AirAsia has hatched plans to transform itself “from an airline to more than an airline,” according to AirAsia Group CEO Tony Fernandes, through the launch of a venture capital fund.
The low-cost carrier’s venture arm, RedBeat Ventures, is establishing the VC fund - dubbed RedBeat Capital - alongside a strategic partnership with San Francisco-based startup accelerator and venture capital firm 500 Startups.
RedBeat Capital will support post-seed-stage B2C startups in the verticals of travel and lifestyle, logistics and financial technology looking to enter or expand in Southeast Asia.
RedBeat Capital will also invest in “digital enablers,” such as artificial intelligence, the Internet of Things and cybersecurity, to support those verticals.
“The idea is that deals that come to AirAsia would benefit from our data, benefit from our knowledge of the market and give these startups the ability to build their business in what I think is a very exciting part of the world,” Fernandes says.
He says there are three types of ventures RedBeat Capital will look at: ventures that will use AirAsia’s database to generate revenue, ventures that will help AirAsia reduce cost and ventures that will improve AirAsia’s product and customer experience.
Fernandes says it has already invested in a “well-known” voice company to address the latter point.
By the numbers
As for how many companies will be in RedBeat Capital’s portfolio, Fernandes says, “I really don’t know. We’re going into unknown territory.”
He continues: “We think the market is huge, we think the potential is huge, but it would be foolish for me to pick a number.”
Though initial reports stated the fund size was $60 million, Fernandes says that figure is false, and it will be “as big as we think we need it to be.”
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He says about $10 to $12 million has already been invested so far, and any investments already made will be transferred to RedBeat Capital. He adds the fund’s average check size has varied from $1 million to $5 million.
Fernandes compares the new fund to the joint venture AirAsia did with Expedia called AirAsiaGo, which Expedia bought out from the airline for $60 million in August last year.
The JV was first signed in March 2011 between Fernandes and ex-Expedia Group chief Dara Khosrowshahi.
The AirAsiaGo service was created as a mechanism for the airline, with its large network of routes, to capture consumers through other marketing channels as well as its existing website.
Speaking last summer, AirAsia said the agreement to sell its 25% stake signaled the end of its disposal of "non-core investments."
Fernandes now says: “With RedBeat Capital, we’re truly an investor - going back to the Expedia model. Barry [Diller, of Expedia] wanted our flights and our data. He couldn’t crack Asia, but with our content he built a big business in Asia, where he lacked for many years.
“That’s what we offer these companies: the ability to scale up very quickly because of our data. We know we’re not in control; we’re letting them do what they want to do and leverage off of us, then we benefit on the top line as well.”
The 500 model
The decision to go with 500 Startups - which has a portfolio comprising 2,210 companies and more than 5,000 founders in 74 countries, including 10 unicorns such as Grab - was because of its knowledge about the region and its nine years of experience, rather than the companies in its existing portfolio, Fernandes says.
“This is all new to us. You can do it two ways: You can go in and learn the hard way and probably lose a lot of money in that process, or you can do it with people who have been doing it a long time. We learn from them and they learn from us.”
He adds that the endeavor isn’t about “tokenism” or to feel good, as some corporates approach such ventures. “We really think we’ll deliver value, and we’re already seeing that value in early investments we’ve made.”
“What I admired about AirAsia was they’re quite savvy in knowing how tech is going to help them advance and help innovate beyond being just an airline,” 500 Startups CEO Christine Tsai says.
“This is the first time we’re doing something like this specifically with a company. We’re looking forward to this partnership as well as what that means for future corporates, as well.”
RedBeat Ventures CEO and AirAsia Group deputy CEO (technology and digital) Aireen Omar will lead RedBeat Capital.
“Collaborating with digital, tech-enabled startups will help us to innovate and advance our position as a market-leading travel technology company, and we look forward to exploring the integration of new, disruptive ideas into our growing portfolio of digital businesses,” Omar says in a statement.