The Southeast Asian Market (SEA) is primed and ready. In the last six months alone, a large number of funding movements have been reported for the region’s tech industry.
In the first quarter of this year, there was a total of US $ 6 billion in financing, according to data from research firm PWC and Genesis Ventures.
The most recent notable funding round was Singapore startup Carro, which had pocketed $ 360 million in funding from SoftBank and others. The funding allowed the company to cross the billion dollar mark, achieving ‘unicorn’ status.
If we were to turn to 2020 statistics, settlement activity at SEA continues to be led by Singapore, followed by Indonesia, Thailand, Vietnam and the Philippines, Golden Gate Ventures (GGV) said.
Deal Activity by Region in 2020 / Image Credit: Vulcan Post, Golden Gate Ventures
“Exits generally refer to investors (angel investors and venture capitalists) who abandon their investment in the company. This has traditionally been accomplished through initial public offerings (IPOs) or commercial sales, ”explained Dr. Jeffrey Chi, vice president for Asia at Vickers Venture Partners.
Experts say there is a strong forecast for SEA exits through IPOs, mergers or acquisitions for this year through 2024, supported by continued interest in the region and the maturation of the companies.
More companies expected to exit amid funding activity / Image Credit: Vulcan Post, Golden Gate Ventures
As Herston Powers, Managing Partner of 1982 Ventures Powers puts it: “The market is ready now, as global investors are beginning to see opportunities in the region. The growing popularity of SPACs is perfectly timed for Southeast Asia as a listing option that is faster, with a guaranteed price or valuation, and greater certainty of the deal. “
Technological activity backed by a pandemic
Although financing activity in 2020 was lower than in 2019 due to it being a pandemic year, it remained resilient, Golden Gate Ventures said.
In fact, the pandemic fueled a growing appetite for technology as the number of Internet users continues to grow.
Startups in Southeast Asia raised a total of $ 8.2 billion last year, according to Cento Ventures. 50 percent of the funding went to Unicorns Grab, Gojek and Traveloka.
The late rounds and foreign institutional capital entering the region have generated excitement on the SEA tech scene. Tech opportunities have also led to a boom in startups.
Covid-19 supported the need to use technology for our daily lives / Image Credit: Shopee
“Covid-19 has been a catalyst for change. Many tech companies that have been promoting change have benefited from the pandemic as it has forced everyone to rethink the way we operate and lead our lives. Examples include video conferencing, e-commerce, and food delivery, ”Jeffrey said.
“Optimism about the road to recovery and confidence in growth and opportunities within the region are fueling a strong appetite for mergers and acquisitions (M&A),” research firm EY said at a report.
“With the wind blowing and expectations high for a rapid shift from resilience to recovery, more than half (56%) of executives in Southeast Asia say they are actively looking to pursue mergers and acquisitions in the next 12 months, the highest since 2012, “EY added.
Southeast Asian Internet Economy / Image Credit: Google, Temasek, and Bain & Company. e-Conomy SEA 2019
Another contributor to funding activity: Increased interest in SEA from success stories like Sea Limited.
“Notable listings such as Sea’s 2017 New York Stock Exchange (NYSE) IPO and secondary market performance have greatly increased interest in listing on the New York Stock Exchange among ‘new economy’ companies. ‘from Southeast Asia,’ said GGV.
Many of SEA’s unicorns have been ready to go public in recent years, but they haven’t had the same institutional coverage from banks and investors as their peers in China, India and Latin America.
The venture capital firm stressed that the “right” time is now. International investors are hungry for “growth at scale” investment opportunities, and Asia Pacific is an obvious market.
Growth agreement pipeline
M&A and IPO activities are not exempt from the fact that the SEA tech ecosystem has been building for the past decade and is now maturing.
Many 10-year venture capital funds in Southeast Asia started between 2010 and 2015.
