The South East Asia (SEA) market is prepared and ready. Over the past six months, a large number of fundraising moves have been reported for the region’s tech industry.
In the first quarter of this year, there was a total of $ 6 billion in funding, according to data from research firm PWC and Genesis Ventures.
The most recent round of funding was Singaporean start-up Carro, which raised US $ 360 million in funds from SoftBank and others. The funding allowed the company to pass the US $ 1 billion mark, giving it “unicorn” status.
If we were to refer to statistics for 2020, SEA transaction activity continues to be led by Singapore, followed by Indonesia, Thailand, Vietnam and the Philippines, Golden Gate Ventures (GGV) said.
“Exits usually refer to investors (angel investors and venture capitalists) leaving their investment in the company. This has traditionally been achieved either through Initial Public Offerings (IPOs) or commercial sales, ”explained Dr. Jeffrey Chi, Vice President, Asia, Vickers Venture Partners.
Experts say there are strong forecasts of SEA exits via IPOs, mergers or acquisitions for this year through 2024, supported by continued interest in the region and business maturation.
As Herston Powers, Managing Partner of 1982 Ventures Powers, says: “The market is ready now as global investors are starting to see opportunities in the region. The growing popularity of PSPC is ideally suited to South East Asia as a faster listing option, with a guaranteed price or valuation, and greater transaction certainty. “
Technological activity supported by the pandemic
Even though fundraising activity in 2020 was lower than 2019 due to a pandemic year, it remained resilient, Golden Gate Ventures said.
In fact, the pandemic has fueled a growing appetite for technology as the number of internet users continues to grow.
Southeast Asian startups raised $ 8.2 billion last year, according to Cento Ventures. 50% of the funding went to Grab, Gojek and Traveloka unicorns.
The late rounds and the entry of foreign institutional capital into the region have generated buzz for the SEA tech scene. Technological opportunities have also led to a boom in new startups.
“Covid-19 has been a catalyst for change. Many tech companies that have championed change have benefited from the pandemic because 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 path to recovery and confidence in growth and opportunities within the region fuel a strong appetite for mergers and acquisitions (M&A),” research firm EY said in a report. .
“With the wind in its sails and the anticipation of a rapid shift from resilience to recovery, more than half (56%) of Southeast Asian leaders say they are actively seeking to pursue mergers and acquisitions over the next 12 months – the highest since 2012, ”EY added.
Another contributor to the fundraising activity: increased interest in SEA thanks to success stories such as Sea Limited.
“Notable listings such as Sea’s New York Stock Exchange (NYSE) IPO in 2017 and its performance in the secondary market have dramatically increased interest in a NYSE listing among ‘new economy’ companies. Southeast Asia, ”GGV said.
Many of SEA’s unicorns have been ready for listing in recent years, but haven’t had the same institutional coverage from banks and investors as their peers in China, India and Latin America.
The venture capitalist stressed that the “right” time has come. International investors are hungry for “large-scale growth” investment opportunities, and Asia-Pacific is an obvious market.
Growth transaction pipeline
M&A and IPO activity is not without the fact that the SEA tech ecosystem has been building up over the past decade and is now maturing.
Many 10-year venture capital funds in Southeast Asia started between 2010 and 2015.
“There is a large pipeline of B and C series startups with the ability to raise capital faster,” GGV said. The VC estimates that approximately US $ 52 billion of venture capital has been invested in Southeast Asia over the past 10 years.
“According to investment services firm Preqin, 50 funds were raised during this period. These funds will be pressed to return capital to their sponsors within five years.
“Note that not all funds will successfully exit their portfolios and may need to liquidate a number of portfolio companies. The next one to three years will be critical to understanding Southeast Asia’s success for the venture capital industry, ”said GGV.
In the long term, the interest and momentum of fundraising in the SEA market allows for a healthier environment for mergers and acquisitions and IPOs.
“Early-stage companies like Grab and Carro become acquirers as they grow their businesses… (and these) well-funded and fast-growing early-stage companies are more likely to be publicly traded or to be a more important acquisition target for incumbents, ”he added.
PSPCs are growing in popularity
Not to mention a recently popular way to go public: Special Purpose Acquisition Companies, or SAVS.
Experts say startup exits are expected to increase, with PSPCs as a channel to support their exit strategy.
A SPAC, also known as a blank check company, raises capital through an IPO with the aim of acquiring an existing operating company. Subsequently, an operating company may merge with or be acquired by the listed PSPC and become a listed company instead of performing its own IPO.
“Startup exits are expected to increase, and PSPCs will be a channel that will support the SEA exit strategy for many companies,” Jeffrey said.
“PSPCs fundamentally reduce the risks of going public and therefore represent a huge opportunity for investors to exit their positions. There are a variety of reasons startups would want to go public. The most common is to be able to tap the capital markets to obtain additional financing, ”he added.
Examples of PSPC include Grab, which expects its registration process to be completed by the end of 2021. Carsome, along with Indonesian travel ticketing platforms Traveloka and Tiket.com, are considering a similar route.
The Carousell Online Marketplace is another company considering a PSPC listing in the United States, according to knowledgeable people.
“There is a significant pipeline of APAC companies interested in going public over the next three years. Many of them are “new economy” companies, which see the IPO as a natural way to raise capital to grow their businesses and provide shareholders with a liquidity event, ”GGV said.
However, the rise of PSPCs is not without risks for Southeast Asia, GGV warned.
“Government procurement will look with interest at PSPC mergers in Southeast Asia. An unsuccessful PSPC merger will leave its mark on sentiment and could negatively impact interest or momentum. “
Abundant growth, but a talent shortage exists
There has been an encouraging entry from more advanced investors (private equity), secondary buyers, PSPCs and, in general, a welcoming public market for tech companies, experts noted.
Going forward, the majority of exits will remain driven by M&A activity (80%) versus IPOs (5%) and secondary sales (15%), GGV said.
However, talent will remain an issue for companies in this growing sector. This is due to the intense competition between growing companies around the same time, causing a talent shortage.
Companies may have to pay a high price to attract the best talent if they are to grow quickly.
One point to note is that while fundraising is generally known as a positive thing for startups, it may not always benefit consumers.
Jeffrey explained that if a business pulls out via a commercial sale, it could impact consumers if the buyer does not intend to continue growing the business. It is “quite normal” if one competitor is buying over another, as evidenced by the predicament of Grab acquiring Uber’s business in SEA and Oracle buying MySQL, he said.
Another point to note is that the positive interest and high level of fundraising activity would mean that late stage startups could end up staying private longer, as has been observed in other markets such as states. -United.
However, this might not be the worst case. “This is not necessarily a negative development for exits, as late stage companies have a higher probability of exiting than those at an earlier stage,” GGV said.
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