Smart Axiata Supports Startups With $5M Investment Fund

With a lack of capital stifling the development of domestic digital innovation, one of the country’s largest mobile operators has teamed up with an investment consultancy to create a $5 million startup fund for Cambodian companies.

“What we have realized is there is a significant part of the digital industry missing…mainly funding,” said Thomas Hundt, the CEO of Smart, which announced the fund on Tuesday along with Mekong Strategic Partners.

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Hundreds of customers wait outside the Phnom Penh headquarters of mobile phone operator Smart on Monivong Boulevard on Friday morning for the official release of Apple’s new iPhone 6 in 2014. (Siv Channa/The Cambodia Daily)

The company is seeking between 10 and 20 innovative tech startups or fledgling companies working to create and market game-changing technology for education, health care or other sectors, Mr. Hundt said.

Smart and Mekong Strategic Partners will also provide awardees with mentoring, marketing support and access to the mobile operator’s more than 8 million subscribers, he added.

Kem Bora, investment manager for Mekong Strategic Partners, said the selected startups would be awarded between $25,000 and $500,000 from Smart, based on their needs, and the funds would be paid out over the course of three to five years.

The new fund comes amid a relative flurry of activity in a startup scene that has long been dormant, with an increasing number of incubators, accelerators and angel investors setting up shop in Cambodia or stopping by while in the region.

Even in more advanced Southeast Asia economies, the concept of venture capital (VC) remains relatively new, said Christopher McCarthy, CEO of Phnom Penh-based marketing and research company Mango Tango.

“Many investors we spoke to, even in Singapore, were inexperienced and would want to know their exact rate of return and payout in the future, which is not how the VC world works,” he said in an email.

Gauging the success of a startup often proves difficult for investors because traditional business metrics, such as gross profit or cost of a new customer, are often skewed in a company’s early years, Mr. McCarthy said.

“Many investors consider it an art, to be able to tell if a startup is working out.”

Mekong Strategic Partners will try to diminish uncertainties in the companies selected through its partnership with Smart by identifying potential risks and diversifying the portfolio of companies tapping into the fund, said Mr. Bora, the investment manager.

The lack of access to capital in Cambodia has led some to seek funding elsewhere, sometimes through a global network of angel investors taking an increasing interest in tech companies with a foothold in frontier markets.

In Vichet, CEO of media and entertainment site Khmerload, said in an email that he sought and obtained a $200,000 financial boost from the Silicon Valley venture capital seed fund 500 Startups to “put Cambodia on the map for international investors.”

“I was not looking for any source of funding in Cambodia since I was aware of the non-existence of such a fund at that time,” Mr. Vichet said.

Though mobile penetration is rising in Cambodia, the market for more advanced digital services is still small and hampered by a lack of knowledge of consumer technology, said Sok Leap, founder of consulting and IT services company System Experts.

“Consumers are not educated about these new products and services yet,” Mr. Leap said. “For example, a few e-commerce sites have failed because the market is not ready.”

To combat some of these challenges, the government should also find a way to offer support for companies ready to take on the challenges, and feed the demands, of an evolving economy, said Khuon Sophorth, CEO of Morakot Technology, a company formed in 2014 to develop alternative banking software for the country’s financial institutions.

“I see more and more venture capital [firms] are interested in Cambodian startups because Cambodia is among the fastest countries to adopt new technology,” Mr. Sophorth said.

“There are big opportunities out there. If we could help create more successful startups in Cambodia, chances are we could sell our products and services to other countries in the region, as well as the world.”

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