Why Cambodia should aim for centaur startups, instead of unicorns

Cambodia should focus on transforming its army of startups into centaurs rather than aiming for unicorns to drive and secure economic growth into the future.
Phnom Penh's nascent startup scene (Kiripost/Siv Channa)
Phnom Penh's nascent startup scene (Kiripost/Siv Channa)

Building startups that provide innovation to optimally drive economic growth and inclusion should be the goal, said David Shelters, who advises the investment and advisory firm’s portfolio of startups in the Smart Axiata Digital Innovation Fund (SADIF).

Growing Cambodia’s Centaur startups?

In the early 2010s, technology startups emerged in Cambodia.

Fast forward to 2019, and Minister of Economy and Finance (MEF), Aun Pornmoniroth, said Cambodia does not expect the country’s startups to become unicorns within the following few years because the Kingdom lacked fundamental infrastructure to support startups, including a conductive startup ecosystem.

Instead, the country expects to have a number of successful startups that grow and scale to become full-fledged commercial companies. These successes will create a ripple effect model for the next wave; and from that unicorns may emerge, said the MEF minister at the National Consultation Workshop on Digital Economy Policy and Direction.

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Cambodia has been described as possessing a “promising startup landscape”, with many young people interested in starting a business, according to an Asian Development Bank Institute (ADBI) working paper on financing of tech startups in selected Asian countries.

“We are also laying the groundwork for startups to grow and scale up. The Cambodian government shares a similar thought to what other governments of developing countries are doing to support and promote tech startups,” Taing Nguonly, who heads Techo Startup Center (TSC), the innovation arm of the ministry.

The TSC director told Kiripost,

“I believe we still cannot find our unicorn within the next few years although everything related to startups has been drastically improved. We need to be realistic.”

Nguonly added, “We have not yet seen that startups among potential startups in Cambodia have growth rates at the scale to become unicorns. Our market is relatively small; so, the prospective unicorn must rely on the regional market or work on an untapped local market from the grassroot.”

Race to grow startup ecosystem and founders in Cambodia

Cambodia needs a better conductive ecosystem, which counts on quality startup incubators and accelerators, quality mentors, quality startups, high volume of investment, and high volume of adoption ready, he said.

In a recent interview, Nguonly told Kiripost, “VC [venture capital] has not yet opened enough in investing in startups in Cambodia. Additionally, crowdfunding is still missing.”

“If we cannot find the unicorn soon, what are the proactive measures to take on? This will depend heavily on the startup ecosystem and the startup themselves.”

Nguonly, whose interest is in applied research and experimental development to explore the source of innovation for startups, explained that startup founders need to be exposed to the industry-specific problem and mobilize resources to solve that problem with confidence and commitment.

“As for the government, private sector, and academia, they need to work together to produce capable talents equipped with an entrepreneurial mindset,” he said.

“Government needs to lay the foundations for the startup ecosystem, infrastructure, trustworthiness, and adoption model. Citizens need to favor adopting the services and products from local startups for a comparable feature.”

ADB Economist Paul Vandenberg, who co-wrote the 2022 Cambodia’s Ecosystem for Technology Startups, said,

“The Government of Cambodia clearly recognizes the importance of tech startups in the growth and development of the country.”

The lead author added, “To facilitate this, the government has put in place key mechanisms and policies to support entrepreneurs.”

“The government can also play a role by providing targeted support through dedicated incubators and accelerators, making available mentors with sector expertise, and supporting research activities in higher learning institutions,” urged the 2022 ADB report.

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Forget the unicorns, focus on the centaurs

Cambodia has a population of 16 million - a number that is rapidly growing but is still a relatively small economy of $25 billion.

Producing unicorns for any startup ecosystem is not the goal. It is more or less a vanity metric, argued David.

Instead the entrepreneur-in-residence for Mekong Strategic Partners (MSP), an investment and advisory firm in Cambodia, told Kiripost,

“I prefer having centaur startups ($100m+ valuations) in as many economic sectors as possible as a better measure of a startup ecosystem's success because centaur's are sufficiently advanced to introduce innovation in their sector from which other stakeholders can leverage.”

