Southeast Asia has established itself as a digital hotspot with the spread of mobile users and a relatively young population.
The region continues to attract investors looking for opportunities outside of India and China, and a steady flow of capital for technology companies is critical to digitizing many sectors in ASEAN countries.
However, a recent report by Singapore-based early-stage investment firm Cento Ventures shows that technology investment in the region has slowed significantly from $ 12 billion in 2018 to $ 7.7 billion in 2019.
There is urgent concern about the profitability of startups and how the corona virus outbreak will affect business worldwide. Should we still be optimistic about the startup scene?
To answer this question, KrASIA recently spoke to Mark Suckling, a partner of Cento Ventures and one of the authors of the report, to hear his opinion on the matter.
Mark Suckling, partner at Cento Ventures / Photo credit: Cento Ventures.
KrASIA: In recent years there has been a good deal of optimism in Southeast Asia with regard to technology investments, technology-driven companies and innovation. What can we draw from the decline in total tech funding from $ 12 billion in 2018 to $ 7.7 billion in 2019?
Mark Suckling (MS): Looking back, especially in 2018, the region's unicorns have raised billions of dollars. A number of key funding rounds were announced in the first half of 2018 – including Lazada's $ 2 billion, Grab's $ 2 billion, and Gojek's $ 1.5 billion.
Last year the unicorns raised less money. For example, new investments at Grab and Gojek appeared to be lower than in 2018.
However, we find that these established unicorns create separate entities (e.g. financial services) that can independently raise their own capital. While total investment capital was lower in 2019 than in 2018, this may only be a temporary phenomenon.
However, we should note that it is very difficult to define a single round when companies reach later stages. Many of them have multi-year fundraisers. Funding for Grab was $ 5.1 billion in 2018 and 2019, during which time Gojek raised $ 3.7 billion.
I would not conclude that there is a slowdown. It's also possible that we'll see the big rounds that these late-stage companies announced in 2020 for the money tied up in 2019.
One of the most noticeable trends in 2019 is that a total of 608 tech VC deals were recorded. The total amount invested in smaller deals (less than $ 50 million) also set a new record of $ 2.4 billion, after $ 1.5 billion in 2018. This is a strong one A sign of sustained healthy investment interest in the region's start-ups.
Kr: It is interesting to note that the financially poor or separate units of the unicorns can collect money as their own units, separate from their parents. What should we look for in this trend in the coming years?
MRS: Both Grab and Gojek started the ride hail and developed a number of other services – we call this “multi-vertical” in our report.
In 2019, we noticed that some of these initiatives – such as financial services, credit and insurance services – were pushed much further.
This may lead to a situation in Alibaba where you have Ant Financial as a standalone company. For both companies, this has not quite happened yet, but it is not inconceivable that their financial services can become independent companies and collect money independently.
This is one of the things we should look out for in future reports. We should keep an eye on them to see which within this group of vertical companies become separate entities. Or they could just keep everything under one roof.
Kr: The number of liquidity events rose to 64 in 2019 and exceeded the total number of 56 in 2018. What does it say about the potential for exits in this region? In 2018 and 2019, China was the leading country of origin for buyers. How could the outbreak of the corona virus affect the tech scene in the region in 2020?
MRS: Some of the major acquisitions in the region were made by Chinese acquirers, such as YY Inc's acquisition of Singapore-based social media startup Bigo last March for $ 1.45 billion.
Although we, as a qualifier, have considered the full value of the bigo event, this can exaggerate things in several ways. It included existing owners of YY Inc. among the selling shareholders and may exaggerate the value of the liquidity generated. However, we are also noticing that there are a number of other sources of buyers for Southeast Asian technology startups.
The Bigo Technology apps portfolio
In the event of an unexpected event like the corona virus, I think the situation is too new and uncertain to take an informed stand, especially since private markets react differently than public ones.
We hope, of course, that the virus can be contained quickly and that its impact on people and businesses will be minimized. I don't think we should speculate about it right now.
The number of exits was not huge yet. We have seen a fairly constant number of exits per year. Given the investments that have been made in this region in recent years, it will obviously take a while. We should expect these numbers to increase in the next few years.
Kr: What can we expect in 2020, considering that startups prioritize profit over growth?
MRS: In the future, we expect these positive trends to continue as the region's fundamentals continue to be positive – a large and rapidly digitizing population that needs better online services, combined with many industries that use new technologies to help them Transform business.
It is uncertain whether 2020 will achieve the same speed of big deals as 2018.
While a new wave of big tech startups is emerging, there is also debate about prioritizing profitability over growth, and therefore investor capital requirements may be lower. We will look closely and make comments in the middle of the year.
This article was written by Thu Huong Le and first published on KrAsia.
Selected image source: Rie Ishii on Nikkei Asian Review