Tencent and Garena’s key gaming partnership is just getting started and will drive a major transformation for both companies in Southeast Asia.

In November of last year, Tencent and Garena (the digital entertainment arm of Singapore-based Sea Ltd.) entered into a strategic partnership whereby Garena gained a 5-year right of first refusal to publish Tencent’s mobile and PC games across Southeast Asia and Taiwan.

While the news was widely reported when first announced, we believe the transformational nature of this deal remains under-appreciated by the general market today. It represents how Garena and Southeast Asia are becoming a critical part of Tencent’s gaming business future.

A great deal for Tencent

For Tencent, the Garena partnership is important because of the Chinese gaming regulator’s past suspension of issuing new gaming licenses in the country.

This had slammed the brakes on the company’s growth potential for games. While China’s regulator has recently resumed issuing game monetization license (“banhao”) approvals after a nine-month suspension, Tencent has only received approval for eight games since (7 mobile games and 1 PC game), with an undisclosed number of games still pending approval.

China’s regulatory environment has made international expansion very important

China’s peculiar regulatory control of video games continues to pose a major bottleneck for Tencent’s digital entertainment growth. Given that other Chinese game developers are vying for licenses as well, China’s approval backlog is causing significant delays for Tencent’s game release schedule and game monetization inside China.

In the company’s recent FY2018 annual results, Tencent said that “Since there is a sizeable backlog for the banhao applications in the industry, our scheduled game releases will initially be slower than in some prior years.” Most recently Tencent was forced to remove one of its most promising games, PUBG Mobile, from the Chinese market entirely due to regulatory challenges.

During the company’s 4Q18 earnings conference, Tencent’s CEO Pony Ma mentioned that one solution they have introduced is a new method to monetize existing Tencent games in China called the “Battle Pass” whereby players can purchase a seasonal pass that gives them access to exclusive in-game content the more they play an existing game.

Although this feature has only launched on Tencent’s mobile game Honour of Kings, it could potentially allow for Tencent to increase revenue without requiring new license approvals since it simply monetizes already approved games, in order to make up for the company’s delay in monetizing new games.

However, it’s not enough. “The Battle Pass is really a new trial. I don’t think it does provide a lot of benefit yet. But, over time, hopefully, the Battle Pass can become another addition to continue the revenue generation,” Pony Ma said.

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This is why Tencent’s Garena partnership is becoming increasingly valuable. By leveraging its partnership with Garena, Tencent can launch games in Southeast Asia without needing to wait for license approvals since these games are to be sold outside China.

This not only allows Tencent to monetize its existing portfolio of older games in a new market, Southeast Asia, but also to launch new games first in Southeast Asia while waiting for license approval in China. PUBG, for example, is already available in Southeast Asia and performing very well despite having been pulled in China.

Hence Garena and Southeast Asia can act as a powerful alternate sales channel for Tencent to launch games, reducing the lag between game development and monetization caused by Chinese regulations.

Garena’s userbase offers significant growth potential for Tencent

While Garena’s userbase is relatively small by China standards, its still nothing to scoff at. Garena hit 135.7m monthly active users (MAU) in 4Q18, having grown this userbase a whopping 128% in just one year.

While Tencent doesn’t release user count data for its gaming business, if we simply compare Garena’s userbase to Tencent’s massive 1.1b MAU WeChat user base, it’s already 12% of the total.

Given that Southeast Asia as a region has a total population of 650 million people, there remains a lot of upside for Garena’s userbase. With China already ostensibly saturated by Tencent, Southeast Asia hence represents hundreds of millions of potential new users and is a major growth opportunity for Tencent.

Considering that Tencent is a major investor in Sea Ltd, Garena’s parent, it is fitting that Garena gets first picks for game distribution throughout SE Asia. Tencent has little to lose by sharing its portfolio of existing games with Garena since localization is to be carried out by Garena.

In return, Tencent gets to publish its games through Garena’s established distribution footprint throughout SE Asia and Taiwan with little need to incur incremental costs.

To see how Tencent’s partnership with Garena will become increasingly important, the diagram above shows Tencent’s annual gaming revenue for 2017 and 2018.

