AirAsia Targets Startups With New Venture Capital Fund

AirAsia, one of the world’s most successful budget airlines, has launched a venture capital fund that will focus on early-stage businesses, the company said Monday.

The fund, called RedBeat Capital, will invest mostly in consumer-facing companies primarily based in southeast Asia. It has already invested in a voice-technology specialist, though it didn’t share details.

“Our goals are to find startups that can help make our product better and get help with controlling our costs,” said Tony Fernandes, CEO of AirAsia Group. “But we also see startups in ASEAN [countries who are members of the Association of Southeast Asian Nations] as not having had enough access to customers or capital, and we want to help with that.”

RedBeat Capital will focus, though not exclusively, on travel-related enterprises.

“This isn’t tokenism or some feel-good thing just to mollify a board of directors that we’re looking into innovation, which I know is what sometimes happens when corporations do things like this with startups,” Fernandes, the ebullient Malaysian tycoon that runs the airline group.

At a New York press conference, Fernandes backed away from media speculation that the fund size would ultimately be $60 million.

Fernandes said he had no objective for a particular size portfolio of investments or the size of the fund. However, the typically post-seed investments might usually be in the $500,000 to $5 million range, he said.

From Subsidiaries to Startups

AirAsia has invested in non-airline businesses before.

A year ago, AirAsia began a series of investments in companies totaling “between $10 and $12 million,” Fernandes said. These businesses, which have been serving more like subsidiaries in lifestyle, logistics, and financial technology are now moving into an entity that will likely be called RedBeat Holding.

The company wants to focus on startups now. It decided to partner with 500 Startups, a San Francisco-based accelerator and investor, to help provide access to startups. A couple of AirAsia representatives will work at 500 Startups under the direction of Aireen Omar, deputy group CEO of digital transformation and corporate services at AirAsia.

Fernandes said he picked 500 Startups as a partner after a couple of years of conversations because it had the most experience of such Bay Area shops in understanding southeast Asia, such as with its support of fast-growing Grab, a ride-hailing service. 500 Startups has already brought him to Thailand to meet with a prospective startup, he said, underlining that the partnership has already begun.

Trendy Thing to Do

Many corporations have jumped on the trend of fraternizing with startup founders in various ways, but sometimes with mixed results.

“Some corporations are quite savvy, but others are hazy about their objectives and struggle to engage with the startups and also overcome the culture gap between a small company and a large one,” said Christine Tsai, CEO of 500 Startups.

AirAsia is following a bit of an airline-specific trend here, too, as carriers like JetBlue, EasyJet, El Al, and Qantas have experimented with investing in startups to various degrees.

Some look strategically for companies that might boost their revenue, some try to rev up their innovation cultures by rubbing shoulders with entrepreneurs, and others seek financial windfalls in picking the next breakout company.

It’s harder than it looks. For two years, Qantas ran the AVRO accelerator program in partnership with the Slingshot Venture Fund. About 15 startups received small investments and mentoring. But in October 2018, the airline shut down the arrangement without much explanation.

JetBlue Technology Ventures, appears to be most effective effort so far. The subsidiary has provided seed funding to more than a dozen early-stage technology, travel, and hospitality startups since early 2016.

The airline’s corporate venture arm has invested in Gladly, the maker of a customer service it adopted for its staff, some startups in revenue management and insurance, tours and activities software services, and flight delay prediction that the airline might use some day. Less pragmatically but more boldly, it has invested in Zunum Aero, a hybrid-to-electric aircraft manufacturer that may be big a decade from now.

In late 2016, easyJet agreed to make an undisclosed, “multi-million pound” investment over five years in Founders Factory — a half-year boot camp for early-stage entrepreneurs. Via the London-based accelerator, the UK-based airline has invested in some companies that it has found strategic opportunities with, such as Flio, a mobile app that helps travelers navigate and shop at airports, and FlightSayer, a startup that predicts flight delays.

El Al has for a few years had a venture arm, Cockpit Innovation, that has made small bets on startups. Last year, it brought in Cockpit Innovation, a venture fund arm of EL AL Israel Airlines Ltd, said Wednesday it has formed a strategic partnership with Boeing, the world’s largest aerospace company. As part of the collaboration, Boeing will invest an undisclosed amount of money into the planemaker Boeing as a co-investor.

For more context, subscribers can read Skift Research’s Venture Capital Report for 2019.

Practiced Investor

Fernandes touted the joint venture he did with Expedia in creating an online travel agency AirAsiaGo. In 2015, AirAsia sold a quarter of its stake for $86 million and then last year it sold its remaining quarter stake for about $60 million.

“We sold it at a huge profit,” Fernandes said, citing that as experience at being a savvy investor.

This year, Fernandes plans to expand the company’s e-commerce and ancillary revenues. AirAsia is trying to cross-sell passengers on hotels and travel-related services such as tours to the millions who fly the carrier. However, it hasn’t yet broken out revenue gains to date or projected specific growth numbers, leading to some industry skepticism about the effort.

Irish budget carrier Ryanair has been experimenting with hotel bookings via its Ryanair Rooms site, where travelers get 10 percent of the price of their hotel booking back in credit redeemable toward future flight purchases. Yet it’s still been early days for the effort.

Fernandes, best known for co-founding low-cost carrier AirAsia with Datuk Kamarudin Meranun, will speak at the inaugural Skift Forum Asia in May. His team bought an indebted carrier, turned it around to growth within two years, and morphed it from a Malaysian domestic airline into Asia’s largest low-cost carrier by passengers flown. But investing in startups may be a whole different challenge.