A large portfolio of maturing startups / Image Credit: Crunchbase, Golden Gate Ventures
“There are a lot of Series B and C start-ups with the ability to raise capital faster,” said GGV. The VC estimates that around $ 52 billion of venture capital has been invested in Southeast Asia in the last 10 years.
“According to investment services firm Preqin, 50 funds were raised in this time period. These funds will be pressured to return capital to their limited partners between now and five years. “
Advanced stage companies like Grab continue to receive interest from investors / Image Credit: Grab
“Please note that not all funds will successfully exit your portfolio and a number of portfolio companies may need to be liquidated. The next one to three years will be critical to understanding the success of Southeast Asia for the venture capital industry, ”said GGV.
In the long term, the interest and momentum of fundraising in the SEA market is enabling a healthier environment for mergers and acquisitions and IPOs.
“Late-stage companies like Grab and Carro become acquisitive as they expand their business … (and these) well-funded, fast-growing late-stage companies are more likely to be listed or targeted. acquisition for incumbents, ”he added.
SPACs are gaining popularity
Not forgetting a recently popular way to go public: Special Purpose Acquisition Companies, or SPACs.
Experts say startup exits are expected to increase, with SPACs as a channel to support their exit strategy.
A SPAC, also known as a blank check company, raises capital through an initial public offering in order to acquire an existing operating company. Subsequently, an operating company may merge or be acquired by the publicly traded SPAC and become a publicly traded company instead of executing its own initial public offering.
“Emerging company exits are expected to increase and SPACs will be a channel that will support the SEA exit strategy for many companies,” said Jeffrey.
“SPACs basically reduce the risks of going public and therefore represent a great opportunity for investors to abandon their positions. There are a variety of reasons startups would want to go public. The most common is to be able to access the capital markets to obtain more financing ”, he added.
Carousell is also said to be considering a SPAC listing / Image Credit: Carousell
Some examples of SPAC include Grab, which expects its listing process to be completed by the end of 2021. Carsome, as well as Indonesian travel ticketing platforms Traveloka and Tiket.com, are considering a similar route.
The Carousell online marketplace is another firm that is considering listing on the US SPAC, according to people in the know.
“There is an important portfolio of APAC companies interested in going public during the next three years. Many of these are ‘new economy’ companies, who see the IPO as a natural way to raise capital to grow their businesses and offer shareholders a liquidity event, “said GGV.
However, the rise in SPACs is not without risks for Southeast Asia, GGV warned.
“Public markets will look forward to SPAC’s Southeast Asian mergers. A failed SPAC merger will leave its mark on sentiment and could negatively affect interest or momentum. “
Abundant growth, but a shortage of talent
There has been an encouraging influx of more late-stage investors (private equity), secondary buyers, SPAC, and a generally welcoming public market for tech companies, experts noted.
Moving forward, most exits will continue to be driven by M&A activity (80 percent) compared to IPOs (5 percent) and secondary sales (15 percent), GGV said.
However, talent will continue to be a problem for companies in this growth area. That’s due to intense competition between growing companies around the same time, causing a talent shortage.
Companies may have to pay a lot of money to attract top talent if they want to scale quickly.
The tech sector is likely to face a talent shortage due to intense competition / Image Credit: AFP / Getty Images
One point to keep in mind is that while financing activity is generally known as a positive for startups, it may not always benefit consumers.
Jeffrey explained that if a business exits through a commercial sale, it could hurt consumers if the buyer has no plans to continue developing the business. This is “quite normal” if one competitor buys over another, as seen in the situation with Grab acquiring Uber’s business in SEA and Oracle acquiring MySQL, he said.
Another point to keep in mind is that the positive interest and high level of funding activity would mean that later stage startups could end up being private for longer, as seen in other markets like the US.
However, that may not be the worst deal. “This is not necessarily a negative development for exits, because late-stage companies have a higher probability of exiting than in the previous stage,” said GGV.
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Featured Image Credit: Startup Logos