The Southeast Asian Market (SEA) is ready and prepared. In the last six months, a large number of funding moves have been reported for the technology industry in the region.
In the first quarter of this year, there was one totaling US $ 6 billion in funding, according to research firm PWC and Genesis Ventures.
The most recent round of outstanding funding was Singapore’s new company, Carro obtained US $ 360 million in funds of SoftBank and others. The funding allowed the company to surpass the US $ 1 billion mark, achieving ‘unicorn’ status.
If we refer to the 2020 statistics, bidding activity in SEA continues to be led by Singapore, followed by Indonesia, Thailand, Vietnam and the Philippines, said Golden Gate Ventures (GGV).
“Exits generally refer to investors (angel investors and venture capitalists) coming out of their investment in the company. This has traditionally been achieved through initial public offerings (IPOs) or commercial sales, ”explained Dr. Jeffrey Chi, Vice President, Asia, Vickers Venture Partners.
Experts say there is a strong forecast for SEA outflows through IPOs, mergers or acquisitions for this year through 2024, backed by continued interest in the region and the maturation of companies.
As Herston Powers, managing partner of Ventures Powers in 1982, puts it: “The market is ready now as global investors begin to see opportunities in the region. The growing popularity of SPACs is perfectly synchronized for Southeast Asia as a faster trading option, with a guaranteed price or valuation, and greater security of supply.
Technological activity with pandemic support
Although funding activity in 2020 was lower than in 2019 due to a pandemic year, it remained resilient, Golden Gate Ventures said.
In fact, the pandemic fueled an increase in the appetite for technology as the number of internet users continues to grow.
According to Cento Ventures, emerging companies in Southeast Asia raised $ 8.2 billion last year combined. 50% of the funding went to Grab, Gojek and Traveloka unicorns.
The last-round rounds and foreign institutional capital entering the region has generated animation for the SEA technology scene. Technology opportunities have also caused a boom in new startups.
“Covid-19 has been a catalyst for change. Many technology companies that have been promoting change have benefited from the pandemic, as it has forced everyone to rethink the way we operate and make our lives. Examples include video conferencing, e-commerce and food delivery, ”said Jeffrey.
“Optimism on the road to recovery and confidence in growth and opportunities in the region fuels the strength of mergers and acquisitions (M&A),” said research firm EY report.
“With the wind in their sails and high anticipation for a rapid shift in resilience to recovery, more than half (56%) of Southeast Asian executives say they are looking to merge and acquisition actively in the next twelve months, the highest since 2012, ”added EY.
Another contributor to the financing activity: increased interest in SEA thanks to success stories such as Sea Limited.
“Highlights such as the IPO of Sea’s New York Stock Exchange (NYSE) in 2017 and its performance in the aftermarket have greatly increased interest in a listing on NYSE among the“ new economy ”companies of the South -is Asian, “GGV said.
Many of SEA’s unicorns have been listed in recent years, but have not had the same institutional coverage by banks and investors as their peers in China, India, and Latin America.
The firm VC stressed that now is the “right” time. International investors are eager for “large-scale” investment opportunities and Asia Pacific is an obvious market.
Behaviors of growth agreements
M&A and IPO activities are not exempt from the fact that the SEA technology ecosystem has been accumulating over the last decade and is now maturing.
Between 2010 and 2015, many ten-year venture capital funds were started in Southeast Asia.
“There are a lot of Series B and C startups with the ability to raise capital faster,” GGV said. The CV estimates that nearly US $ 52 billion has been invested in venture capital in Southeast Asia in the last ten years.
“According to investment services firm Preqin, 50 funds were raised in this time period. These funds will be pressured to return capital to its limited partners within five years.”
“Keep in mind that not all funds will successfully exit their portfolio and perhaps they should liquidate several portfolio companies. The next one or three years will be critical to understanding the success of Southeast Asia for the venture capital industry, ”said GGV.
In the long run, the interest and momentum of fundraising in the SEA market allows for a healthier environment for mergers and acquisitions and IPOs.
“Final-stage companies like Grab and Carro become acquisitive as they expand their business … (and these) well-funded and fast-growing end-stage companies are more likely to trade on a stock exchange or be a target of ‘greater acquisition for the headlines,’ ‘he added.
SPACs are gaining popularity
Not to mention a recently popular way to get public: special purpose acquisition companies or SPAC.
Experts say they are expected to increase start-up outputs, with SPACs as a channel to support their exit strategy.
An SPAC, also known as a blank check company, raises capital through a IPO with the aim of acquiring an existing operating company. Subsequently, an operating company may merge or be acquired by the publicly traded SPAC and become a listed company instead of running its own IPO.
“Start-up outflows are expected to increase and SPACs will be a channel that will support the SEA exit strategy for many companies,” Jeffrey said.
“SPACs basically reduce the risks of making a company public and therefore represent a great opportunity for investors to step out of their positions. There are several reasons why emerging companies want to go public. The most common thing is to be able to take advantage of capital markets to get more financing, “he added.
Some examples of SPAC include Grab, which is waiting for yours listing process to complete in late 2021. Carsome, as well as Indonesian ticketing platforms Traveloka and Tiket.com, are proposing a similar route.
The Carousell online marketplace is another company that does considering a US SPAC listing, according to people you know.
“There is a significant channel of APAC companies interested in making themselves public over the next three years. Many of these are “new economy” companies that see the stock market as a natural way to raise capital to grow their business and offer shareholders a liquidity event, ”GGV said.
However, the increase in SPACs is not without risks for Southeast Asia, GGV warned.
“Public markets will analyze with interest the SPAC mergers of Southeast Asia. An unsuccessful SPAC merger will leave its mark on sentiment and could negatively affect interest or momentum.
Growth in abundance, but there is a shortage of talent
There has been an encouraging influx of more advanced investors (private equity), secondary buyers, SPAC and, in general, a welcoming public market for technology companies, experts noted.
According to GGV, most outflows will continue to be driven by mergers and acquisitions (80%) compared to IPOs (five percent) and secondary sales (15%).
However, talent will continue to be an issue for companies in this area of growth. This is due to intense competition between growing companies at the same time, leading to a reduction in talent.
Companies may have to pay the best dollars to attract the best talent if they want to grow quickly.
One point to note is that while financing activity is often known as a positive thing for startups, it may not always benefit consumers.
Jeffrey explained that if a business comes out through a commercial sale, it can affect consumers if the buyer has no plans to continue developing the business. This is “pretty normal” if one competitor buys from another, as seen by the situation of Grab acquiring Uber’s business from SEA and Oracle buying through MySQL, he said.
Another point to note is that positive interest and the high level of financing activity would mean that companies at a later stage could end up maintaining their privacy longer, as seen in other markets such as the US.
Still, it may not be the worst deal. “This is not necessarily a negative development for exits, because companies in the final phase have a higher probability of exiting than the previous phase,” GGV said.
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