Grab to raise another $1b in drive for regional dominance

President Ming Maa tells FinanceAsia about why the mobility app needs a fresh capital infusion to build scale across Southeast Asia and how that expansion squares with its route to profitability.

Grab is on track to swiftly raise another $1 billion for its expansion drive across Southeast Asia, boosting the war chest it has built since April to a total of $3 billion, Grab president Ming Maa told FinanceAsia in an interview.

The start-up that forced San Francisco-headquartered Uber to pull back from Southeast Asia started its H-round of fundraising in April. Within four months, it closed on $2 billion dollars of capital from some of the world’s most well-heeled investors, according to a person familiar with the process.

“We’re not finished. We’ll likely get to a $3 billion fundraising round this year,” Maa said.

The six-year-old startup hit a $6 billion valuation in March, $10 billion in June and $11 billion in early August; a startling rise especially given its financial accounts are still in the red.

After spearheading Grab’s funding effort, Maa believes Grab’s rapid fundraising is down to its ability to collate consumers’ data, combined with the burgeoning scale of its platform across the fast-growing economies of Southeast Asia.

The gig-economy unicorn's footprint spans eight countries, from developed Singapore to the frontier market of Myanmar, giving investors significant diversification by backing just one company – a boon for time-poor money managers looking to limit risk in such an economically and politically volatile region.

Southeast Asia is also on the brink of a digital explosion as the increasing affluence of its middle classes combines with accelerating smartphone penetration. In 2016, a Google-Temasek study predicted Southeast Asia's internet economy would be worth $200 billion by 2025.

“That creates a lot of opportunities for companies like ourselves who are disrupting and providing good services for customers,” said Maa, who joined Grab from one of its biggest investors, Japan’s Softbank, in 2016

Grab sees the rarity of the data it collects as key to pushing its valuation above the sum of its parts. Investors usually apply a discount to conglomerates’ valuations to allow for them not managing diversified businesses as well as a more focused company. 

In the US, data is ubiquitous. A citizen can ask for their credit score from Equifax or their bank; but in the emerging and frontier markets of Southeast Asia, consistent and robust data is sorely lacking.

“In Southeast Asia, the reason the value of our data is amplified is because there’s no alternative, there’s no data sets available to begin with. That’s the shocking part of the opportunity,” said Maa who is a former Goldman Sachs banker. 

WINNER TAKES ALL
Grab is looking to steal a march on rivals, such as Indonesian rival Go-Jek, who have also spotted the regional growth opportunity for apps. Some Grabbers view the competition as a zero-sum game.

Go-Jek said in May that it would invest $500 million to enter Vietnam, Thailand, Singapore and the Philippines, starting with ride-hailing but ultimately expanding into other services.

Grab has already an installed mobile base of over 100 million users in eight countries across the region. 

“100 million is a large number in the US; it’s a drop in the bucket in China, in many different ways. But in a very fragmented market like Southeast Asia … to build that scale of footprint is very unique,” said Maa who was born in Taiwan, grew up and worked in North America, and now spends much of his time in Japan. 

Grab, is rapidly gaining scale by buying competitors, launching operations in new cities and rolling out fresh services where it already has a car ride-hailing operation, such as auto rickshaws, commonly known as tuk tuks, and jeepneys in the Philippines. 

The game-changing deal came in March when Grab bought Uber's Southeast Asian operations.

“The merger with Uber has been transformative for our business in so many different ways. It was the first time that a Southeast Asian company has been able to out-execute, out-compete a global business,” said Maa who launched the H-round of fundraising shortly afterwards.

To be sure, Grab is fighting a provisional finding on July 5 by Singapore's Competition and Consumer Commission that the move substantially reduced competition.

However when asked about talk Alibaba might invest in Grab, Maa said Grab was determined to remain independent from the Chinese ecosystems.

“It’s sometimes a little bit too easy for startups to take capital from one ecosystem because of the name brand and the perceived benefits that can come with having a very big brother,” said Maa.

