Ethan Lin: “When there is scarcity in capital, money is chasing only the best quality”
Klook, Asia’s leading platform for experiences and travel services, has raised an additional $210m in funding which will go towards “supporting business growth and fortifying financial stability”, and for CEO & co-founder Ethan Lin, raising this latest round during a capital winter has been particularly satisfying.
The equity round is led by Bessemer Venture Partners, with participation from BPEA EQT, Asia investment funds Atinum Investment and Golden Vision Capital, and corporate investment arms from Southeast Asia, including Krungsri Finnovate (under Bank of Ayudhya), Kasikornbank Financial Conglomerate and SMIC SG Holdings. The round also includes bank facilities from Citi, J.P. Morgan, and HSBC.
Asked how challenging it had been and how much convincing it had to do to raise this round, Lin said it was “less about convincing and more about the length of time needed by the markets these days”.
“Markets are taking a longer time to evaluate, they want to see track record, delivery and impact so yes, it’s a much longer time window these days.”
However, he said “this capital winter was very much needed”.
“It is only during this time that real high quality players emerge. When capital is abundant, everyone can raise money but when there is scarcity in capital, money is chasing only the best quality.
“They understand that it’s longterm sustainable growth that matters, that it’s not short term surges or spikes – this is what we have learnt the past nine years; understand what you are focused on and build the longterm competitive advantage.”
Klook’s last fund raise was in January 2021 when it closed $200 million in funding for its Series E round. This latest round brings the total raised to $900m.
Who matters as much as how much – more investors from APAC targeted
As with previous rounds, Lin said Klook took a deliberate approach in terms of targeting the right investors “to grow with the market”.
“For this round, other than the typical large investors from the US and Europe, we have money from Thailand, Japan, Philippines, Indonesia and Korea. As you know, across Asia Pacific, a lot of assets are owned by family offices as well as corporate investment arms. Travel is a pan-regional, global game and, with these strategic investors across Asia Pacific, we want to grow share in these markets.”
While some might point to its broad base of investors as a disadvantage, in terms of having so many interests to manage, Lin said, “In terms of numbers of shareholders, it is neither an advantage or disadvantage, given the size and stage of our company. We have systems and processes in place to manage the investment base and accept a much wider base of investors, even as a private company.
“We are always one step ahead in corporate governance. We did a lot of housekeeping and homework even before the pandemic which also helped us have the strong recovery after Covid. The advantage with having a wide base of investors is that we are able to really share the growth with more people across more markets.”
The investment from Kasikornbank Financial Conglomerate, in particular, is interesting. This is the same bank whose subsidiary, Beacon Venture Capital, invested US$25m in Traveligo, a Thailand domestic OTA founded in 2015 by Anupong Kriangkrailipikorn, and which will be rebranded to Gother – indicative of the growing interest of Thailand’s banks in the travel sector.
“Thailand has a decently sized travel market, and tourism is a big GDP contributor,” said Lin. “We bring large traffic to Thailand and we also serve Thais in other markets and Thai banks are looking at their own ecosystem of users to see what other services they can offer.”
Talent and critical scale key – otherwise, “it’s the death penalty”
For Lin, a former investment banker, Klook’s investment strategy has been as deliberate as its business strategy. “What we did not anticipate was the growth, the hard work and execution that the team was able to deliver – it’s outpaced even the anticipation of growth we had before and post-Covid,” said Lin. “The most important ingredient in non-asset tech companies is talent.”
Its current staff number is around 1,500 – still below 2019 levels – but Lin said productivity is up three times. “There is a very strong trend that requires every company to deliver efficiency – the good old days of 2019 are long gone. If you are still running with heavy headcount costs, you will be in trouble.”
Asked if salaries had gone up three times, in line with productivity, Lin said, “As a tech business, you do not expect to grow business in proportion to your team members. For tech companies, you have to reach critical scale and then you become profitable. If you don’t hit critical scale, it’s the death penalty, so you have to look for markets to reach critical scale. Tech development, SOP, management of the platform, teams managing different accounts in a scalable way – that gives you higher productivity.”
