What will SEA’s technology sector look like post-Covid?


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The Southeast Asian Market (SEA) is prepared and ready. In the past six months alone, a large number of movements of funds for the technology industry in the region have been recorded.

It was in the first quarter of this year a total of $ 6 billion in funding, according to research firm PWC and Genesis Ventures.

The most recent funding round was Singapore startup Carro that had invested $ 360 million in funds from SoftBank and others. The funding allowed the company to cross the $ 1 billion mark, achieving “unicorn” status.

If we were to refer to the statistics from 2020, the activity in the SEA is still led by Singapore, followed by Indonesia, Thailand, Vietnam and the Philippines, said Golden Gate Ventures (GGV).

agree on activity 2020
Supply activity by region in 2020 / Credit for images: Vulcan Post, Golden Gate Ventures

“Exits usually refer to investors (angel investors and venture capitalists) who come out of their investments in the company. This has traditionally been achieved through either initial public offerings (IPOs) or trade sales, ”explained Dr. Jeffrey Chi, Vice President of Asia, Vickers Venture Partners.

Experts say there is a strong forecast for SEA exits either through IPOs, mergers or acquisitions for this year until 2024, backed by continued interest in the region and the maturation of companies.

predicted outputs from startup
More companies expected to emerge amid funding activities / Image loan: Vulcan Post, Golden Gate Ventures

As Herston Powers, managing partner at Ventures Powers in 1982, says: “The market is now ready as global investors begin to see opportunities in the region. The growing popularity of SPACs is perfectly timed for Southeast Asia as a fast list, with a guaranteed price or valuation and greater job security. “

Technical activity supported by a pandemic

Although funding activity in 2020 was lower than 2019 because it was a pandemic year, it was still resilient, Golden Gate Ventures said.

In fact, the pandemic has sparked a growing appetite for technology as the number of internet users continues to grow.

Startups across Southeast Asia raised $ 8.2 billion last year, according to Cento Ventures. 50 percent of the funds went to unicorns Grab, Gojek and Traveloka.

Late-stage rounds and foreign institutional capital entering the region have created noise for the SEA technology scene. Technological capabilities have also led to the flourishing of new startups.

shopee app
Covid-19 supported the need to use technology for our daily lives / Picture of merit: Shopee

“Covid-19 is a catalyst for change. Many technology companies promoting change have profited from the pandemic because it has forced everyone to rethink the way we operate and move our lives. Examples include video conferencing, e-commerce and food delivery, ”said Jeffrey.

“Optimism about the recovery path and confidence in growth and opportunities in the region fuels strong appetites for mergers and acquisitions (M&A),” said research firm EY in report.

“With the wind in the sails and high expectations for a rapid shift from recovery resilience, more than half (56 percent) of Southeast Asian executives say they are trying to actively engage in mergers and acquisitions over the next 12 months – the most since 2012,” EY added.

maritime internet economy
Internet Economy of Southeast Asia / Image Credit: Google, Temasek and Bain & Company. e-Conomy SEA 2019

Another contribution to funding: increased interest in SEA thanks to success stories like Sea Limited.

“Prominent ads such as the Maritime New York Stock Exchange (NYSE) IPO in 2017 and its aftermarket performance have greatly increased interest in the NYSE’s listing among companies with the new Southeast Asian economy,” GGV said.

Many SEA unicorns have been ready for the census in recent years, but have not had the same institutional coverage from banks and investors as their peers in China, India and Latin America.

The WC company emphasized that now is the “right” moment. International investors are hungry for investment opportunities in the “range”, and the Asia-Pacific market is an obvious market.

Growth pipeline

Mergers and acquisitions and IPOs are not without the fact that the SEA technology ecosystem has been built over the past decade and is now maturing.

