The first Singapore Exchange S68 (SGX) special purpose acquisition company (spac) is set to complete its business combination, potentially bringing a live-streaming company to the exchange’s roster alongside more traditional sectors like banking, property and utilities within the billion-dollar market cap bracket.
On Oct 2, Temasek-backed spac Vertex Technology Acquisition Corp (VTAC) announced its plan to acquire Japan-based 17LIVE for $925.1 million. The acquisition will be funded by issuing up to 160.6 million new VTAC shares at $5 each.
VTAC will also issue up to 24.4 million new shares in the company at the issue price should certain financial targets be satisfied. The respective earnout vesting dates are April 30, 2024, and Aug 30, 2024.
Depending on the redemption amount by VTAC’s existing shareholders, the proposed business combination will value the enlarged group at a pro forma equity value of between $999.1 million and $1.16 billion. The amount comprises the purchase consideration, the cash in VTAC’s escrow account of between $60 million and $208 million, proceeds from the private investment in public equity financing of $10 million and the special bonus scheme amount of between $4 million to $18.8 million.
At a briefing on Oct 2, VTAC’s executive director and CEO Jiang Hong Hui says that 17LIVE was chosen for its innovative technology, robust revenue base and growth potential. “We started with a strong pipeline of potential targets. This includes portfolio companies from the Vertex network and others. From this, we narrowed down to a handful of companies before eventually landing on 17LIVE,” adds Jiang.
The two parties are no strangers. 17LIVE is an existing company within the Vertex network’s portfolio. Vertex Asia Fund participated in the company’s US$40 million Series A round in 2017, while Vertex Growth Fund led its US$26.5 million ($36.4 million) Series D funding. Vertex Ventures also invested in Taiwan-based dating app Paktor, founded by 17LIVE’s cofounder Joseph Phua.
See also: What went wrong for 17Live?
Jiang maintains that there is no conflict of interest in this de-spac deal, nor is this an interested party transaction, as the Vertex network funds across the Vertex platform are managed by general partners independent from Vertex Holdings. “That is why we do not see them as being interested parties. Similarly, for every company we are looking at, the Vertex network funds are a minority shareholder. From that perspective, we do not think there is any conflict of interest,” says Jiang. Ultimately, he adds that the de-spac has to be approved by SGX and VTAC’s shareholders.
Growing pains
Before 17LIVE, Singaporean Phua co-founded the app Paktor in 2013 to replicate the dating app Tinder for Asia. The app’s name comes from the Cantonese word for “dating.” After earlier funding from family and friends, Vertex Ventures became Phua’s first institutional investor in 2014. In 2020, when Phua set up his family office, Turn Capital, Vertex Ventures came on board as one of the partners.
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In 2016, with more capital raised from the likes of Vertex Asia Fund, YJ Capital, Golden Equator Capital and K2Global, Paktor acquired several other dating apps. It then went on to take a controlling stake in 17Media, a live-streaming company in Taiwan that started in 2015. Paktor and 17Media merged two years later to form M17, the company behind the 17LIVE live-streaming platform.
Phua says 17LIVE was created to ensure a fair share of monetisation proceeds, as creators and artists of the time received very little compensation from the assets they sold.
With the rapid growth, M17 prepared for a New York listing in 2018, becoming the first company headquartered in Taiwan to do so in a decade. Yet, M17 became better known instead for being the first company in the New York Stock Exchange history to report no trades after ringing the opening bell. The company had to cancel its trading due to share settlement issues and overall underwriting oversight.
Profits amid adversity
Despite negative media coverage, the company’s live-streaming business continued to grow. In 2020, M17 sold its dating app to advisory firm Kollective Ventures for an undisclosed amount. Shortly after, Vertex Growth Fund led the Series D round of funding, bringing its total capital to over US$100 million.
According to Phua, the company has turned ebitda positive since 2020, when it changed its name to 17LIVE. Yet, for what was supposed to be something in a fast-growing industry, revenue for FY2022 ended Dec 2022 was US$363.7 million, down from US$497.8 million, and it reported a loss of US$51 million for FY2022, versus earnings of US$109.5 million in FY2021. Adjusted ebitda, meanwhile, was US$15.8 million for FY2022, down from US$17.4 million in the preceding year.
Phua attributes the revenue decline to Covid-19, as 17LIVE was impacted like others in the sector. Still, he emphasises that the company has remained profitable at the operating level despite the challenging operating conditions.
