Sea Limited: Management, Culture, and Execution

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Management and Corporate Governance

Management Team

Below is a short summary of the management team, skip to “Management Dynamics” below to get right to the takeaways.

Forrest Xiaodong Li (43) is the Founder, Chairman, and Group CEO. He graduated with an MBA from Stanford University’s Graduate School of Business and a bachelor’s degree in Engineering from Shanghai Jiaotong University.

Forrest grew up loving video games and spent his time frequenting video game cafes from teenager to early professional. He recognized gaming’s huge potential as a global connector with a bigger market and as a more important entertainment medium than TV, radio, or movies. He believes that interactive gaming goes beyond entertainment with its increasing social and economic influence as a common language to bring people together for mutual understanding across countries, races, languages, religions. This is evident in Garena’s slogan: “Connecting world gamers”.

*Note: If there is an interest, we may do a complete in-depth profile on Forrest. If you’d be interested in this, reach out to me over Twitter or email.

Gang Ye (40) is a Cofounder, Director, and Group Chief Operating Officer. Previously, he served as the group Chief Technology Officer. He holds bachelor’s degrees in Computer Science and Economics from Carnegie Mellon University.

Gang was Forrest’s wife’s former classmate and was responsible for introducing Forrest to Kuok Khoon Hong (CEO of palm oil major Wilmar), who was an angel and key investor in Forrest’s initial enterprise, GG. He backed Forrest again to start Sea after GG failed, and his son currently serves on Sea’s Board of Directors.

Gang was also the person who flew to China and closed the Riot Games team on Garena becoming Tencent’s distribution partner in SEA, despite Garena having almost no track record. This distribution agreement not only saved Garena, it helped them become profitable, develop a track record, secure other titles and partnerships, and bootstrap other businesses.

David Jingye Chen (40) is a Cofounder, Director, and the Chief Product Officer of Shopee. Previously, he served as the Group Chief of Staff and as Group Chief Operating Officer. He graduated with a bachelor’s in Computer Engineering with first class honors from the National University of Singapore.

Tony Tianyu Hou (42) is a Director and the Group Chief Financial Officer. Previously, he served as the financial controller. He holds and MBA from the University of Chicago’s Booth School of Business and a bachelor’s degree in Accounting from Fudan University.

Chris Zhimin Feng (38) is a Director and the Chief Executive Officers of Shopee and SeaMoney. Previously, he served as the head of mobile business and was responsible for operating the mobile game business. He graduated with a bachelor’s degree in Computer Science with first class honors from the National University of Singapore.

Chris is seen as a “key man” within Sea and widely believed by investors and employees alike to be “running the show” now as Forrest steps back into a “visionary founder” type role. See more on Chris under “Execution.” While there is still a considerable amount of key man risk, appointing him to CEO of SeaMoney has assuaged some concerns. While he is very private, people close to him have reported that he is genuinely motivated by “making an impact”.

Yangjun Wang (40) is a Director, Group Chief Corporate Officer, Group General Counsel, and Company Secretary. She holds a JD from Harvard Law School and a BA in Economics from Harvard College.

Terry Feng Zhao (37) is a Director and the President of Garena. He joined the company at its inception in 2009 and held a variety of senior roles across several key markets in their digital entertainment business. He holds a bachelor’s degree in Computer Engineering with first class honors from Nanyang Technological University.

Nok Anulosombut (41) is the Chief Executive Officer of Thailand. Previously, she was the Chief Operating Officer of Thailand. She holds an MBA from Stanford University’s Graduate School of Business and a bachelor’s degree in Industrial Engineering from Chulalongkorn University in Thailand. (Having a president of a country is common in Thailand, so in the spirit of localization, they created that position).

Non-employee Directors

Yuxin Ren (45) has been a member of the board of Directors since 2010. He is the Chief Operating Officer at Tencent Holdings and currently leads the development of the Platform & Content Group and the Interactive Entertainment Group. He holds an EMBA from China Europe International Business School (CEIBS) and a Bachelor’s in Computer Science and Engineering from the University of Electronic Science and Technology in China.

David Heng Chen Seng (54) has served as a Director since 2017. He is the Chief Executive Officer of ABC World Pte. Ltd. (a private equity fund) and previously spent 15 years in senior roles at Temasek, including joint head of consumer, head of real estate investment, joint head of China and head of Japan and Korea. He holds an MBA from the University of Hull and a Bachelor’s in Engineering from the University of Canterbury.