Startup scene stalwart David Shelters (Photo: Kiripost/Bun Tharum)
Startup scene stalwart David Shelters (Photo: Kiripost/Bun Tharum)

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A decade back, David wrote a book titled “Start-Up Guide for the Technopreneur: Financial Planning, Decision Making, and Negotiating from Incubation to Exit”. Once based in Bangkok for many years, he also authored “Thailand Startup Funding Reports covering the years 2012 to 2017”.

Since early 2020, David has continued his community-building efforts in the emerging, vibrant startup ecosystem in Cambodia.

Investing in Cambodia's startups: the early chapter

In July, when Thailand’s True Digital Group Company Limited (True Digital Group) made an additional investment of $3 million in Cambodian startup Mediaload, its shareholding in the digital media and platform increased from 40.05 percent to 56.57 percent. The series B investment round is an increase of 16.52 percent of proportion in Mediaload’s total issued shares for a consideration of $3,520,000. This investment by True Digital Group has changed the status of Mediaload of Groupin Pte. Ltd from an associated company to a subsidiary of TRUE.

MediaLoad co-founder told Kiripost at the time “The whole round of Series B is bigger than $3 million, and it’s ongoing.” His ultimate aim is to raise more than $10 million to complete the company’s expansion plans in Southeast Asia.

“TRUE stated that the objective of this investment is to strengthen the company’s digital media services and for the opportunity to gain potential future return on,” reported Kaohoon International, which covers the Thai capital market.

Groupin, a parent of company of MediaLoad and startups
Groupin, a parent of company of MediaLoad and startups

There are about 20 VC and private equity (PE) firms/funds operating in Cambodia. Many of them provide both VC and PE to growth-stage startup businesses.

In Cambodia, SADIF of digital telecoms provider Smart has been one of the most active as a source of corporate venture capital. French petroleum and resources firm TotalEnergies has also been providing funding for startups.

Starting early this year, Cambodian Angel Investors Network (CAIN) of Cambodian Investors Capital Partners (CiC Capital Partner), a fund management firm, committed a $5 million fund to invest in Cambodian startups.

CAIN’s Fund Syndicate encourages angel investors to pool their fund to invest in potential startups in the form of a syndicate when they cannot or do not want to invest alone. The “Fund Syndicates” is a group-led investment by a leading investor of CiC Capital Partner.

For startup founders, a lack of understanding of business valuation, legal investment issues, and the due diligence process are among skills needed to deal with investors and VC firms.

“Local investors also have limited knowledge and experience to evaluate startups,” said Heang Rasmey, Accelerator Program Manager at CiC Capital Partner’s Cambodia Investor Club, which supports CAIN.

Since 2015, at least 25 startups have received investment funding, with 14 deals publicly disclosed in 2018 alone, reported the ADBI.

Centaur vs. unicorn

Being a unicorn is overhyped (Source: CB Insights)
Being a unicorn is overhyped (Source: CB Insights)

The centaur is a business that reaches $100 million of annual recurring revenue (ARR)—a rare breed of cloud business, part of an elite subset of the growing unicorn herd, according to Bessemer Venture Partners.

“At $100 million ARR, centaur businesses have product-market fit, scalable go-to-market strategy, and a growing customer base.”

Its report added that during the past four years, we’ve seen a steady increase in new centaurs being born each year.

A company needs an average of about $29 million in ARR to achieve unicorn status. A unicorn startup is a private company valued over $1 billion. “Today there are over 1,000 private companies valued at $1 billion or more by their investors,” reported TechCrunch this year.

“The unicorn-or-bust mentality has unfortunately driven many startups and investors to focus on valuation as their primary goal, instead of building a great business,” stated global venture capital firm Bessemer, in its State of the Cloud 2022.

Recurring revenue milestones vs. companies reaching valuations based on magical thinking
Recurring revenue milestones vs. companies reaching valuations based on magical thinking

As Mary D'Onofrio and Adam Fisher wrote for TechCrunch, an online newspaper that focuses on high tech and startup companies, “Unicorns can be illusions, often appearing a lot bigger than they are in reality.”

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