Even though total gaming revenue increased 8.9% year-on-year (“YoY”), their PC client game revenue saw a dip of 8.2% YoY to RMB 50.6 bn from RMB 55.1 bn. Tencent could potentially rapidly monetize more PC games through Garena, even though we have yet to see a Tencent PC game being localized.

We can also see in the diagram above how Tencent’s annual gaming revenue growth slowed in recent years due to regulatory issues in China. International sales, such as in Southeast Asia, will become increasingly important as a counterbalance to China’s game monetization delays.

The Tencent partnership could supercharge Garena’s growth

Concurrently, Garena stands to benefit massively from its partnership with Tencent as the company has first rights to Tencent’s existing games portfolio, potentially boosting Garena’s already-strong portfolio of PC and mobile games and further solidifying the company as a Southeast Asia gaming powerhouse.

While Garena already has a successful portfolio of games such as League of Legends, and the self-developed title Free Fire which saw its daily active user count (“DAU”) jump 48.1% QoQ in 4Q18 to 40m DAU, Tencent has the potential to add substantial growth to Garena above and beyond Garena’s own games.

To put Tencent’s gaming business into perspective, the company’s total annual gaming revenue was US$15,733m (RM104bn) in 2018.

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If Garena were to leverage its distribution and Tencent’s existing games portfolio to create just 2.5% growth for Tencent, this would imply US$393m of additional revenue created for Garena, which is already more than half of Garena’s entire annual revenue of US$661m. This simple math shows how Tencent games have the potential to become a massive driver for Garena.

Hence, we believe that with priority access to Tencent’s pipeline of upcoming and existing games, Garena has the potential to significantly increase both spending per user thanks to more available games and to also increase monthly active users as new people are attracted to an expanding selection of games.

The benefits for both companies are just beginning, much more to come

With the January launch of ‘Speed Drifters’ by Garena, a localized version of Tencent’s hit game ‘QQ Speed’, the two companies’ transformational partnership has only just begun.

In the coming years, we are going to witness more and more games rolled out by Garena thanks to its Tencent partnership, and the rise of Garena to new heights as Tencent’s key gaming distribution platform for Southeast Asia.

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The investment arm, called KASIKORN Vision or KVision, will use US$100 million of its US$245 million for Vietnam expansion 

KVision, Kasikornbank’s investment holding company, announces that it will take a sum of US$100 million from its current startup investment budget of US$245 million to be invested into Thai startups entering Vietnamese market, as reported by Nation Multimedia.

The sum will be taken from KVision’s current startup investment budget of US$245 million. The company said that the rest of the budget will go to funding Thai and foreign startups in the ASEAN region.

With the mission targeting startups who want to operate in Vietnam, KVision has joined hands with the Vietnamese government to support Thai startups in Vietnam. KVision signed a cooperation agreement with the Vietnamese government’s Business Startup Support Centre (BSSC).

“BSSC’s understanding of their home market will help Thai startups thrive in the Vietnamese business ecosystem,” said Pattarapong Kanhasuwan, Chairman of KVision.

KVision shared their finding that investment in startups in Vietnam has reached US$889 million in 2018, which three times its figure in the previous year.

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“This makes Vietnamese market just like a “Greenfield”, offering ample business opportunities for new ventures. In investing in Thai startups that will enter the Vietnamese market, we are not looking for investment returns. Instead, we are investing in the long-term for future business partners, as we plan to eventually become a regional bank in ASEAN,” Pattarapong said.

KVision said it will particularly target fintech and e-commerce startups, which are in-line with the market trend of Vietnam.

BSSC expects 20 Thai startups to enter the Vietnamese market in the upcoming year.
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Thailand has legalised the use of medical marijuana. What opportunities does it open up for cannabis startups in the region?

Countries around the world are beginning to change how they look at marijuana and cannabis more broadly. After a decades-long War on Drugs, many countries are throwing in the towel on fighting weed and its derivative products. Canada and Uruguay have both made recreational marijuana legal, and many states in the United States have pushed for recreational marijuana as well. Similarly, most countries are beginning to acknowledge that cannabis has some immensely beneficial medical properties.

Asia has long opposed legal cannabis, with Rodrigo Duterte, the President of the Philippines, championing an aggressive War on Drugs executing people for possessing marijuana. However, the tides are beginning to change. Thailand became the first country in Southeast Asia to legalise medical marijuana and Singapore is also exploring the path. South Korea also legalised medical marijuana, becoming the first East Asian country to do so.

