Venture capitalists (VCs) from around the world continue to keep a close eye on opportunities with startups in Southeast Asia as international trade wars slow commerce in many significant markets. Kyle Shaw, founder and managing partner of Hong Kong-based private equity firm ShawKwei & Partners, believes that Southeast Asia will be a net beneficiary of the ongoing conflict between China and the US. Shaw stated, “The conflicts between China and the US, Korea and Japan, Germany and Europe, and the UK and Brexit …are creating disruptions across multiple economic areas.”
Cento Ventures, a Singapore-based venture capitalist firm, has been tracking data on digital investment activity in Southeast Asia for years. In their recently published funding report, Cento revealed that VCs invested close to $6 billion USD into 332 deals across Southeast Asia’s technology-driven startup scene during the first half of 2019.
Cento suggests that, although the number of startup investments in H1 2019 are down when compared to the $8.3 billion USD invested in H1 2018, there is no need to worry. The VC is predicting that the total investment in 2019 will match the amount invested in 2018 as unicorns like Grab, Gojek, Traveloka, and Tokopedia keep pulling in sizeable funding for the second half of the year. Additionally, young startups in Southeast Asia, valued at more than $100 million USD, will attract a substantial amount of capital from investors.
Let’s take a closer look at Cento’s report to determine what emerging trends have been uncovered in the first half of 2019.
Early-stage activities on the rise
After remaining fairly level between 2016-2018, H1 2019 encountered a spike in smaller deals less than $500,000 USD. The driving force behind this surge in early-stage activities is attributed to a number of new startup generators, such as Antler, SKALA, and Accelerating Asia. In a recent interview, Antler founder and CEO Magnus Grimeland shared his excitement:
“There is space for some amazing accelerators here in Southeast Asia. We cooperate with as many accelerators as we can because a lot of them are interested in meeting our startups at a later point. For example, Y Combinator has spent time in our office talking with our portfolio companies because it’s a great time for some of them to go and be a part of that journey later. We are really at the very beginning of the value chain, and from that position, we try to cooperate with all the amazing accelerators and VCs that we see.”
Vietnam gains a larger share of investments
Although Indonesia and Singapore continued to capture the bulk of investment activity in Southeast Asia for H1 2019, Vietnam gained the largest share of capital invested within the region, grabbing 17% of the total capital invested. Many VCs are drawn to Vietnam because it’s one of Asia’s youngest, fastest-growing economies, and they hope to be an integral part in building the country’s first billion-dollar companies. With its production of more late-stage companies such as Tiki, VNPay, and Vntrip–and the steady increase in early-stage deals in the country–we can expect to see more capital investments in the Vietnam market for the rest of the year.
We speak to Cento Ventures about the rise of Vietnam as a startup hub
Key growth sectors
Online retail and local services companies have sustained the most funding in H1 2019, but several other sectors are gaining more attention. The Financial Services and Travel sectors continue to entice investors, but the Logistics and Healthcare sectors have seen the most significant surge in investments in the first half of the year.
In 2018, four companies–Bulakapak, Zilingo, PropertyGuru, and Qoo1— crossed the threshold into unicorn territory (a unicorn is a business valued at $1 billion USD or more). However, Cento discovered in H1 2019; there are a growing number of companies valued in excess of $100 million USD. Data collected surrounding considerable financing or liquidity events, and known business developments suggest that 40 companies have reached the $100 million USD milestone. If these companies continue to grow and flourish over the coming year, it would come as no surprise to see many of them gain unicorn status.
Lack of landmark exits
Although the total number of liquidity events in H1 2019 are still considerably high, the returns remain low–mostly because there hasn’t been a landmark exit so far this year. Gojek’s $72 million USD acquisition of Coins.ph in the Philippines continues to be the most significant liquidity event in the first half of 2019. Even though exit valuations have decreased due to the lack of landmark exits, Cento expects FY 2019 results to be similar to previous years.
The Southeast Asian fundraising scene has experienced a strong start in H1 2019. While some aspects have remained on par with previous years, several exciting trends have emerged. We’ve seen some big changes in the first half of 2019. As the worldwide economy continues to fluctuate, we can anticipate that venture capitalists will continue to see Southeast Asia as a hub for startup investments.