TaqwaTech championer, Thomas Tsao

  • Gobi Partners has US$1.1bil in AUMs, 13 funds & 250 startups invested
  • Identifies key missing ingredient to make Malaysia THE tech hub of SEA

Thomas Tsao believes Malaysia to be a “super-connector” for five huge markets - Indonesia, China, India, the West and the Middle East.

The Sanford H. Calhoun High School in Merrick, New York, has a list of notable star alumni. There are Ben Cohen and Jerry Greenfield, of Ben & Jerry’s Ice Cream. Then there’s singer and actress Debbie Gibson (“There was no reason/there was no reason/Just a foolish beat of my heart”); and Mean Girls star Lindsay Lohan. For wrestling fans, there’s Matthew Brett Cardona, better known as the WWE wrestler Zack Ryder.

Their fellow alumnus Thomas Tsao may not appear to be quite as prolific, until you understand his work for the Southeast Asian (SEA) region. Tsao, who was born in Brooklyn and attended Calhoun before majoring in economics at Harvard College, is the founding partner of Gobi Partners, the Shanghai and Kuala Lumpur-headquartered venture capital (VC) firm with a hand in shaping SEA’s vibrant startup scene.

Founded in 2002, Gobi is one of the first VC firms with a regional presence across China, Hong Kong and SEA, handling over US$1.1 billion in assets under management. The firm, which supports entrepreneurs from early to growth stages with a focus on emerging and underserved markets, has since raised 13 funds to date, investing in over 250 startups. It has 10 offices that stretch across Southeast Asia all the way to Tokyo.

The SEA portfolio includes startups the likes of Apps Foundry, Carsome, EasyParcel, iPrice, Jirnexu and Simply Giving.

Tsao first got into the VC scene when he was leading the TMT team for Dresdner Kleinwort Benson (China) where one of his former clients, Beijing Enterprises (the investment holding company for the Beijing Government, which he helped take public), came to him for counsel on establishing a venture fund – specifically the Beijing Technology Development Fund.

Tsao helped them evaluate and select a partner from Silicon Valley, before being asked to join and help manage the fund.

He would eventually leave to start Gobi Partners in 2002. The timing, he says, was ripe. “It was after the dotcom bubble. Most of the overseas VCs were pulling out of China and consolidating operations back in Silicon Valley,” he says. But Tsao saw a unique opportunity to get into China from the ground floor and invest into homegrown innovation.

It was, as Tsao describes it, a fairly ground-breaking idea – China was still an emerging market then, after all. “Plus, I had met a lot of great entrepreneurs from my time at the Beijing Technology Development Fund, and I knew they were bursting with ideas that could change the world. I had also met my wife, Jessica, at that point, and so we decided to move to Shanghai. The stars aligned, and Gobi was born.”

 

Bullish on Malaysia, confidence in its entrepreneurs

Gobi began looking into Malaysia as their Southeast Asian headquarters in 2012. The decision, Tsao says, was made based on how the country works as a “super-connector” for five huge markets. Malaysia’s national language, plus diverse communities and being part of the Commonwealth, meant that it can serve as a bridge to Indonesia, India, China and the West.

On top of that, as a Muslim majority country, Malaysia serves as a gateway to the Middle East and Islamic economies around the world. “It’s a natural hub for TaqwaTech!” Tsao exclaims.

TaqwaTech, a term which Gobi Partners claims it coined, is defined as a startup that has built a product to serve a large Muslim community. From 2015, Gobi has sought to invest more in TaqwaTech – in June 2019, it even offered up to US$1 million in funding for TaqwaTech startups as part of the Malaysia Digital Economy Corporation’s Malaysia Tech Week.

Topping that however is its latest initiative, also partnering MDEC. With a sports-like format mimicing the US college basketball championship, this first of its kind venture competition will see up to US$3.5 million (RM15 million) awarded to the top 3 startups.

[Ed: An earlier version gave the wrong amount for the funding available for the winners.]

64 startups will be chosen across 4 key verticals for the championship – going head to head for 4 stages of challenges that track the stages of startups pitching to an investor. Perseverance is key. Only 8 will be chosen as finalists and invited to pitch in-front of key industry investors. 

