Cambodia’s Startup Investment Gap

At Cambodia Tech Expo’s Startup Stage, Kiripost’s managing editor, Tharum Bun, moderated a panel of three startup founders, an investment manager, and a startup ecosystem builder, to find out their journey, raising investment, filling the investment gap, and lessons learned building their business.
A panel discussion on the gap in startup investment in Cambodia
A panel discussion on the gap in startup investment in Cambodia

This is a recap from a panel discussion on the startup investment gap in Cambodia at Cambodia Tech Expo’s Startup Stage, of which Kiripost is a media partner.

Moderated by Kiripost’s managing editor, Tharum Bun, panelists included three startup founders, an investment manager, and a startup ecosystem builder, talking about their journey in an emerging ecosystem, how they raised early-stage investment capital, and hard lessons they learned when building from zero to one.

From an investor perspective, Cambodia’s small yet growing startup ecosystem is not an issue for investors, local and regional, but a track record of return on investment and more visibility.

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Khun Pisey, CEO and founder of Workingna

Khun Pisey, CEO and founder of Workingna
Khun Pisey, CEO and founder of Workingna

The investment in startups in Cambodia, I would call high risk, high return. There's still a huge gap that we can see with investment in Cambodia, especially for tech startups because most of the local angel investors here like tech startups, like how they operate is completely different from businesses like SMEs.

So, somehow, there's still a gap that still make most investors hesitate to invest.

One of the most common questions that I get whenever I meet investors, angel investors, is how do you operate the business without gaining profit. We are in tech, so somehow we still need time to close our traction. We still need to do things like growth, so there are a lot of things to do. We have a huge plan to scale our business into the regional market.

There's still a gap on that. We hope there's programs that can support building the investor mindset, especially to the tech [startups].

From my previous experience, it took me about 1.5 years to successfully raise our seed round. I talked to so many investors, especially local ones. But we find that all of their concern is when we are in the startup stage, so everything is assumption, more than projection.

We do not have real data, real tractions, and we are still in the early stage. That's why they still hesitate to make the investment.

When we are in the seed round, most of the venture capitals here have their investment requirements. Mostly we’ve not met their requirements yet. That takes longer.

However, I still found my seed round investor because they connected me to a foreigner investor. It took me 1.5 years to meet the local investor here. But we have a lot of negotiations and the deal will take at least from three to six months. But anyway, the deal was broken. For the last one, it took me only two weeks to meet with our investor and then the deal was confirmed, and we closed, we signed the term sheet.

From those experiments, I learned that for local investors, they need to understand more regarding how tech startups operate compared to other businesses.

Vireak Chea, CEO and co-founder of PillTech

Venture capital firms are looking for companies that are attacking or addressing big problems, big markets. So when you talk to your VC, make sure that it's a multi-billion-dollar industry you're trying to target.

You're starting in Cambodia. It's a small market, but try to convince them that the problem that you're solving is actually not only here. You're starting here. You're testing it here and then you're going to grow in this country. That's how I approach it.

Because there is an investment company as a VC. They have a lot of people that they talk to everyday. Being persistent is something you should do. If you research well on the investors that you're talking to ahead of time, you save yourself a little bit of time. For example, one of the VCs who invested in our competitors but in another country was really interested in talking to Pilltech and I know that I already knew that he's one of the investors already and they're already at a later stage. So, are they going to be investing in Pilltech?

Maybe, maybe not. What you don't want to do is you don't want to say no to them. But maybe talk to them and see if you could learn from them. "Hey, look. I know you invested in this company. How did you help them grow?"

If you were to invest in us, how do you think we could grow parallelly with that company? How do you see that? So, ask him more questions because sometimes when you go and talk to investors, they're always asking you these questions. But for me, I prepare all the questions. So, those are some of the do's that I do,

Prepare all the questions ahead of time. I interview them because it's like a marriage. When they become your investor, they become your partner. So, it's really important that you get along with them. You play them well. Potentially how they can also help you once they invest in your company, right? So, one of our investors from Cambodia. Why did we choose them? Because they're more in finance. They could help with the booking, the book-keeping, the process, making sure that we're ready for the next round.

So, that's part of the reason why we picked them and they're also a local investor. So, they really understand the local market here well. They're well connected to the industry here.

Sunsatya Chea, Entrepreneurship Development Manager, Khmer Enterprise (KE)

Sunsatya Chea, Entrepreneurship Development Manager, Khmer Enterprise (KE)
Sunsatya Chea, Entrepreneurship Development Manager, Khmer Enterprise (KE)

We support startups from the early stage to growth stage. So to realistically answer the question, I would break the entrepreneur or the startup into three groups that reflect our support. For the ideation stage, the main focus is more on building a team, focus on their vision and missions, as well as explore the business model that you know is in demand from the markets. So they probably do not have time and the sort of regulations about investment requirements at all. The gap for this group is very big.

There was very little understanding of the investment process. For this second group, it's called the Startup Stage. For the startup stage, we provide incubation programs. So, within the master class we have some mentors.

We actually incorporate some basic understanding like funding, source of investment, what the investor is looking for and we give them some guidelines on how to prepare the business model and pitchings. Then we expose them to showcase or close door pitch.

So they have real experience with investors and judges. For this second group, they have quite a basic understanding of what investment looks like, what investors want from startups.

At the growth stage, the startup is an entrepreneur, they actually generate some traction. They probably do not generate new profit yet, but they have sales. So, then capital to scale up or expand the market. So they are expected to know some requirements, some processes and diligence from the investor. That is the reason KE provides the acceleration programs or investment readiness. So that they know you know the process and what they need to prepare in order to secure or raise the investments. For this set group, the gap remains but has been improved compared to the previous two groups.