Khoon Hua Kuok (42) has served as a Director since 2017. He is the Chairman of Kerry Holdings Limited, the main investment holding company of the Kuok Group in Hong Kong. He is also a director of Kerry Group Limited and Kuok (Singapore) Limited, the Executive Chairman of Kerry Logistics Network Limited and the Vice Chairman and Chief Executive Officer of Kerry Properties (both HK-listed companies) and a non-executive director of Wilmar International (SG-listed company). He holds a Bachelor’s in Economics from Harvard College.

Kuok’s father, Khoon Hong Kuok (CEO of Wilmar) was actually an original angel investor in GG, Forrest’s first venture. He backed Forrest again to start Sea when GG folded.

Management Dynamics

Note how young the team is. Forrest is the oldest executive at just 43 years old and the average age is 40. Even the non-employee directors are young – with David Heng Chen Seng being the oldest director at 54 and an average age of 47.

The core of Sea’s management team has worked together for ~10 years, but has known each other for the last ~20. Gang Ye, Yanjun Wang, David Chen, and Chris Feng all left their families in mainland China to go to Singapore as a part of the Bright Young Scholars programs. Being together in a foreign country at such a young age was a bonding experience for them and, after having briefly gone their separate ways in the professional world, coming back together to work on Sea was a natural extension. We’ve heard reports that the management team is still very close and regularly hang out on the weekends.

While the core of the management team has stuck together, there has been a significant amount of senior management turnover. Nick Nash, the former President of Sea, left in 2018 after leading them to their IPO. He was one of the more public figures at Sea for a while. Jin Oh, coming from Riot Games, lasted only a year as Garena’s CEO. Alan Hellawell, former Group Chief Strategy Officer, also only lasted a year. It is worth noting that all three of these senior executives left Sea around 2018 (about a year after the IPO) and all three are non-mainland-Chinese.

Interestingly, there hasn’t been a non-mainland Chinese executive since Alan left. This is particularly notable since companies who IPO typically bring in seasoned professionals with their newfound publicity and capital.

Key Man Risk

In our conversations with (former) employees and investors, Chris Feng is repeatedly cited as a key man (aside from Forrest). As we detailed above, we believe his appointment as Sea Money CEO makes him unlikely to leave in the short term. In fact, we’ve heard reports that he was actually appointed as CEO specifically in order to prevent him from leaving – although we’ve also heard that the AirPay division was lacking world class talent and vision. As we noted in our full report, AirPay has seen limited success (compared to their ecommerce division) in South East Asia, and has since rebranded to ShopeePay in most of their territories.

Chris initially joined Sea after leading Zalora and Lazada as the head of Garena, where he launched the mobile gaming unit (by far Sea’s most profitable business and a huge key to their success). After building up Garena, he spearheaded the creation and growth of Shopee.

When Sea first launched Shopee, Chris was responsible for several key decisions – 1) Be purely mobile, 2) Focus solely on a marketplace model, 3) Focus on women and fashion, 4) Concentrate 3PL partners, 5) Gamify merchant experience, and 6) Diversify engineering talent.

1. Being purely mobile – when Shopee first launched (in 7 territories at once), they were purely mobile for the first year and they literally did not have a website for any of their territories.

2. Focus solely on marketplace model – Shopee had limited capital reserves, and made the decision to be a pure marketplace rather than fulfill (i.e. they wanted to be eBay and not Amazon) – see our full note for nuances between 1p and 3p and what that means for Sea’s business model and profitability

3. Focus on women and fashion – Chris wanted to focus on serving one segment when he started (choosing women and fashion) with the goal of rolling out a new category every 6 months or so. The rationale behind this was threefold: 1) young women are the creator of trends, 2) clothes are easy to ship, do not spoil, and not delivery time sensitive, and 3) there isn’t fraud concerns for unbranded garments (which most originally was). The second category he tackled was men and electronics.

4. Concentrate 3PLs – Since Shopee started as a pure marketplace, they had to work with 3PLs. But rather than work with everyone, Chris made the concerted effort to only partner with 3-4 in each region. This gave Shopee huge economic leverage (they used the huge volume they drove to negotiate discounts) and even sent over engineers to be onsite to integrate their backends. This allowed both merchants and customers to track packages in real time.

