Can Grab Ventures address Singapore's worsening funding gap?
There are only a handful of funds focusing on providing Series B funding.
Ride-hailing firm Grab is coming full-circle with the launch of its venture arm that aims to kickstart the growth trajectories of capital-short startups in Southeast Asia, a situation the company knows all too well thanks to its humble beginnings in 2012 as a startup eager to revolutionise the region’s transport scene.
Six years and a series of massive capital injections later, Grab is now a full-fledged unicorn worth over $6b and has rolled out Grab Ventures which aims to partner with eight to ten growth-stage startups in transport, food, logistics and financial services verticals over the next two years. The launch was complemented by the debut of the company’s accelerator programme, Velocity, which aims to back startups seeking expansion across Southeast Asia.
“We’ve stood on the shoulders of giants and we now hope to pave the way for other Southeast Asian tech companies to rise and achieve success,” co-founder Anthony Tan said in a statement following the launch. “It’s about enablement, and we invite growth-stage startups that want to expand across Southeast Asia to partner with Grab Ventures.”
The move comes mere months after Grab assumed control of rival Uber’s operations and assets in eight Southeast Asian countries in March, effectively sealing its dominance in the ride-hailing scene.
For the most part, analysts laud the ride-hailing giant’s foray into venture scene as a positive for Singapore’s thriving startup ecosystem.
"Startups benefit from having another growth-stage fund enter the ecosystem. That's always a net benefit to everyone," said Justin Hall, principal at Golden Gate Ventures.
Similarly, Reez Nordin, partner at Monk’s Hill Ventures believes that Grab’s entry could address the city state’s funding gap as there are only a handful of funds focusing on providing Series B funding and onwards compared to the proliferation of early stage investors.
However, businesses operating in any one of the verticals Grab has targetted have more than enough reason to worry as startups with the mission to disrupt industries now have a significant backer in Grab, said James Tan, managing partner at Quest Ventures.
Startups that make it into Grab Ventures can leverage on its advanced tech platform, regional footprint as well as a vast network of drivers, delivery partners and merchants across the region. Moving forward, these startups may be tightly integrated into the platform or even outrightly merged under the Grab brand and platform if they prove they could add further value to the business, Tan pointed out.
Grab itself has announced that it may end up investing in selected startups that exhibit “strong synergies” with their company. However, the close integration may just prove to be a double-edged sword as startups would have to work to strike a balance with over-dependency on the Grab platform, said Fang Soong Chou, general partner at Pix Vine Capital.
“Grab’s experiences in scaling up rapidly as a unicorn could be helpful in guiding and nurturing a next unicorn but again we are all know that the risk that start-ups may be stifled within an established structure, and may need the freedom to operate and develop independently,” she said
"The real question is: do entrepreneurs want Grab on their cap table? I don't think we can definitively answer that just yet, and I don't think we'll know the real answer for several years," Golden Gate Ventures' Hall added.
There are also concerns that Grab may be taking in more than it can chew as it earlier moved into lending through its partnership with consumer financing firm Credit Saison to add to its growing portfolio in a bid to ensure its sustainability.
The joint venture, called Grab Financial Services Asia, will provide loans and lending services to consumers, micro-entrepreneurs, and small businesses across Southeast Asia. It is part of the launch of Grab Financial, the fintech platform within the Grab ecosystem that encompasses the company's wide range of fintech offerings including payments services, rewards and loyalty services, financial services and agent services.
“There is always a risk that Grab (or other companies) may lose focus by launching into various verticals simultaneously,” Nordin added. However, Nordin believes that the company’s current level of risk is low as it can easily cull non-performing businesses and invest more into verticals that generate higher returns.
The expansion is only a natural move for Grab as it seeks further growth opportunities just like any other company, said Soo Ping Yong, executive director at Walden International. “Grab Ventures is a Corporate VC. This model is not new. Corporate VCs want to gain early access to new technologies or business model innovations which may become disruptive to their respective industries in the future.”
However, Grab has had more than enough experience dealing with risk as it steadily builds its business empire, leading Chou to suggest that the startup ecosystem is better off in the long-run with Grab in it.
“There will certainly be risk that it can chew more than it can handle but the risk is outweighed by opportunity of innovation by nurturing start-ups to build new businesses and model that can strengthen their shared economy platform model.”