Medical marijuana is a US$55.5 billion per year industry and many countries are realising that turning their back on it is costing themselves lucrative opportunities. As entrepreneurs begin to explore how to make the most of these new-found business opportunities, there are a variety of potential paths to take.

Growing cannabis for research

 

A number of Southeast Asian countries are currently exploring the potential for cannabis in medical opportunities. This includes both marijuana and hemp. Until any conclusive findings are settled upon and new legislation is adopted, entrepreneurs can profit off growing cannabis to sell to research facilities or merely running the growing operations in partnership with a research organisation.

This will require finding the right partnerships and getting licenses to grow medical marijuana or hemp for research. In order to succeed you will have to learn about the intensive process of growing cannabis effectively. This can take and experience, and perfecting strains of marijuana is becoming an art craft in and of itself.

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Cannabidiol (CBD)

 

One of the byproducts of marijuana and hemp is called cannabidiol or CBD. This is different from THC, which is the psychoactive element that gets you high. Rather, CBD is a compound that offers a number of medical benefits. As Southeast Asia is mainly aiming to adopt medical cannabis, it is likely they will favor CBD products more than THC products, which have recreational appeal.

The United States Food & Drug Administration recently removed CBD from its drug schedule but requires that it comes from industrial hemp and contains less than 0.3 per cent THC. A number of people will use CBD oil for anxiety, aches and pains, and other conditions with a good amount of success. While the research is still not conclusive, CBD is likely the most medicinally beneficial part of cannabis.

There is a wide range of CBD companies that can be found across the internet right now. Their e-commerce stores are stocked with all sorts of CBD-infused products, including oil tinctures, gummies, gel capsules, topical ointments, and more. They can be ordered online and sent straight to your home.

Medical marijuana

 

Medical marijuana is an enormous industry, making up tens of billions of dollars in sales per year. For entrepreneurs who are able to sell cannabis to patients for treatment, they can cash in on the emerging trend. Success in this vertical requires that entrepreneurs can find the best suppliers of product and curate high-quality strains that meet the requirements of both regulators and consumers.

This can be a competitive space, where consumers will begin to rely on location, referral, brand image, and price to determine who they will purchase from. As a result, entrepreneurs need to be willing to engage in competitive businesses tactics and develop unique strategies to gain customers. Similar to coffee shops, medical marijuana dispensaries need to have a niche appeal that helps differentiate them from the rest.

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Once you have decided what aspect of the cannabis business you want to target, you will have to establish all of the necessary components of your business. Most importantly, you will need to acquire the proper permits and become familiar with local regulations. Countries such as Singapore can be incredibly strict, outlawing even chewing gum, and this means that regulation is a major barrier of entry for business.

After ensuring that all of your business activities are compliant with the government, set up your supply chain and business plan. Whether you aim to grow the plants yourself or work with a grower, you need to find a means of supplying the cannabis product. Many countries will have quality controls on the plants themselves, specifying the maximum THC content or what type of chemicals can be used. This means you need to find the right suppliers who will offer high-quality goods that match regulations.

Southeast Asia has seen massive growth in the world economy over the last few years. Any entrepreneur looking to get a slice of that pie can be rewarded for building new areas of these emerging economies. As more countries in the area open up to medical cannabis and the cannabis industry as a whole, there is a new-found opportunity for business ventures. Figure out what your strategy is and how you will go about creating value for your customer, then make it happen.

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Disclosure: The author is part owner of a cannabis cultivation facility in California (not linked in this article).

Image Credit: Alex Person on Unsplash

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The funding comes from Singha Ventures, Genesis Alternative Ventures, and Ozi Amanat’s K2 VC

Grain, an online food company based in Singapore, announced that it has received a US$10 million Series B funding. The funding round was led by Singha Ventures and new investors participating in the round include Genesis Alternative Ventures, Sass Corp, K2 Global, FoodXervices, and Majuven joining returning investors like Openspace Ventures, Raging Bull (founded by Ivan Lee), and Cento Ventures.