Sim Chankiriroth, CEO and founder of Banhji

Sim Chankiriroth, CEO and founder of Banhji
Sim Chankiriroth, CEO and founder of Banhji

There was an idea to have some sort of accounting software for Cambodia. So, we pulled out our funds and explored. The exploration stage took us until 2016. So, we burned some of our hard-earned money. We we often consider 2016 is our founding date. We burned around $500,000 from 2016 until 2018. Again, we were too stubborn to change.

There was an investor in Singapore. When we talked to them and they said, zero-free is not a business model. So, if any of you can offer something for free, and you can become the next Facebook or Google, you know, think how much money are you willing to burn? Yeah and we burnt a lot.

In 2018, I went to Alibaba with Langda [of BookMeBus] and saw something that really sparked the idea and came back and started changing. But again, it's very small. Some people said we give a lower price because the quality is not good, but it's not. It's a business model of Benji, we are not an accounting software. We have access to finance. But to get there is a long journey. As of now we facilitate around 10 million roughly. But get zero money from it. As an owner, like six years already to validate this business model, is a long and painful process. We will raise a fund in 2022.

After we start charging in 2018, investors start looking at us. We then closed around 2020 and COVID hit. So the money that we raised was just to burn again to survive. Then in 2021, we received a convertible note from our existing shareholder, again to burn to survive.

In 2022, I lost 15 staff this year. A significant number of staff left as of December last year when Baji became more like a consulting firm. We have 70

staff and most of us are consultants. So we decided this year, we are a technology company.

Chea Langda, ​​CEO and co-founder of BookMeBus

Chea Langda, ​​CEO and co-founder of BookMeBus
Chea Langda, ​​CEO and co-founder of BookMeBus

It's seven years ago where the ecosystem was not growing yet. At that time, we didn't have co-working spaces. Not many people knew what an entrepreneur is or what a startup is. So, I made a lot of mistakes along the way.

The first mistake I made is what most people call a mistake, but to me is a lesson learned. Once I started raising funds at that time with the investor, I had 12 investors. People called me crazy. “You’re stupid. How can you manage 12 investors?” Talking about the ticket size, it is just $15,000. It sounds a bit crazy, but at that time, I was very excited. Some of them are in Cambodia, some are from the US, and two are from Australia and the Czech Republic. I was very happy that finally someone started to believe in the vision that I believe in.

Even though I could not explain how I was going to kick-off or how I was going to break through this barrier in the transportation industry. I don't care about the legal things. Luckily enough, I started to tell everyone that I have Chy Sila [of Sabay Digital] invested in my company. Without even knowing what I was going to do with him. It was a proud moment for me. After that, within a few months, all the money was gone.

Because you have no experience, you don't know how to spend that money.

One of the lessons I learned is that I was too inspired by big companies, like Grab and Foodpanda. I like this journey about raising funds. I never cared about how to make my company sustainable or profitable. It’s all about building a user base and getting exposure. Once I spent all this money, I realized another round. I learnt that until the pandemic came, where we were in the tourism space, our buses stopped transporting passengers because of the lockdown and restrictions. Then I realized that no, when running a business, you cannot rely on investors. In Cambodia, where the ecosystem is still growing there are not many local investors who are really willing to take risks in our local startups.

We need to learn to be profitable on our own. Once you become profitable, even if you are small, then you can pull the trigger and create more opportunities later on.

We’re lucky enough that before the pandemic, we raised [funds] in 2019 and, then also our peak growth of the year where we reach about 2 million in GMVs and $50 million as an ecosystem. We also raised from a Singaporean VC at that time about half a million dollars. We went through many rounds already, which were all different. There is no rule, I can say. It's all about, I need this money, I need to survive.

How about we do this? How do we do that? It's about finding the right investor to really believe in the vision. I always wanted to expand beyond Cambodia at that time, but then none of the investors I talked to believe that Cambodian startups can really go in Asian market or regional market. They say stay in Cambodia, stay in Cambodia, do this, do A, B, C, D.

Khieu Suntheng, Investment Manager (Asia) of Incofin Investment Management

Khieu Suntheng, Investment Manager (Asia) of Incofin Investment Management
Khieu Suntheng, Investment Manager (Asia) of Incofin Investment Management

Our business model is we manage other fund investors. So, there's certain criteria that we have to scan through to invest in the startup. Talking about the market in Cambodia as a whole, the problem is not about the number of startups.

The first critical issue is in terms of the market, scalability. For example, let's say we invest in one financing firm, Fintech in Indonesia. In five years, their portfolio grows to $100 million. So, the question is, is there any company that can grow in Cambodia alone? Five years, from zero to $100 million. It's not virtually impossible.

That’s related to the point Virak raised earlier. To attract, especially international investors, you have to talk about scalability and go regional. This is the key element that a startup founder has to pay. Second, why is that question important? Because it relates to the expected return from the investor. I can share the track record of our multiple returns is around 2X. And our investment period is five to seven years. So, you can imagine that 2X is an average. Generally, this is the minimum aspect. If we see the deal cannot generate above 2X, we won't go for that.

I could say we have a good track record in Cambodia and I believe, as a Cambodian, that there should be a role in terms of media and visibility of Cambodia. So, like in Coffin, we invested in AMK back in 10 years ago. Now everyone knows AMK. This gives us a very good return.

But to be honest, not many people talk about Cambodia because of our market, our media, and as an investor because my role is regional, we network. Mostly, I don't see a lot of my network from Singapore, from other countries talking a lot about Cambodia. Mostly, they refer to Indonesia because of the mid-market, and Vietnam, a new rising star and such. This is something we can address, the [investment] gap.