Clearly, Klook has reached critical scale and Lin said, “you need to have the entire Asia Pacific to have that scale”.
“South-east Asia alone is not enough for critical scale – current consumer demand can drive certain volume, but it’s not enough – but if you include East Asia, and not including China, you can have that critical scale.”
Three areas of focus – cost discipline, stronger balance sheet and investments in AI
Regardless of the additional funds, Lin stressed that “cost efficiency will be critical for everyone in 2024, no matter how high the growth – there is that continuing expectation from markets.”
What the additional funds have done is strengthen the balance sheet. “We don’t need the money anymore, we are profitable, we have cash flow, but you never know if there will be a rainy day. This enables us to make moves and take action when opportunities arise – it gives comfort to our partners and banks.
“It also gives us the leeway to look at longterm investments in innovation – not just within a year – but how we continue working with supplier partners to digitise and help them with new segments such as city passes.
“Our Klook Kreator programme is still early stage with 13,000 influencers and growing by 1,000 a month. There’s a huge community of micro influencers out there and we need to power that infrastructure with tech investments, including generative AI, and personalisation. That is very costly, it’s not cheap and you only see results because of the size you are.”
He said he was puzzled by how much hype there was around AI in travel when it was going to be irrelevant for a lot of companies. “Unless you are a really big company, you don’t need to talk about AI – it’s for sizeable companies who will see and enjoy the incremental impact.”
Bullish on 2024 – here’s why
In 2023, Klook’s recovery outpaced the Asia Pacific market which, in terms of flight capacity and arrivals, is still only about 70-80% recovered, said Lin. “We are growing 300%, we saw hypergrowth, reached critical scale and became profitable.”
He is bullish on 2024. “One, we will see continuing recovery of travel as Asia enters Year 2 of post-Covid. By 2025, Asia will outpace the US and Europe. Two, we will see a more favourable travel outlook in APAC – from both the developed markets and emerging middle class in South-east Asia. Asia will outpace travel demand by 11% over Europe and the US because of demographics.
“Three, in the experiences and in-destination services, the Gen Z and Millennials are looking for more things to do. We are looking at 20% CAGR growth, outpacing other sectors.”
Another thing in Klook’s favour is that over 80% of bookings are made through mobile today. The influx of new customers acquired in 2023 more than doubled that of 2019, while repeat customers contributed to over half of the total bookings. And per user spending has increased on the platform because unlike hotels or flights, travellers tend to book a few experiences in destinations, said Lin.
Of course, he is conscious of the geo-political instability in the world, “along with other factors we cannot control”.
However, “if you are a well-diversified market leader across multiple regions and markets, then you can mitigate the risks. There is a Chinese saying, if you cannot go to Japan, you can go to Thailand. We see that when the Malaysian ringgit is weaker, there is more demand for Malaysians to travel domestically than go abroad. With the weaker yen, everyone goes to Japan. In Singapore, we are seeing pressure on inbound, with the very strong Singapore dollar. If you are diversified, you can always move around.
As for the Middle East, where Klook has a partnership with Almosafer to power its tours and activities, Lin said, “We see this as a growing market in the next 10 years. We will look at longterm investments in the Middle East and Muslim travel which we believe is underserved.”
With this latest fund raise done and dusted, Lin said he’s looking forward to spending more time with the team in the new year. “During Covid, we weren’t able to spend time together. I’d like to spend more time as well with partners to grow together with the trends that we see, so we can start innovating together, and have sustainable growth for our partners and sector.”
And as far as Lin is concerned, as a nine-year-old startup operating in a $250b tours and activities market, “I tell my team, we are still an elementary school kid, we haven’t graduated yet.”
It will be interesting to see what Klook, The Graduate, will look like.
