With its booming startup ecosystem, Asia has made great strides in technology and innovation over the past couple of years. Despite being a hive of investment activity, however, the regional market remains a puzzle to many from the outside.
Hype Asia, a group of venture builders, seeks to make the market more navigable – and rewarding – for outside players, leveraging its local market expertise and operational networks to help startups expand in the region.
Hype’s founder and chief executive Henek Lo and its co-founder and chief operating officer Robert Hao sat down with EJ Insight recently to discuss the group’s background and business model.
EJ Insight: How did you develop this startup idea?
Lo: The background of the founders played a crucial role as to how the business model was formed in the first place. All three founders are Airbnb alumni and that’s how we first met. We all entered the company in 2012 and we led their Asia expansion efforts. In early 2016, I left to join WeWork as their [general manager] in Asia to do market entry all over again. Working for companies like Airbnb, Google and WeWork gave us the unique experience of seeing how these well-funded startups were able to achieve hyper growth while expanding in a new region during a short period of time.
Given our background, many other reputable startups that were coming to the region often contacted us to trade notes. It was then that we knew we had unique access to source great startups globally by being operators.
We noticed a couple of gaps in the market. First, five years ago, the startup culture wasn’t anywhere near as big as it is today, and many startups had not launched in Asia. Fast forward five years later: with the popularity of startups gaining massively, there are now a lot of new ventures, venture capital, government grants, accelerator programs, and they are widely accessible in developed markets in Asia.
Therefore, I don’t actually think funding is much of a problem anymore if you have a sensible business model and plan. What’s stopping entrepreneurs is actually the know-how of expanding their business to different Asia markets because outside of China and India, most Asian markets are actually smaller and early-stage companies will definitely have to expand sooner rather than later to gain market share and move faster than their competition.
The second is that in Asia, there actually aren’t too many startups that are successful in penetrating all the main markets in the region. This is mainly due to a lack of mentorship to help companies go cross-border specifically. After the last seven years of doing different expansions, we want to leverage our experiences to help entrepreneurs get their expansion done in the most effective way possible to gain market share.
Lastly, most new startups often struggle with building the right team in a new market mainly due to the fact that they lack brand awareness so they often have trouble hiring. At Hype, we solve that by letting startups work with our operators on the ground to navigate the new markets.
In 2017, when I left WeWork, [Robert Hao and I] were both thinking of new challenges and our visions of creating a platform that incorporates our experience, know-how and funding to bring the best startups to Asia aligned. This gave us the perfect window to start Hype Asia.
Service for startups
Q: What does Hype actually do? How can Hype help startups?
Lo: In phase one of launching our business, we are focusing on providing expansion as a service for startup companies in the early stages right now. In our previous experiences, we have done a lot of work for well-funded post series B stage companies, so at Hyoe we want to bring that experience to pre-B companies to help them grow. We currently provide two services, one is DIP (short for dipstick), and another one called BOT (build, operate, transfer).
Moving into phase two, we are looking to set up an investment fund by the end of 2018, so that after working with certain startups and we believe that a company will be a big hit and success, we can also invest in that company to help it become more mature.
What differentiates us from venture capitalists is that we get to know in-depth how to build the business down to the details of setting up the operations, and thus it is easier for us to see the potential of it in many different markets – not just one – by understanding the business very well.
Specifically, for the DIP service, we would provide our clients the blueprints of how their expansion will work in Asia. Our recommendations come bottom-up from a builder’s point of view, such that if you go to a certain market, you will need these many people, this much budget and these acquisition channels, etc.
Once we have the blueprints, naturally we can seamlessly go into the BOT service, where we actually roll our sleeves up for the execution work. We’ll put ourselves in as an interim market lead to execute the blueprint and achieve goals for the business.
For [C2C marketplace] Carousell, for example, I became the interim general manager for them in Hong Kong, where I ran and hired the team for three quarters before we finally hired a full-time GM for them. I then trained up the new joiner to run their business and knowledge-transferred our learnings and the experiences I had during the time I was there.
Today, Hype Asia is a team of 10 people in three offices (Hong Kong, Seoul and Singapore) covering Greater China, North Asia and Southeast Asia. Since we started, we have now worked with 11 startups and eight out of the 11 companies that we worked with all successfully raised funding in the last six months.
Q: How do you charge for your service?
Lo: Our charge is on a per-project basis. For DIP, it’s only [service] fees. For BOT, as we are to deploy a team of two to three, then we charge based on how many people we’re going to deploy into the project. The main difference between DIP and BOT is that BOT has an equity component.
