Recently, Singapore’s largest taxi operator ComfortDelGro announced their plans for a new $100million Corporate Venture Fund focused on mobility.
First off congrats to ComfortDelGro! With a great network both in Singapore and overseas ComfortDelGro has the potential to be a very attractive partner for the right start-ups. This is exciting news for the regional startup ecosystem.
It is no surprise that Singapore’s latest CVC unit is launched by a transportation company. This industry has seen massive changes in the past few years and produced some of the most successful startups in South East Asia like Grab and Go-Jek. So it makes sense that the established companies in this industry would be both scared by fast growing start-ups but also see an opportunity to invest in and benefit from the next generation of transportation startups.
If we take a closer look at how Grab has performed compared to ComfortDelGro it is easy to understand why many companies have a Corporate Venture Capital arm. From June 2012 till September 2018 the market capitalization of ComfortDelGro grew from SDG 3.2 billion to SGD 4.85 billion. In other words the value of the company has risen by roughly 50% in this period. This means ComfortDelGro is, by most yardsticks, doing well. However compare this to the growth of Grab and these numbers pail. Grab was launched June 2012 and by September 2018 it attained a market value of $10 billion. In other words Grab created 10 billion of value in the same time it took ComfortDelGro to increase its market cap by 1.65 billion.
It’s really no surprise that ComfortDelGro is putting innovation very high on their agenda. I assume their primary motivation for launching a CVC fund would be to identify new technology and partners early to ensure that they stay competitive and relevant in an industry that is rapidly evolving. A secondary motivation could also be to be to identify and invest in the next Grab or Go-Jek. So even if ComfortDelGro itself is not able to grow as fast as the next hot start-up in this space, at the very least they can use their domain knowledge and network to generate financial returns.
Will this $100 million CVC fund be enough to ensure that ComfortDelGro remains one of the dominant transportation companies in the region?
ComfortDelGro has a number of things going for it. Firstly it’s a somewhat diversified company with business units in multiple countries and interests in both media and transportation. This gives some added security and resilience. Secondly management have obviously recognized the massive change happening in their industry and actively taking steps to stay competitive. Thirdly, the size of the fund - $100million – automatically makes it a serious contender by South East Asian standards.
There are some challenges.
It is the people at ComfortDelGro that really has to make the organisation more innovative. It starts with managements and involves all business units. It can be challenging to change big organisations, perhaps even more so in organisations that are doing pretty well. As long as the company is making a solid profit there may be people who don’t see the need for fast and extensive changes.
Setting up a CVC unit can be tricky. Setting aside $100million is just the start, now the Corporate Venture team has to identify the right start-ups, strike the right deals and make sure investments generates strategic or financial returns for ComfortDelGro. Statistically almost half of all CVC programs shut down within 3 years so getting this right is not as easy as it sounds. Transportation may be one of the hottest sectors for start-up investments in South East Asia. With no less than two unicorns created in the last few years. This means there will be a lot of competition from financial VC’s and other CVC’s for the best deals. So ComfortDelGro’s CVC team have to beat out a lot of competition to get in on the most interesting deals. For a brand new CVC unit with no track record to show, this could be a tall order.
Lastly, ComfortDelGro is facing some really tough competition from Grab and Go-Jek. These are just phenomenal companies that have proven that they can commercialize new services and grow really quickly. Both Grab and Go-Jek have set up CVC units and especially Garb’s Corporate Venture arm seem to already have multiple interesting initiatives in their pipeline. ComfortDelGro can be sure that both Grab and Go-Jek will spot any new trends and technology early and be quick to adopt.
Ultimately ComfortDelGro’s success or failure will come down to one thing – the people. They need to recruit one of the best CVC teams in the region to compete and management will have to give them their full support. If they do, ComfortDelGro could go toe-to-toe with Grab and Go-Jek.
One thing is certain. No matter how this plays out it will be a case study in five years’ time. It will either be a case study in how Grab and Go-Jek gradually pushed traditional transportation companies to the side-line. Or, it will be a case study on how a traditional company can shift gears and fight back when facing stiff competition from fast growing start-ups. The latter would be a much more interesting story so personally I am rooting for ComfortDelGro.
What do you think? Who will be the dominant transportation company in Singapore in three years? Leave a comment Next week I will dive deeper into other aspects of CVC in South East Asia. Stay tuned & have a great weekend!