Beside host of the mentioned investors, Grain’s Series B round was also joined by Genesis Alternative Ventures and Sassoon Investment Corporation (the family office of the Sassoon family, shareholders of The Coffee Bean & Tea Leaf), and Ozi Amanat, who is an early Spotify investor.

Grain said that the new investment will be used to build infrastructure and ramp up growth in Singapore. The investment is a mix of equity and venture debt.

Singha Ventures is a corporate venture capital fund of Singha Corporation, part of Boonrawd Brewery Group, Thailand’s conglomerate dominating alcoholic and non-alcoholic beverage, food, packaging, and property sectors.

Grain shared its plan to expand to other Asian cities, with Bangkok being its first foray. “Specifically for Thailand, Grain will work with Singha by utilising Singha’s extensive F&B network across the country, including logistics and distribution,” said Bhurit Bhirombhakdi, Chairman of the executive board at Singha Ventures.

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Right now, Grain is said to hold the fifth place on Singapore’s fastest growing companies, a study conducted jointly by The Straits Times and Statista.

Offering everyday meals and catering, the company describes itself as an online food company that focusses on the customer experience — from creating dishes customers love to designing the perfect menu to going the extra mile to make each meal unforgettable.
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Fleur Pellerin and Korelya Capital believe that there is a huge potential for Asian companies to invest and do business in Europe

For most startups in South and Southeast Asia, Europe has not been on top of their mind when it comes to expanding their business. They primarily looked at other economies in Asia or the US to expand their operations. There are many reasons for this reluctance, including language barrier and cultural differences.

But it needs to change, says Korelya Capital. Based in Paris and launched by Fleur Pellerin, a former Minister of SMEs, Innovation, and Digital Economy in France, the VC firm believes there is a huge potential for Asian companies to invest and do business in Europe. The fund also believes that Europe has to look beyond the US startup market and establish good ties with the Asian startup ecosystem.

“In the beginning, our idea was to invest in European startups as the ecosystem was growing and maturing,” said Paul Christophle, Principal of Korelya Capital. “Ten years ago, we (Europe) were far from what we are right now. While the link between Europe and the US was very strong then, it was not the case when it comes toour ties with Asia. We at Korelya wants to change this.”

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The VC firm was launched two and half years ago to invest only in European startups. But it has now shifted its focus to Asia. “Pellerin thought that there is a correlation between European and Asian players on the tech side,” he said, in an interaction on the sidelines of a press tour in Paris. “From the European point of view, Asia is no more an anonymous market. For consumers and businesses, Asia is a very innovative market with strong growth rates. So it is naturally and easily a huge opportunity for Europe companies to develop there.”

However, from an Asian point of view, Europe is still a bit in the dark, he said. For instance, Europe is not really in the scope of South Korean and Taiwanese players when it comes to investment. Korelya says it needs to change and it has to help Asian companies to discover European opportunities.

“Taiwanese and South Korean players sell smartphones and consumer tech in Europe, but they are not making any startup investments here. I think their investment activities in Europe have potential financial opportunities for assets,” added Christophle.

“Europe is not as mature as the US, China or Asian countries, but it is growing fast — both in terms of startup creation and investment raise. Every KPI indicates this. However, Europe has only one third of what is required in terms of funding, compared to the US. Europe has changed and now we have to communicate to the rest of the globe that we have changed and it is an opportunity for investors,” said Christophle.

According to Christophle, there is another layer that global internet is intimidated by US players. Europe has to find partners in Asia to build a counter power to the US. “This is when Pellerin decided to start Korelya,” explained Christophle.

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Korelya Capital is a EUR200 million (US$224 million) fund backed by Asian LPs. As of now, all the LPs come from South Korea and Japan. It is now in the process of raising its second fund and Christophle hopes to onboard investors from Hong Kong and Singapore. “The idea is to fund-raise in Asia and invest in Europe only, and then help our portfolio companies in Europe to develop back in Asia and to work with parters and LPs out there.”

To date, Korelya has invested in 15 European startups in the mobility, content, blockchain, and education sectors. It is now testing different verticals and also testing to see how it can export these startups into Asia and find out a point to link, primarily with Singapore. “It is much easier to learn SaaS from Singapore, where the market is small and medium businesses are thriving, rather than in South Korea where you have consumer giants Samsung LG, who don’t really buy software from outside.”

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