Cambodia Investment Review
The 12th edition of Give a Day brought together Cambodia’s entrepreneurial ecosystem on March 17th, 2023, with Vannarath Vicheth, the Investment Director at OBOR Capital as keynote to discuss the challenges faced by investors when investing in startups, as well as what startups need to prepare for when seeking investments. The event was held at the Khmer Enterprise Headquarters in Phnom Penh and was attended by over 50 of Cambodia’s leading stakeholders in the startup scene.
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OBOR Capital is a fund management company in Cambodia, founded in 2016 by experienced entrepreneurs. The company has established investment Special-purpose entities in various sectors and plans to establish the first regulated Cambodian investment fund in 2023.
With a focus on helping ventures overcome execution risks, OBOR aims to invest in ventures at the pre-seed to Series A stages, using SAFE or Convertible instruments, with a target ticket size of $500,000 to $2 million.
Opportunities of investing in frontier markets
During the keynote, Vannarath commented that the Mekong region, consisting of Cambodia, Laos, Myanmar, Thailand, and Vietnam, has seen impressive economic growth over the past decade, with a 6.6% GDP compound annual growth rate.
“This growth is expected to continue, driven by an emerging middle class, increasing consumption, urbanization, and technology adoption. Ventures that can capitalize on these trends face generally weak technology, business-model, or competition risks and have great potential to become market leaders,” he said.
“However, frontier markets come with their own unique set of challenges, such as execution risks. OBOR’s business model is focused on helping ventures overcome these challenges and successfully execute their business plans. With a focus on the Mekong region and a target ticket size of $0.5M to $2M, OBOR aims to invest in ventures at the pre-seed to Series A stages, using SAFE or Convertible instruments,” he added.
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According to Vannarath with few investors in the region, OBOR has a great opportunity to win deals and establish itself as a best-in-class investor. The target market for OBOR’s investments is the Mekong region, with Cambodia and Myanmar serving as the company’s headquarters. The target sectors are diversified, with a focus on infrastructure and utilities. OBOR also plans to venture build, providing support to ventures from seed to growth stages.
Need for realistic expectations from founders
After the keynote, the group discussions focused on identifying common challenges facing Cambodia’s developing start-up ecosystem. According to the participants, one of the most significant challenges facing investors is the lack of IT capabilities within start-up teams. Cambodia is still developing its IT infrastructure, and not all start-up teams have the necessary technical expertise to develop and deploy technology-based products or services. To overcome this challenge, investors can look for teams with technical experience and offer to mentor them to enhance their IT capabilities.
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Another common challenge is an overly high expectation of valuation. Many start-ups in Cambodia have inflated valuations, which can lead to unrealistic expectations from investors. This can result in deals falling through, as investors are unwilling to pay the asking price. To address this issue, investors can offer guidance on market valuations and provide fair offers based on market analysis.
Market fit is also a critical challenge facing investors. Start-ups may have an innovative idea, but it may not be a viable product in the Cambodian market. Investors need to evaluate the market fit of a product or service before investing. To do this, investors can look for start-ups with a clear understanding of their target market and customer needs.
Unclear growth strategies can also hinder investment opportunities. Start-ups must have a clear plan for growth, which investors can assess before deciding. This includes understanding the market potential, identifying key performance indicators, and outlining specific growth milestones.
An incorrect business model can lead to failed investments. Investors must evaluate a start-up’s business model and assess its potential to generate revenue. To overcome this challenge, investors can guide business model development and offer investment readiness programs to help start-ups refine their models.
Finding solutions to common problems
In addition, investors can also leverage several solutions to overcome common hurdles. Mentoring is a critical solution, as it can help start-up teams enhance their technical capabilities and refine their business models.
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Information hubs, such as start-up accelerators and co-working spaces, provide resources and networking opportunities to start-up teams. Investors can also mobilize pre-seed funding to support start-ups in the early stages of development as well as investment readiness programs can help start-ups prepare for investment opportunities and refine their business strategies.
Give a Day is an initiative within the Entrepreneurship Ecosystem Building Project (EEB) which is jointly funded by Khmer Enterprise and implemented by Swisscontact. In addition, to monthly meetings, the initiative also included a quarterly Ecosystem Builders Network (EBN) event that focused on mapping the six pillars of Isenberg’s Model of the Entrepreneurial Ecosystem.