5. Gamifying merchant experience – one of the key pain points in SEA ecommerce was that merchants weren’t responsive. Shopee solved this by gamifying the experience – the faster merchants respond the higher their ranking is. The higher their ranking is, the more discoverable their store is. This kicks off a virtuous cycle as the more responsive merchants are, the better service customers get and the more they shop.

6. Diversifying engineering talent – While predominantly a SEA company, Chris has built out a significant engineering team in China, based mostly in Shenzhen and Shanghai, that is responsible for a lot of the feature development, backend integration, and merchant tool building.

But Chris doesn’t just make high-level strategic decisions. He’s involved at every level of the organization. In fact, Shopee is an organization that has been built around Chris’s ethos to maximize impact.

Each business unit seems to have “one brain per business unit” where everyone else acts as support. It’s important to note that Sea frequently hires investments bankers, consultants, and fresh graduates. So with one brain and a team used to high intensity work, fast execution is a given. And with one brain per team, it’s easier for Chris to directly control what’s going on within the organization. The important takeaway here is that every team has a singular focus (think Peter Thiel’s “One Thing”) which is deadly for quick and quality execution. With each team oriented around a single goal, prioritization is easier and aligns every team member. However, “one brain per business unit” doesn’t mean there isn’t a lot of technical backing to decision making, as Sea is a very data-driven company. Their large business intelligence team is constantly driving insights from huge and granular data sets to drive business unit’s processes.

Beyond giving teams a singular focus, Chris also fosters unity by sending out his company-famous internal memos. These memos are reportedly known for their thoughtfulness, with Chris sharing his philosophies and tactics on winning in business.

In fact, Chris is so ingrained in the organization that several former employees are of the opinion that without Chris, Shopee would likely not exist, and it definitely wouldn’t be thriving. For all of Chris’ strategic vision and execution ability, the one criticism we heard was that he micromanages and is not good at “firing himself” from tasks.  

Culture and Execution

Sea’s culture is a combination of US startup culture and China tech culture hyperlocalized for SEA.

From the US, Sea adopted a culture of innovation and to create an office culture of caring for its employees. Back when Sea was still known as Garena, its office had sleeping pods and an in-house spa with complimentary backrubs.

From China, Sea learned to ruthlessly execute. While Garena was spitting out cash, Forrest declared his intention to enter the ecommerce space, saying “I don’t have experience in ecommerce, but we’re now going into ecommerce. We want to continually push the boundaries.” And push boundaries they have (see “Shopee Go-to-market” and “Shopee Monetization”). Sea has a focused execution philosophy and doesn’t seem to have any fear of failure.   

They always prioritize building vs partnering/buying. While they have partnered in the past, the conversation always comes around to “We’re a tech company, why don’t we just build it ourselves”. They then pour capital in building those exact products – but better and more integrated into their own solutions. In fact, when Forrest and Chris initially dreamed up a mobile-first ecommerce platform, they actually approached Tokopedia to build it and even offered to fund it. However, after six months and no progress, they decided to build it themselves. Within a year, they launched Shopee.

Even for areas they do partner externally, they only do it where there is a regulatory environment they can’t satisfy (banking licenses), or if there are scale benefits (Foody). That said, though they do have a build-first culture, they will also make full on acquisitions (Composite Capital). The organizations they have partnered with have mostly been temporary arrangements before they are able to build their own as they do not like depending on 3^rd parties.

Shopee Go-to-market

Shopee has executed flawlessly from Day 1, launching in in SEVEN countries at once. Within 5 years, they had taken the lead in all 7 of the SEA markets they operate in across App Store downloads and Web visits, overtaking companies like Lazada and Tokopedia who had been operating in the regions for longer. (See full report for specific numbers).

And they didn’t just launch in 7 territories – they hyperlocalized for each territory. Starting with Garena offering special local skins and specialty items for Free Fire and other games, Sea has built up a playbook for hyperlocalizing on a global scale.

As an example, when Tokopedia partnered with BTS for a big promotion, Sea partnered with local celebrities and plastered them on the billboards directly adjacent to Tokopedias’. But this isn’t to say Sea only hyperlocalizes – they target international partnerships as well, having partnered with k-pop girl group Black Pink and football superstar Christiano Ronaldo as well.

