed with FinTech and now PropTech. These industry specific funds were created to allow us to go deep within the value chain, invest into best in class business models and with our domain expertise, allow us to help build regional winners. It also has the added advantage of allowing investors to choose their specific investment exposure and invest along themes that they believed in.
ND: Can you give me more information on your background and your role at Cento?
PC: I lead the Cento PropTech fund with key responsibilities over investment selection and investor management. We recognised early on that in order to execute a sector focused VC fund, real estate experience was key to identifying Asia-centric industry issues and therefore align our investment thesis accordingly. Prior to Cento, I was Director of International Business Development at Savills Investment Management, a real estate investment manager, and Standard Chartered’s Infrastructure and Renewables corporate finance team. My experience in financing projects for the built environment is extremely helpful in this regard.
ND: What kind of PropTech companies are you currently investing in?
PC: At present, we have several PropTech companies under due diligence, with a view to make initial investments into these companies to seed the PropTech fund. We have high conviction in tech-enabled brokerages and like startups that are tackling hard problems around enabling real estate transactions, hybrid brokerages and resolving fundamental leasing and asset management issues for commercial, retail and residential sectors.
We have a broad based approach towards PropTech and are looking at startups that are delivering a product or service that either enables or dis-intermediates the real estate sector. We also have a view to include directly adjacent businesses that address logistics, environmental and sustainability solutions as these are all part and parcel of the process of value creation within real estate.
ND: What are the key components you consider when investing?
PC: We look at a few things including the competitive landscape the company is in, saturation and potential growth, the technology stack, the management team’s experience and the viability of the business model. We tend to focus a lot on quality of revenues and how companies are growing (rate and reason for cash burn). We also prefer founders that have prior real estate experience as it is key that they develop relevant solutions that can be adopted by the industry.
ND: What should PropTech startups consider when seeking investment from you?
PC: They should think through which particular segments and countries they are solutioning for. The real estate value chain is very long and complex and geographical markets across Asia are fragmented. We like to see specific focus and execution skills by each management team – either in their existing business or past startups they have done.
Whilst we have the capabilities to finance all stages of startups, our preference is around a Series A/ B where there is demonstration of initial revenues. They should also consider what they need from a VC and how they would like a VC such as Cento to help their growth path, aside from financing. Cento takes a pro-founder approach and we do provide active portfolio company support as required by the management team.
ND: Do you see a lot of potential in the Asia Pacific region?
PC: There is a lot of potential for PropTech to take off in Asia. Looking at the available investment opportunities, we are seeing increasingly advanced models. Take the property sales segment for example, in the past 4-5 years, most PropTech companies worked on the simple information aggregation/ classifieds model. In recent years, we have observed more proptech companies moving deeper into the value chain by providing transaction platforms as well as tools and services to streamline real estate sales processes. At the same time, we are seeing increased tech adoption by real estate owners and developers e.g. CapitaLand's C31 Ventures, Sansiri's Siri Ventures, Ananda Urban Tech are just a few real estate corporates who have set up corporate venture arms to aggressively look at how to incorporate technology into their existing businesses. Governments are also increasingly placing focus on promoting sustainable urban development, thus moving the industry towards technology adoption.
Investment into PropTech is starting off from a low base with strong potential upside. On the funding side, the Southeast Asia region had seen increased investment in 2018. According to our research, the investment into PropTech amounts to almost US$260M (quadruple the investment amount in 2017). On an Asia Pacific level, we are estimating that almost US$4B will be invested into the sector in 2018.
Triangulating the emergence of more sophisticated startups, increased capital into the sector coupled by supportive government, we see abundant opportunities in the region.
ND: What advice would you give to entrepreneurs seeking investment from VC firms?
PC: The topic is well covered in the media and Internet; we recommend reading blogs/ books written by Brad Feld, Fred Wilson or Mark Suster. We often advise startups to do a little bit of research on the VCs (on their latest deals, portfolio companies as well as investment thesis) as well. At the same time, we encourage entrepreneurs to ask more questions during a meeting with a VC. We find a surprising number of founders ask very little about how the firm assesses deals, what are the decision making processes as well as fund’s strategy. We believe the investment evaluation process is a good opportunity to find a great fit between investor and startups.
Pauline is was a speaker at BWT Asia 2019, Singapore.
Interview conducted by Neall De Beer, Director, Built World Technology Alliance.