Many ten-year venture capital funds in Southeast Asia began between 2010 and 2015.

startup exits the timeline
Large pipeline of maturing startups / Credit Image: Crunchbase, Golden Gate Ventures

“There is a large line of series B and C startups with the ability to raise capital faster,” GGV said. VC estimates that about $ 52 billion of venture capital has been invested in Southeast Asia in the last 10 years.

“According to the investment service company Preqin, 50 funds were raised in this time period. These funds will be pressured to return the capital to their limited partners between now and five years. “

grab
Late-phase companies like Grab continue to gain investor interest / Image Credit: Grab

“Keep in mind that not every fund will successfully exit its portfolio and it may be necessary to liquidate a number of portfolio companies. The next year to three will be crucial to understanding Southeast Asia’s success for the venture capital industry, ”GGV said.

In the long run, interest in fundraising and momentum in the SEA market provides a healthier environment for M&A and IPOs.

“Late-stage companies such as Grab and Carro become acquisitions when they expand their business … (and these), well-funded and fast-growing companies at a later stage are more likely to either go public or be a bigger acquisition target for existing companies, “It simply came to our notice then.

SPACs are gaining popularity

Not forgetting the recently popular way of entering the market: special purpose acquisition companies or SPAC.

Experts say an increase in start-up output is expected, and SPACs as a channel to support their exit strategy.

SPAC, also known as a blank check company, raises capital through an IPO for the purpose of acquiring an existing operating company. After that, the operating company can merge with the public SPAC or acquire it and become a listed company instead of conducting its own IPO.

“Start-up exits are expected to increase, and SPACs will be one of the channels to support the SEA exit strategy for many companies,” Jeffrey said.

“SPACs basically reduce the risks of bringing the company to the public and therefore represent a great opportunity for investors to leave their positions. There are various reasons why startups would like to go public. The most common is that capital markets can be used for further financing, “he added.

carousell
Carousell also considered listing SPAC / Image Credit: Carousell

Some examples of SPAC include Grab, which is expecting its own the census procedure to be completed by the end of 2021, Carsome, as well as Indonesian travel ticket platforms Travelok and Ticket.com, are considering a similar route.

Carousell Network Market is another company that does this given the US SPAC list, according to people who know.

“There is a significant flow of APAC companies interested in entering the market in the next three years. “Many of them are companies with a ‘new economy,’ which see market entry as a natural way to raise capital to grow their business, and offer shareholders a liquidity event,” GGV said.

However, the rise of the SPAC is not without risks for Southeast Asia, GGV warned.

“Public markets will look with interest to the merger of SPAC in Southeast Asia. A failed SPAC merger will leave its mark on the feel and could negatively impact interest or momentum. “

Abundance is growing, but there is a lack of talent

Experts have noted the encouraging entry of more late equity investors, secondary buyers, SPACs and, in general, a welcome public market for technology companies.

Moving forward, most of the exits will continue to be the result of mergers and acquisitions (80 percent) relative to IPOs (five percent) and secondary sales (15 percent), GGV said.

However, talent will continue to be a problem for firms in this area of ​​growth. This is due to intense competition among growing companies at the same time, which is causing a breach of talent.

Firms may have to pay the highest dollar to attract the best talent if they want to grow quickly.

a sea of ​​technological talent
Technical sector likely to face talent shortage due to strong competition / Image Credit: AFP / Getty Images

It should be noted that while funding is generally known to be a positive thing for startups, it may not always benefit consumers.

Jeffrey explained that if a company goes out through a commercial sale, it could affect consumers if the customer does not plan to continue developing the company. It’s “quite normal” if a competitor buys another, as can be seen from the troubles of Grab taking over Uber’s business at SEA and Oracle buying through MySQL, he said.

Another thing to note is that a positive interest and a high level of funding activity would mean that beginners at a later stage could eventually stay private longer, as observed in other markets like the US.

However, that may not be the worst thing. “This is not necessarily a negative development for exits, because companies in the late phase are more likely to exit the previous phase,” GGV said.


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Credit for featured images: startup company logos


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