But they don’t just launch the same product in multiple geographies – they also launch multiple products. This is evident in how quickly and how often they launch new initiatives.

In terms of moving fast, when Shopee got interested in livestreaming, they immediately launched the product to iterate on. Compare that with Tokopedia, who reportedly spent an entire year studying the livestreaming market before launching their product.

In terms of moving wide, Shopee has consistently launched new initiatives at a dizzying pace.

In 2015, they launched in 7 territories simultaneously. Each in their own language with their own merchants and their own 3PLs.

In 2016, they launched Shopee University, a series of in-person workshops and tutorials held at hotels across their many markets as a way to help local entrepreneurs and business set up their online businesses. They’ve since leveraged this to create an online directory.

In 2017, they launched Shopee Mall with 200 brands in Singapore and the Philippines as a way of creating a more diverse online shopping experience and to better cater to larger brands looking for an omnichannel approach.

In 2018, they launched the China Marketplace portal which made it easy for shoppers to access products from Chinese merchants minus shipping and agent fees.

Every year, Shopee has launched a new initiative, and every year, Shopee executives brilliantly.

Looking forward, while Chris made the conscious decision to make Shopee a marketplace to start, there’s no question within the organization that he is looking to build out their 1p capabilities and we will likely see more shipping and fulfilment capabilities.

Shopee Monetization

While Shopee continues to burn money, management frequently communicates that they can be profitable whenever they want. There is no denying Shopee’s phenomenal execution and long-term thinking. What few people know, however, is the brilliance of how Shopee is doing that from a tactical standpoint.

When we think of Shopee’s initial hypergrowth, we see that it is driven by 3 main drivers: 1) Free Shipping, 2) Coupons, 3) Seller Rebates. While these 3 strategies are very capital draining, there’s no denying that it has helped Shopee eat up market share.

Interestingly, Shopee has been rolling back each of these strategies.

1. Whereas free shipping used to be automatically applied, Shopee has begun adding friction to the process. So, while they still give out free shipping coupons, the added friction (a few taps and searches) has resulted in far less applications of the free shipping (we’ve heard as few as 20% of customers applied the coupons).

2. While Shopee is famous of taking Alibaba’s 11/11 holiday and applying it to *every* month (ie 1/1, 2/2, 3/3) and for their extensive couponing, they have been slowly rolling it back. Now that they have ingrained themselves in SEA consumers’ heads as always having the “best prices” for everything, they are changing their couponing approach. They are still giving out just as many coupons, but the discount rates are slowly dropping – whereas they used to frequently give out 25-30% off, most of them are now 5-10% off.

3. Now that Shopee has built up a strong, frequent customer base and established its reputation as one of the go-to marketplaces, they have started rolling back their seller rebates. Because even without the seller rebates, the sellers have no real incentive to leave.

Values

Sea believes that “Our people define us”, “Our products and services differentiate us”, and “Our institution will outlast us”. These three statements drive Sea forward in becoming a magnet for talent, creating innovative products, and building an enduring organization.

The companies self-defined core values are: “We Serve”, “We Adapt”, “We Run”, “We Commit”, and “We Stay Humble”.

At first glance – “We Stay Humble” sticks out. In the world of startups, founders are expected to be visionaries who can see a better world than what currently exists, and be a driving force toward reaching that goal. Their vision of the future is better than what currently exists and what anyone else can see. Inherently, they just can’t be humble.

But not only has Sea embraced being humble, Forrest has actually publicly stated that “We Stay Humble” is the core of their five principles, as it is only when you are humble are you able to serve, run, adapt, and commit.

And this value stems from and is evident Forrest’s personal life – Forrest chose the English name “Forrest” in homage to Forrest Gump while his peers were naming themselves “Michael” after basketball superstar Michael Jordan. As for why he chose “Forrest”, Forrest shared that Gump was “not always the smartest person or the strongest one physically… but he has a very good heart. Because of his persistence and his courage, he lived a very successful and very meaningful life… by helping a lot of other people.”

Also note that whereas most firms only have single word values – all of Sea’s values are phrases. They all start with the word “we”. “We Serve”, “We Adapt”, “We Run”, “We Commit”, and “We Stay Humble”.

Now think about Sea’s three core business segments: gaming, ecommerce, financial services.

Gaming connects the world and facilitates understanding and connection across geographies, races, ages, religions, and languages.