Re: Note that 11pm tonight is the deadline to submit entries for the SuperSeed II championship.

Gobi made their first TaqwaTech investment in 2016, investing US$700,000 into Malaysian Muslim-friendly holiday booking service Tripfez. In 2018, they placed US$16 million into Middle Eastern platform Holidayme.

Beyond its strategic geographical and cultural location, Tsao, who is extremely bullish on Malaysia’s prospects as a Digital Economy, feels that Malaysian entrepreneurs have their own strengths. “I think they’re fantastic at growing businesses regionally and operating under challenging conditions that are prevalent in emerging markets,” he says.

Malaysian entrepreneurs, he adds, are able to deal with challenges that include lagging infrastructure, incomplete connectivity, low (but rising) GDP per capita, and legal and regulatory grey areas.

“Malaysian entrepreneurs are also very experienced at managing and working with different teams and people because the country itself is very diverse, with different languages, cultures and religions. There’s also a general perception in the VC industry that Malaysian founders are less arrogant, more inclusive and quite humble in how they interact with others.”

 

Boots on the ground component to VC investing

Tsao believes that where a VC is based is an important aspect. He recalls a time when most VCs were based in Silicon Valley who couldn’t react quickly or decisively into China and India investments, because they weren’t close enough to the ground.

“People called them ‘tourist VCs’ because they’d only come once or twice a year and try to do deals over meetings at luxury hotels,” he says. “You need boots on the ground because without them you cannot invest with conviction. You need local relationships and local knowledge. So that’s why we believe in investing heavily into our ground game, and that’s why we have built out a network of 11 offices across Asia. “

 

Global consciousness needed with urgency to solve pressing issues

The wake of the Covid-19 pandemic is similarly a wake-up call for humanity, Tsao feels. “Never before in human history has everyone been so connected. So what are we going to do with this opportunity? I believe that we have to nurture a global consciousness which creates the urgency to solve these pressing issues before time runs out,” he opines.

“Startups that can tackle these problems will be critical to our shared future, and that’s why we have to identify and invest in them. Now, more than ever, the world needs entrepreneurs that answer the call for purpose-driven innovation.”

For Gobi, this includes TaqwaTech, gender lens investing (women-led and women focused startups) and the circular economy. “Maybe a silver lining from this terrible pandemic is that it ushers in a golden age of impact investing which changes the course of human history for the better,” he quips, hopeful of an uplifting outcome.

 

The two traits differentiating entrepreneurs who succeed from those who don’t

Tsao says that there are two traits that differentiates entrepreneurs who succeed and those who don’t. “Simply put — do they have the two “R’s”? Resilience and Resourcefulness.”

As for Malaysia as a destination for startups, Tsao says that there are two primary things that the country would need to do to make it a stronger destination. For starters, the governments should actively encourage and make it easier for big Malaysian institutional investors to invest in more domestic VCs – something he says is the “only missing ingredient to make Malaysia the tech hub of SEA.”

“Right now, when Malaysian startups need to raise a bigger round they still have to go to Beijing, Hong Kong or Singapore. That’s a missed opportunity because Malaysia does not lack the long term capital to fund them,” he elaborates.

“Some institutional investors still have an outdated view that VC is risky, but the global pandemic is dramatically changing those long held beliefs. With many working from home and buying online, are traditional asset classes like commercial real estate and shopping malls still a safe bet?”

Secondly, he believes that the government would need to enact favourable tax policies that would encourage more investment by corporate and individual investors.

Tsao who uprooted his family from the US, has been based in KL for five years now. When asked how the experience has been, he says:

“We have set up three regional funds and four single country funds. Have a total of more than US$300 million raised across seven funds, have invested in over 60 companies, generated seven exits and built out a team of 66 across 11 offices. We also have a great relationship with Malaysia Venture Capital Management (Mavcap) and the government, and the local ecosystem has been very supportive of our efforts.

“So, do we think we made the right call? You tell me. I think we did.”

 

 
 
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