China’s startup scene
Q: With various factors like cultural differences and geopolitical tensions, China has become an increasingly difficult market to navigate in recent years. Are startups still eyeing this market for expansion and growth potential?
Lo: Yes, absolutely, everybody’s thinking about it. Everybody knows how difficult it is, but it is a big opportunity for any startup company to be able to go in, as the digital and tech consumer behavior in China is already way more advanced than anywhere else in Asia.
Hao: I’ve been in China since 2007 and witnessed the behavior of the mass consumer market evolve and change rapidly. For example, mobile payments took the place of credit cards and instant messaging took the place of emails. The Chinese consumers are accustomed to change.
And, of course, there are definitely a lot of cultural differences. One example is 9-9-6 adopted by Alibaba. Employees work from 9 a.m. to 9 p.m., six days a week. From a pure number of hours worked perspective, Chinese tech companies can out-compete any foreign company. If a foreign company wanted to play in China, our recommendation would be to experience the Chinese market first as an individual/consumer and not as a company – try to understand the market as a local and slowly identify where your competitive edge may be.
Q: On the other hand, China has already demonstrated a willingness to make life difficult for foreign companies in the country, with its shifting regulatory reform and the grey legal areas these reforms can create. How should startups deal with it?
Lo: I don’t think there’s ever a solution in terms of navigating the grey [areas] but there are definitely ways to help you do it better. There are so many communities in China of different startups. I think finding connections and inroads to talk to these people is very important because these China startup communities will have valuable experience to share and often very happy to share this to the community.
Obviously, I think there are certain businesses that are more sensitive than others. For example, LinkedIn [being a social media company], when they went to China, their product had to adapt and localize specifically for China to make it work.
With all that said, it is not how do you avoid the grey, but it is learning and knowing the right way to scale your business, specifically in China. I think once an entrepreneur does some research they will realize it is not as difficult as it seems, given that they are well-prepped for it.
Hao: I like to think about the long-term trajectory of the Chinese domestic market. I believe the government is pro-business; they want to make sure that companies can offer quality products/services to Chinese consumers. In 2013, when we first entered China [with Airbnb], the term “sharing economy” was just burgeoning. Today, Chinese millennial travelers have embraced the practice of sharing their homes and traveling the world on Airbnb.
With China’s One Belt One Road initiative and others, I don’t see it as a sign of making it more difficult to do business; rather, they are trying to be more incorporating. That’s a good signal.
Q: The startup and venture capital scene has been on fire in recent years. Considering the buzz to reach “unicorn” (private companies that are now worth more than US$1 billion) status and so much money floating around, many suggest there is the startup bubble. Do you think so?
Lo: I think there’s no problem for funding for good companies, for good business concepts. When people think that there’s a bubble, a lot of times I realize they forget that these people behind the investments are very well qualified people. These are really large funds that have made a lot of strong investments and generally have an overall strategy.
I’ve less to comment about the global markets and whether or not a tech bubble is forming, but I definitely think [venture] investors are getting smarter as they see more and more deals, they’re looking for businesses that generate revenue as a long-term stable business. I think as long as you are starting a business that has a solid foundation and thought out how to thrive in a good or downturn market, you don’t have to worry about the bubble if there’s one as the company will always have value.
Also, even though in the last two years venture capital funding for late-stage startups has pulled back a little bit, actually there’s more funding riding on one single company, versus before when there was a lot of cash riding on multiple companies, which means that more investors are actually consolidating into a few bets, instead of doing many, various bets.
Q: With the market craze over cryptocurrency, initial coin offerings (ICOs) emerged in 2017 as a new means for startups and projects to raise capital. Do you receive any request from your potential clients to help them conduct an ICO?
Lo: We’re not ICO experts, but we have worked with companies that have raised funding successfully through ICOs. The market is still very early, there’s a lot of bad activity happening, but there’s a lot of good companies that are going for ICO as well. I think by definition blockchain is not going anywhere. Governments have to deal with it, but no matter how hard they try, blockchain is designed to be around all over the internet.
But secondly, focus on the technology itself right there. I think many brilliant companies are solving problems by leveraging a blockchain technology or solving problems using cryptocurrency. But I think there are companies that are just involving themselves into it because there’s money involved. The latter is not the right way of doing it. I would say, ICO is for the guys that do “deep tech”. It makes perfect sense for them to do it. But I wouldn’t say that ICO applies to all companies.
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