Ecommerce gives people access to a wider variety of goods at a cheaper price.

Financial services gives people access to capital to boost their standard of living.

Capital Allocation

Acquisitions – Despite their build first mentality, Sea has made a number of key acquisitions over the years, including 111dot studios (the production studio responsible for Free Fire), Composite Capital (Hillhouse Alum David Ma’s investment vehicle), Foody (Vietnamese food delivery business), Phoenix Labs (another game studio), and Bank BKE (Indonesia bank). Some of these have acquisitions have played out tremendously (ie Free Fire), while others are just getting started.

Funding – While Sea did not take any money beyond their initial funding in 08/09 until 2014, they have raised money every year since (2014-2020), including their 2017 NYSE IPO. While they did not have to raise money early on, the consistent fundraises have subsequently resulted in dilution. If not for Garena (cash flow machine), Sea would of likely not been able to support their ecommerce ambitions. Taking advantage of the large stock runup in 2020, Sea announced in December 2020 a $2.6Bn share offering which will allow them to further tackle ecommerce and their other ambitions.

Focus – Forrest has stated that while he is keeping his eye on a number of sectors (food delivery, online learning, telemedicine), Sea is “not in a rush to look for some new things to grow” and are “going to remain very focused the three lines” (Gaming, Ecommerce, Financial Services), which he believes are the largest internet categories anyways. He also shared that while they have global ambitions, SEA will always be their main priority.

LATAM – If the SEA market has yet to play out, why is Sea seemingly laser focused on LATAM? Shopee claims to be able to be profitable any time, but as discussed in our full report, we are not convinced Shopee will maintain its market leadership if they stop running their aggressive promotional campaigns. Channel checks have revealed that “the smartest” people at Sea and Shopee seem to be the most excited about the LATAM opportunity right now. While we are not sure how this will turn out as Mercado Libre is a whole different beast from Lazada, it is clear they are making ground with users and some local sellers. For now it is just a foothold though with the toughest pieces of ecommerce (<2 day delivery across millions of items) already executed well by Mercado. However, its worth noting Mercado doesn’t have an “Amazon Prime” to create that natural lock in yet.

Ownership and Voting

*Numbers as of latest Annual Report (FY2020)

Management

As a group, Sea’s directors and executive officers own 34% of total Class A and Class B shares with 44% of the total voting power. This is split between 98mn Class A shares (one vote/share) and 92mn Class B shares (three votes/share). This is compared to 37% and 46% from 2019 and 44% and 52% in 2018.

While management ownership is down ~10% (44% -> 35%) and they no longer hold a majority stake, they still hold a significant portion that should give investors comfort that management is aligned with shareholders.

It should be noted that while Forrest holds 25.1% of shares and 37.7% of total voting power, Chris holds <1%.

Tencent

Tencent entities own 22.9% of shares split between 12mn Class A shares and 106mn Class B shares for 23.3% of total voting power. This is in contrast to 25.6% and 25.1% in 2019 and 33.4% and 29.1% in 2018.

With respect to 46mn Class B shares, Forrest Li has been given an irrevocable proxy with regard to matters that are subject to the vote of shareholders, and as such are excluded from the total voting power of Tencent entities.

Tencent initially invested in Sea back in 2010 after Riot chose them as their SEA distribution partner. Since then, they have acquired shares through a mix of purchases and share issuances. In 2017 and 2018, Sea issued Tencent $100mn and $50mn in convertible notes. In 2019, Tencent purchased an additional $45mn worth of Class A shares during their post-IPO equity raise.

Tencent stake (dilution; did not participate in 2020 capital raise to our knowledge)

• 2018
  • Class A: 10.8mn out of 192.4mn
  • Class B: 106.6mn out of 152.7mn
• 2019
  • Class A: 12.8mn out of 313.9mn
  • Class B: 106.6mn out of 152.7mn
• 2020
  • Class A: 12.1mn out of 367.4mn
  • Class B: 106.6mn out of 152.7mn

Tencent sold off roughly 5% of its stake in 2020, but we do not see that as any sort of material signaling. They still own 20%+ and have a Director on the board. So far, the Tencent relationship has been almost nothing but beneficial for Sea, as evidenced by gaming IP and distribution rights, license structures, and mentorship (former President Nick Nash shared that Tencent CEO Pony Ma was always just a WeChat away), and capital (both in private markets and in public markets).

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