Alibaba often demands that the companies it invests in do not accept capital from other companies it perceives as rivals, such as Tencent. It also tends to require a clear route to control, according to fundraising and industry sources.

“It’s very tempting. But we have been very disciplined. It’s not in the best interest of customers because at end of the day you want open competition. … Our observation is once you start closing the ecosystems down, then the only real loser in that situation is the consumer,” said Maa. 

Indonesia is becoming a battleground for platforms with aspirations in Southeast Asia, given the size of the market provides a base for a regional rollout, early-stage investors told FinanceAsia.

Grab says in transport it already has a 65% market share in Indonesia. Now it is focused on building market share in areas such as payments and insurance. It is even looking at other business lines that could impact on people’s lives, such as education.

“We are certainly investing a lot in Indonesia at this point. It is a very core market for us,” Maa said. 

Ming Maa netting capital for expansion

Maa believes that in some cases small business owners in Indonesia offer a better credit risk than wealthier compatriots because they are extremely motivated to improve their station in life, something incumbent banks are missing.

“The most fascinating thing about this data is you see how little the financial institutions in this world really understand consumers and the markets,” said Maa, a former engineer of advanced computer systems at US space agency Nasa. 

ROUTE TO PROFITABILITY
However, Grab’s expansion comes at a cost and is pushing back its break-even point.
As a privately owned company with no credit rating, Grab does not make its accounts public. Grab Singapore had a US$39.8 million net loss in 2014 to 2015 said Tech In Asia citing the group’s financial documents.

Many startups struggle with a net cash burn rate, revenue minus operating expenses, as they look to grow their customer base and improve their product.

However, Maa said “our margins are getting better” and pockets of the company are already profitable such as transport in some countries across the region.

Extrapolating Grab’s revenue generation based on its run rate, sales will hit US$1 billion for the first time in 2018.

“Our path to profitability is crystal clear, there is zero doubt about that,” said Maa.

To be sure, other parts of the business such as financial services are still relatively immature. 
“Investors see value in that duality. Your maturing businesses are getting more profitable, and at the same time there are emerging markets and opportunities they want us to get in to,” Maa said. 

INVESTOR FOCUS
Grab’s drive to bulk up was a winning factor for many investors.

“Our fund-raising is sucking all the air out of the room,” said one Grabber.

Grab said it has also raised over US$700 million in debt in October last year from banks including HSBC, ring-fenced to finance the growth of Grab’s Singapore vehicle fleet.

“For a startup that’s quite rare,” said Maa. Equity investors tend to look at the growth story while banks look for safety.

The current round of fundraising has attracted notably different investors to previous rounds, where Grab has used the investment to anchor a strategic partnership, illustrated by its ties with its three largest shareholders: Uber with a 27.5%, SoftBank and China’s Didi Chuxing; as well as with car makers Toyota and Hyundai. Uber, SoftBank, Didi and Toyota all have board seats. 

This year Grab has been more interested in building relationships among financial investors such as OppenheimerFunds and Paul Allen's Vulcan Capital.

It is relatively common for startups to begin including a who’s who of institutional investors among their shareholders as a way of burnishing their reputation prior to IPO and setting a benchmark for valuation on listing.

Ant Financial's latest fundraiser included names such as the Canadian Pension Plan Investment Board and Singapore's Temasek.

“As we think about, ultimately, an IPO at some point in the future, having the right institutional investors to support us and to become familiar with is important,” said Maa, who reiterated that Grab doesn’t have a specific timeframe for an IPO.

Maa is at pains to emphasise Grab management’s interests are aligned with its shareholders’.
“Management are deeply invested in the company. We are buyers of the stock. If there’s every any availability in the market, we are the first to buy,” Maa said.

When some early investors have sold out, management has either tried to acquire the shares or used the opportunity to bring in other investors, he said.

Of course, Grab’s largest shareholders are naturally aligned for the very long term given the size of their investment which is in the billions of dollars.

“[Softbank’s Masayoshi] Son-san pushes for our 30-year business plan all the time,” said Maa.

With assistance from Molly Jackson

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