In Thailand, Stein Advisors aims to plug ecosystem gap
By Gabey Goh May 21, 2013
- Former Rocket Internet head for Thailand sets up legal services firm for startups
- Changes to foreign investment procedures in e-commerce set to take effect soon in Thailand
IT was Julian Leitner’s (pic) own frustrations with trying to do business in Thailand that compelled him to co-found Stein Advisors, a legal advisory firm which provides very focused services to innovative startups.
In an email interview with Digital News Asia (DNA), Leitner said the realisation that there was a significant gap in the Thai ecosystem for such services began when he was head of Rocket Internet Thailand and in the process of establishing the local edition of online fashion store Zalora.
He said that when he first started, he and his team were in pretty much the same situation as most investors -- they had a great idea in mind, but lacked knowledge of the local legal system. Thailand's strict rules on foreign direct investment (FDI) don't make the process of setting up a company easy either.
Talking with law firms they were familiar with back home in the United States proved unsuitable, as the firms were unable to provide services that catered to the unique needs of startups.
“We got lots of wrong information, very inflexible handling as we are a startup not a multinational corporation, poor quality services and above all, horrendous prices.
"From that moment on, when I received bills from our lawyers every month, I knew that one day I needed to tackle this problem myself: Starting an advisory firm which understands startup needs; prices according to startups' financial abilities; and provides topnotch services which it guarantees,” he said.
Enter Stein Advisors, a 10-person team with Leitner as one of its partners, looking to fill a gap in the startup ecosystem. The team boasts extensive experience in startups, along with technical and legal expertise.
“I firmly believe that startups should have a proper legal set-up from the beginning -- it’s much easier to do it right in a first place than to correct it later, which is both expensive and can harm valuations substantially,” said Leitner.
He added that the ultimate goal was to help startups to focus on the area they are best at -- building new businesses.
“We want to help them by freeing their time from needing to deal with legal issues and make sure their set-up is proper and does not harm them in any kind of due diligence or funding round,” he said.
When asked for his opinion on the maturity level of startups in Thailand in navigating legal matters, Leitner said that in general, there are many misconceptions among both Thai and Thailand-based startups.
The misconceptions are especially apparent in the area of investment promotions extended by the Board of Investment (BOI). Startups often miss out on potential benefits they might be entitled to. BOI is an agency of the Thai Government tasked with promoting investment in the country via incentives, information and services for investors.
According to Leitner, Stein is not a full-service law firm; with the type of services it provides falling between business and law.
“We can talk to both clients and government institutions in a language both understand. Our area of expertise is obtaining investment promotions for innovative companies wanting to commence operations in Thailand.
"Once these promotions have been granted, we also take care of the rest such as incorporation and various registrations so that our client gets a fully functional and usable entity in his hands, ready to begin business,” he added.
Leitner claims that initial feedback on Stein and its offerings was overwhelmingly good. The team had initially wanted to build up the business and lay out internal structures first before opening its doors, but was deterred from doing so right at the beginning because there were clients wanting to be served right away.
A large part of that demand stems from a recent announcement from the BOI regarding significant alterations to its promotion guidelines and the ceasing of many promising investment promotion categories, many of which will take effect within this year.
“The announcement caused a big influx of requests and many startups wanted to obtain promotions before their value was diminished,” he said.
Leitner explained that the current investment promotion strategy by the BOI lists e-commerce, chapter 5.9, as an industry worth promoting. Companies established under this chapter are granted special rights.
In other words, it is much easier for them to obtain a Foreign Business License (FBL) which allows companies to be majority foreign owned. In general, retail is restricted and reserved to Thai nationals.
Right now, there are two exemptions: First, obtaining a BOI promotion for e-commerce and second, investing at least 100 million baht (US$3.3 million) for obtaining a full-retail licence. Since 25% of the registered capital needs to be paid up, this change in rules makes it much more difficult for startups in the e-commerce area to tackle the Thai market.
“Surprisingly, the change in strategy has largely been unheard outside of Thailand. What potential investors need to know is that companies eligible for this e-commerce promotion, might have up to 2.5 years before they need to commence operations. This makes the e-commerce incentive an option even for companies which want to tackle the Thai market in the future,” he said.
As Leitner and his team work towards meeting the present needs of its growing clientele, the plan for the coming months is to increase the firm’s range of services and to cover additional languages.
He noted that most of the FDI (foreign direct investment) into Thailand comes from Japan, making it a natural extension for the firm to provide its services in Japanese.
“We are also looking in other areas of interest to startups like trademarks, accounting and auditing, intellectual property. We have been thinking about expanding our geographical scope to the rest of South-East Asia, but for the time being we decided to focus on Thailand,” he said.
When asked what has been the biggest challenge so far, Leitner admitted that transitioning from a 200-strong business-to-consumer organisation to a 10-person service business has not been easy.
“With Stein Advisors we are much closer to all individual clients and we spent much more time with them -- as a service provider we are virtually on duty 24 hours, seven days a week,” he said.
However motivation comes in the form of the impact its services have made on startups.
“After a couple of months you see startups offering their services and you know that to a small degree you contributed and made their success possible. I wish to see more startups entering the Thai market and I would be glad to see Bangkok becoming a startup hub,” he said.