E:32 VC Dynamics | SEA Billion Dollar Trends | China: Bull vs Bear | Monopoly Philosophy & DEI Debate
Week 4 of 2024 - VC, China, Monopolies and DEI
VC Dynamics of Southeast Asia
Dave recaps his progress from 2023 on his side project in the US Midwest's industrial real estate sector.
He observes that a majority of investors in Southeast Asia primarily engaged in momentum trading until 2022.
However, this strategy has not been fruitful, as evidenced by the DPI.
Jianggan emphasized the importance of working under the assumption that smart individuals are making these investment decisions.
We've reached a conclusion that we're either entering a new paradigm driven partly by interest rates, or reverting to an older paradigm where these rates compel investments to meet a significantly higher threshold for returns.
In the final part of this section, the discussion evolves into whether the region has the potential to develop ten billion-dollar companies, or how Joon frames his perspective: "Where will the next 100 billion dollars of consumption be spent?"
This section contains a wealth of information that warrants a thorough discussion, particularly after we examine Cento Ventures' 2023 H1 Tech Investment review. Dave's story suggests that risk capital remains largely unutilized, especially in categories deemed as "don't understand, therefore don't invest." If deployed, risk capital seems extremely selective, favoring businesses that demonstrate sound fundamentals early on to justify investment over passive, high-interest rate products. There's a pressing need for a more in-depth dialogue about the caliber of investors in the region and the reasons behind the prevalence of momentum trading. We should explore the depth and acumen of these players and how they're adapting currently. Joon brought up an intriguing point: it's likely that the Southeast Asia (SEA) narrative is still in its early chapters. Despite over a decade of hefty valuations and substantial investments, the power laws of VC returns are unfolding as one would anticipate. The first decade of significant VC funding, though potentially underwhelming, sets the stage for possibly even more extraordinary returns in the future, when the other aspect of power laws kicks in, potentially leading to the emergence of 10 billion dollar companies from Southeast Asia. I recall the old guard discussing a time when people believed SaaS businesses could only reach 1 billion dollars in valuation. Now, we're well aware that the top 20 SaaS companies are valued in the tens to hundreds of billions. Keeping pace with the rapid flow of information and changes is crucial, and perhaps direct discussions with VCs in the future will lead to more enlightening conversations.
Follow Up Ideas:
As we approach the middle of Q1, it's crucial to gauge the current investor sentiment and determine the direction of capital flow.
We should explore the strategies and investment theses that investors are adopting in 2024.
An essential point of discussion is the low DPI in the region: Why does this persist, and what measures are necessary to foster improvement?
Bullish vs. Bearish Perspectives on the Chinese Economy
It was unexpected to hear Dave express a bullish stance on the Chinese economy recently. Regrettably, we couldn't delve deeply into his reasoning.
Although we didn't fully engage with this topic, a noteworthy point emerged regarding China's substantial manufacturing advantage/moat and the challenges Southeast Asian countries face in replicating this value chain.
The government's coordinated efforts in renewable energy and electric vehicles certainly contribute to the bullish case for China.
The conversation then transitioned to contrasting Eastern and Western philosophies in managing monopolies.
Joon shared an insightful perspective related to the previous topic, suggesting that any major company emerging in Southeast Asia will likely be closely linked to China's growth, particularly within the value chain. Although he didn't explicitly state it, his comments hint at a theory that the rising Southeast Asian middle class will maintain robust trade and consumption connections with China. Reflecting on our discussion, it appears we predominantly reinforced the bullish case over the bearish perspective. Regarding monopolies, a compelling follow-up topic would be to explore whether the barbies believes China's approach to monopolies is more advantageous for its long-term growth, or if the Western philosophy of handling monopolies is more beneficial for a country's sustained development.
D.E.I (Diversity, Equity and Inclusion)
I provided a standard dictionary definition of DEI.
Dave observed that the media's narrative on this definition has shifted to emphasize equal outcomes rather than the original intent of equal opportunities.
He argues that modern DEI efforts fail to address the underlying causes, focusing instead on superficial symptoms.
Joon mentioned physical differences across genders, suggesting that these differences might make one gender more naturally suited to certain jobs, like manual labor. However, there seems to be more room for debate regarding white-collar roles.
Both Joon and Dave advocate for equal opportunities and emphasize the need for individuals and governments to tackle root causes to ensure equitable chances, which they believe will lead to better outcomes overall.
Jianggan shared a personal anecdote about Momentum Works, which initially had a predominantly male team but gradually evolved to comprise 85% women.
Dave discussed the broader implications of DEI.
A critical question was raised: "How did DEI lead to the cancellation of advanced math classes in California?" This led to a discussion of historical context and hypotheses.
Joon provided insights into why DEI and related issues might not be as prevalent in the Asian context.
The conversation then shifted to the role of critical thinking in media and journalism.
The episode concluded with practical suggestions for individuals and organizations on how to effectively and pragmatically embrace DEI.
One aspect we didn't explore in depth was the counter-arguments. In future discussions, it might be beneficial to delve deeper or invite a guest who can present the opposing viewpoint. Joon's suggestion that DEI may not become a contentious issue in Asia is noteworthy. However, if there's a strategic reason to incorporate DEI into company or government policies, this deserves thorough discussion.
Ideas for Further Exploration:
The challenge of critical thinking is evident, particularly considering the significant impact of media on beliefs and actions. This raises a question: How much should individual responsibility be weighed against the moral obligation of governments to ensure their citizens' mental health and soundness through media regulation?
The topic of media accountability leads us to the debate over the role of social media platforms. Are they a public good or a private entity? To what extent should governments intervene to regulate these large social/private media tech platforms? This is a crucial area for further discussion.