From the Nikkei Asia Review.

Phnom Penh-based Obor Capital, which has invested in five Cambodian businesses and one Vietnamese company with ops in Vietnam and Laos, is betting on Cambodia as a preferred investment destination.

Durke expects Cambodia to write a story similar to that of Vietnam. Cambodia can absorb more capital, especially for deals in the $500,000 to $3 million range, he said. "Examining the characteristics that make Myanmar attractive to investors, I think Cambodia is the most similar [to Myanmar]," he said.

Most investments in Cambodia go into real estate and infrastructure; investments in the consumer and tech sectors, meanwhile, have not kept pace with the nation's economic growth.

Cambodia's economy has grown at rates above 7% since 2011, and the share of people living in poverty has more than halved in the last decade, according to the United Nations Development Program. It is targeting 2030 to become an upper-middle-income country and 2050 to become high income.

Digital technology at 90% of Cambodian businesses remains at a basic level, the U.N. Development Program said in an August 2020 report. But the country's growing economy, with increasing FDI flows and a youthful population, could generate opportunities to exploit new technologies and allow the country to reach its national income goals.

Pickering from Vulpes Investment Management, however, is skeptical because of Cambodia's small addressable market. Laos is even smaller, and it is "difficult to imagine homegrown companies there ever scaling to create venturelike returns," he said.

However, as development finance institutions likely retreat from Myanmar, Cambodia is probably going to see more capital, according to Durke.

"Frontier markets like Cambodia are still very new to private equity and venture capital, so investing here is investing in the future," Durke said. "And there is a big advantage of being the first mover in this market and getting attractive valuations."

Emerging Markets Investment Advisers, which has sealed the majority of its deals in Cambodia, says it continues to see strong interest from existing and new limited partners, according to CEO Joshua Morris. The company is raising its third fund with a target of up to $120 million; it expects its first close next quarter.

The standard private equity and venture capital model is difficult to execute in frontier markets as it requires a more patient fund structure with hands-on solutions provided to portfolio companies.

"If you hold a fire sale, instead of holding on and developing the firms for one to three more years," Durke said, "you might end up selling what could be very good companies. [In CLMV countries], it's a different type of risk, like finding enough good talent and understanding the legal framework."

High upfront costs combined with relatively smaller market opportunities compared to larger ASEAN countries is the likely reason why there are fewer active venture capitalists in these frontier markets, Morris said.

This explains why more development finance institutions, which have a higher risk appetite for the region, join as limited partners in CLMV funds, compared with other investors. These institutions also have knowledge and networks in these markets. "Our mandate," an FMO representative said, "is to stay in tune with the needs of the entrepreneurs we empower."

https://asia.nikkei.com/Spotlight/DealS ... d-Cambodia

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