Thai Corporate VCs Are Sucking Up all the Oxygen

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

Throughout the world, young companies are most often financed and guided by venture capitalists: teams of investors who are keen to support new businesses — and make lots of money. The most common structure is for VC 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 VCs put in money and give guidance, yet largely leave them alone to do their thing. There are numerous flaws in this model, including VCs incredible ability to turn a blind eye to misdeeds at their portfolio companies, and to act like sheep chasing the same investments as everyone else because they have a fear of missing out. But by and large, it works.

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

Whereas classic VCs are funded by largely silent, hands-off investors, corporate VCs are born out of and financed by established companies. In Thailand, these big pots of money — from banks, agriculture conglomerates, retail groups and telecom providers — come with strings attached, which makes it difficult for fund managers and founders to move fast and build new products.

The two most active investors in Thailand, and six of the top 10, are corporate VCs, according to Techsauce data.(1) By contrast, the top eight VCs globally are classic LP-funded firms, with only the 9th and 10th being corporate, data from CB Insights show.

Because the Thai economy is dominated by such conglomerates and state-linked businesses, these same companies have an outsize share of funds available, as well as the powerful business connections needed for startups to land clients or form partnerships.  

That’s not to say high-valued businesses can’t be born in such an environment. Logistics company Flash Express and fintech Ascend Money are notable Thai unicorns with corporate VCs as backers. They’re among the rare breed that survived, and thrived, through the pandemic even as the Southeast Asian nation emerged at a slower pace than regional neighbors. The economy climbed 2.5% in the June quarter, less than estimated as inflation fears offset gains from a resumption in tourism.

Yet the story is invariably the same across both VCs and the firms they back. The parent company hires a team to start a VC fund, then promises plenty of money and complete autonomy. That pledge lasts a few months to a year before head office decides it wants to get involved and tell the fund’s managers what to invest in, what to avoid, and whom it can do business with. This impacts startups who are often left with a choice of taking money from a corporate VC and changing the business to suit the boss, or being left out in the cold. 

Among the biggest problems with such a corporate-led approach is that innovation is frowned upon, because every decision needs to be justified by hard numbers and immediate returns. In the VC world, though, 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 traits can’t be quantified. It’s hard to imagine which Fortune 500 company would throw money at an app that let strangers hitch a ride with other strangers for cash, but Uber went on to become a game changer that kickstarted the sharing economy.

A flow on effect is that many Thai startups limit their business scope, rein in their plans, and stick to a “safe” path in order to ensure they get funds and can survive. As a result, there are few big exits — a crucial part of the startup formula that inspires founders to take the plunge at building a business, and spurs investors to take the risk and throw money at an innovative new idea.

Thailand could be 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 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

• Tech’s $1 Billion Unicorns Eclipsed by Centaurs: Lionel Laurent

(1) We categorize dtac’s accelerator as a CVC since it’s backed by the telco dtac.

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

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

More stories like this are available on bloomberg.com/opinion