Community-buying start-ups are springing up in the fast-digitalizing region of Southeast Asia and attracting venture capital
Community-buying start-ups are springing up in the fast-digitalizing region of Southeast Asia and attracting venture capital
Southeast Asia’s tech super apps have made headlines this year and the number of technology-related venture capital (VC) deals has steadily increased from 2015 to 2019, with a dip in 2020 (Fig. 1). Many of these deals involved e-commerce companies. Grab merged with US special purpose acquisition company (SPAC) Altimeter with the aim of listing on NASDAQ, and ride-hailing app Gojek merging with e-commerce titan Tokopedia. But while the e-commerce sector in Southeast Asia matures, away from the limelight a rising wave of social commerce start-ups is beginning to gain the attention of VC investors.
Social commerce – which can simply be defined as the buying and selling of products via social media networks such as Facebook, WhatsApp, Telegram, and WeChat – is still in its nascent stage in Southeast Asia. It comes in different forms, but community buying or ‘group buy’ is rising in popularity. With more people staying home under pandemic restrictions, group buys have become even more attractive. Typically, resellers consolidate orders from their community or neighborhood to secure bulk discounts directly from suppliers.
This concept first took off in China, where over 50 community buying apps are in operation, generating total revenue that is expected to reach RMB 89bn ($13bn) this year, tripling within just three years. Pinduoduo, which allows community buying of fruits and daily necessities directly from distributors, is arguably the leader. Having received a total of $3.8bn in funding over six rounds and successfully gone through an IPO in July 2018, it has since expanded its online AgriTech business. According to its Q4 2020 earnings report, it recorded 788 million annual active users in 2020, surpassing that of Alibaba.
Now, social commerce start-ups in Southeast Asia are seeking to replicate Pinduoduo’s success. This is especially the case in countries where large, underserved populations live in lower-tier cities, suburbs, and rural areas. Such conditions, which parallel that of China’s, cause demand for daily necessities to outstrip supply and drive prices up. With the help of locally-based resellers or delivery partners and the presence of decentralized warehouses, community buying helps to lower supply chain costs.
For instance, in Indonesia, social commerce start-up Super operates a central warehouse and smaller hubs closer to the buyers in 17 small cities in East Java, particularly focusing on those with GDP per capita of $5,000 or less. It recently raised an oversubscribed $28mn led by Softbank Ventures Asia, a move that raised total funding to more than $36mn, the highest an Indonesian social commerce start-up has raised so far.
Jakarta-based Chilibeli also uses a similar strategy by operating a network of agents, usually housewives, and connects them to farmers and suppliers. The agents will then reach out to consumers who live in neighborhoods near them. It recently secured $10mn in a Series A round led by Lightspeed Venture Partners (Fig. 2) and participated by Alto Partners, Golden Gate Ventures, Kinesys Group, and Sequoia Capital’s Surge. In the Indonesian cities of Surakarta and Malang, another social commerce start-up KitaBeli is expanding its networks, relying on delivery partners instead of agents to supply fresh products and fast-moving consumer goods to buyers. Kitabeli recently raised $10mn in a Series A round, which was led by Go-Ventures, the investment arm of Gojek.
In the Philippines, start-up Resellee has similar ambitions to become the region’s next Pinduoduo. With a long-term aim to expand to Vietnam, Myanmar, Thailand, and Cambodia, Resellee raised $1mn in Seed funding in November 2020 from Mintech Enterprises and Hofan Capital to build its technology. It currently has a network of 40,000 resellers selling to 20 buyers on average, and partnerships with the government and various farmers’ groups.
To achieve Pinduoduo’s level of success, social commerce start-ups in Southeast Asia have to contend with poor infrastructure, resulting in high shipping and logistics costs. Unlike China, countries in Southeast Asia also do not have a large manufacturing industry, nor a mobile payment system that is integrated with a widely used messaging app, such as WeChat. Nonetheless, with high social media penetration and a relatively young population, the region’s social commerce sector sees increasing demand.
This is even the case in the dense city-state of Singapore, where social commerce leverages prevalent social media consumption and influencer marketing. For instance, local start-up WEBUY operates a network of influential group leaders who test and recommend products and consolidate bulk orders to secure discounts for their community. Local suppliers benefit from increased visibility too – with the help of resellers, one such supplier managed to sell 4,000 cans of abalone (mollusks) in just four hours.
In urban Singapore’s case, social commerce works as a marketing tool. Consumer habits, in co-founder Vincent Xue’s words, “are driven more by influence rather than necessity”. Relying on resellers’ circle of influence reduces the costs of user acquisition, as well as last-mile delivery costs since resellers typically reach out to customers who live in their proximity. WEBUY raised $6mn in a Series A funding round led by venture capital firm Wavemaker Partners earlier this year.
Although deal sizes in the social commerce sector are relatively small compared to the other blockbuster deals that have taken place in 2021, competition is heating up between social commerce apps. However, there is still room to grow in new, underserved cities or specialized verticals such as beauty and electronics.
For more analysis on private equity and venture capital in Southeast Asia, keep an eye out for our Preqin Alternative Assets in Southeast Asia report coming next month.