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Citing a study by Frost & Sullivan, 17LIVE says it is the leading live-streaming platform in Japan and Taiwan, with revenue market share of 20.8% and 26.9%, respectively, in 2022. The company also operates in Hong Kong, Singapore, the US, the Philippines, India and Malaysia.
Virtual idols
17LIVE allows live-streamers, including celebrity basketballer Jeremy Lin and influencer Naoking, to interact and socialise with users. For 1HFY2023, which ended in June, the company has an average monthly active user base of 550,000, with an average daily view duration per daily active user of about 93 minutes.
The platform generates revenue when these users acquire “virtual points” to buy and send virtual gifts to the live-streamers they support. The virtual points can also be used to purchase virtual items in 17LIVE’s in-app games. Users can also buy physical products sold during different live streams. For the first half of the year, the company has a monthly spending rate of 16.1%.
As of June 30, 17LIVE has contracts with over 87,000 live-streamers to create exclusive content on its platform. These contracts last anywhere between one to seven years. “We are so profitable because we have tied these people down and work with them to create very good content. It is a win-win situation for both of us as we can take a good cut of revenue from their content, and they can generate good monetisation as well,” says Phua.
To bolster its core business, 17LIVE has developed an end-to-end management system and a comprehensive set of interfaces and services, enabling its live-streamers to create more engaging content, from music to games, education, fashion, art and handcrafting. As part of its localisation strategy, the content created on 17LIVE is curated by local operation teams.
17LIVE cites V-Liver (virtual live-streamers) as the primary growth driver. Also known as V-Tubers, V-Livers are live-streamers who choose to appear on screen as animated avatars instead of their images. The human actors behind the avatars have their movements, sounds and expressions reflected via motion capture technology or software.
These “virtual idols” are among the biggest trends in various Asian markets. In Japan alone, this market is worth US$630.7 million in 2022 and is seen to reach US$3.86 billion in 2027, representing a CAGR of 43.7%.
17LIVE will grow V-Livers on its platform via two tracks, says co-founder and chief technology officer Ng Jin Shen. First, it is developing organic V-Livers by providing all the tools required, eliminating the need for the creators to acquire specialised equipment. By lowering this barrier of entry, 17LIVE can grow the number of organic V-Livers on its platform by 6.5 times y-o-y, says Ng.
The second track involves establishing V-Liver intellectual properties (IPs) by merging the live-streaming ecosystem with a V-Liver agency supported by professional voice actors and content curation teams.
This can open up new revenue streams like merchandise and music sales, boosting user engagement. In July, 17LIVE introduced its initial V-Liver proprietary IP called Bushilive, featuring the journeys of five Japanese girls in a war-torn setting.
First-mover advantage
Apart from Japan and Taiwan, 17LIVE identifies growth prospects in the Asean region. Phua believes that a listing on SGX would serve as an ideal entry point into the markets in the region. He adds: “Personally, as a Singaporean, it is a natural choice. Aside from that, we also believe parking ourselves on SGX helps advance this potential growth opportunity. As SGX is at the forefront of global exchanges, it will provide us access to regional and international investors.”
If the de-spac is successful, 17LIVE — the first live-streaming company on SGX — gains a first-mover advantage. Yet, there is a risk that investors here may not fully grasp the nature of this business and its growth potential, as not all may share the enthusiasm for V-Livers like Nobuka, Hidemaru, Mitsuha, Saku and Shina (names of the five V-Livers in Bushilive) as their young fans do.
Phua is not worried, however: He trusts that investors are “very sophisticated” and can readily compare 17LIVE with similar companies, especially in Japan, where virtual live-streaming is a rapidly growing market, boasting nine out of the top 10 content creators being virtual live content providers.
One live-streaming-related company that has been listed successfully is Japan’s Anycolor, a V-Tuber talent agency. Backed by China’s Bilibili, Anycolor’s stock price jumped eightfold in October 2022 since going public in Tokyo last June to JPY6,350 ($58.55) per share. This is fuelled by strong financials, as its 1QFY2023 ended July 2022 operating profit almost tripled y-o-y to JPY2.1 billion. However, the stock lost all of its gains before the end of the year to as low as JPY2,110 per share on March 10.
Live-streaming may be relatively new compared to established listed SGX companies such as banks and developers. Still, Phua maintains that it is not a new industry anymore and urges the investment community to assess this venture fairly.
He says: “Any sophisticated investors would be able to do their due diligence and be able to see the opportunity for growth. If investors are not doing their homework, sophisticated investors have a very strong arbitrage opportunity. Of course, our job is to provide more information and educate the investors and consumers, as we have ambitious plans in Southeast Asia.”
