The upward trend of startup exits in Southeast Asia has been encouraged by the continuing growth of financial and business support offered by influential industry leaders. The region’s startup tech industry has been exploding, giving rise to foreign corporate venture capital investments and unicorn startups.
INSEAD, in partnership with Golden Gate Ventures, surveyed over ten Global Pacific startups (GPs) about the startup trends in Southeast Asia. They analyzed the past fifteen years of data on initial public offerings (IPOs) and strategic mergers and acquisitions (M&As) taking a deeper look to identify tech company growth trends and predict potential tech startup exits. They anticipate at least 700 startup exits between 2023 and 2025, a number that they consider as a strong exit momentum.
“The development of entrepreneurial ecosystems in Southeast Asia is booming, and now is the best time to start a business. European and American investors want to expand their investment in the region, and the exit of the future (startups and venture capital funds) will only increase them. The growing interest of corporates in the startup space is certainly a development to watch; they may offer an additional exit avenue or fill funding gaps in certain countries.” ~ Claudia Zeisberger, Professor of Entrepreneurship & Family Enterprise at INSEAD.
Key drivers of startup exits
The main reasons for the growth in exits are:
- Unicorn startups are acquiring other startups to extend their market position or expand their product line.
- Toyota’s $1 billion USD investment in Grab became the world’s most substantial corporate venture capital investment. More of these massive investments are predicted in the future.
- Singapore based Sea Group acquired an IPO on the NYSE in 2017. The report indicates that regional and global stock exchanges are giving more support to startup listings as an influx of funds leaves more companies ready for an IPO.
The major players
Local companies in Indonesia, Thailand, and Singapore are the major players providing corporate investments in Southeast Asia as the number of corporate venture capital firms and investments in the past eight years has increased.
It’s not just regional players in the market. North Asia’s Mitsubishi, Hyundai, and international companies such as Naspers, Hubert Burda Media, and Rakuten are also expanding into regional enterprise ventures in Southeast Asia and creating alliances with local tech companies.
A rise in global private entity funds has increased investments over the last eight years by 30%. An example was the $4.25 billion USD funding by Warburg Pincus for the Southeast Asia-China II fund. Local venture capital funds have also increased in growth or have completed financing. Venture capital transactions increased from 230 in 2017 to 311 in 2018.
- Startup exits are usually the result of acquisitions by regional mega tech companies. China tech companies have been missing in the M&A market, with the exception of Alibaba, the Chinese e-commerce giant buying a controlling interest in online retailer Lazada.
- Even though there is no data to support this claim, the report found that resales between Southeast Asian investment companies are expected to be a major trend in 2022.
- When the first Southeast Asia investment cycle ends, GPs may close the funds early, forcing mergers and acquisitions transactions, venture capital resales, and driving exit decisions.
- New financial investments in emerging startup tech companies in Southeast Asia will encourage continued development and growth.
The report results
When the 10 GPs surveyed in the report were asked about the health of the startup exit environment in the Southeast Asia market:
- 65% said that to a certain extent, the market was on track with the global standard for startup exits.
- 54% believe that Southeast Asia startups are not prepared for negative impacts.
For the survey question, “What do you think are the most important factors affecting the exit landscape?”, the GPs answered:
- High valuations for strategic players and larger funds will make an exit attractive.
- With Unicorn companies becoming acquirers, late-stage resale and more strategic interactions between investors will occur, resulting in regional consolidations.
- There will be gross domestic product growth in Southeast Asia.
- With stock market initiatives already emerging, older startups will contemplate going public.
- There will be increased competition among startups because the venture capital investment system doesn’t translate well in the stock market.
The increased income from venture capital investment funds will impact startup exit trends in Southeast Asia, with more companies reaching maturity and becoming acquisition targets for other tech companies, multinational corporations, and private equity funds.
Private investment equity and corporate venture capital providing late-stage funding are crucial to the report’s predicted startup exit trends. The regional and U.S. stock exchanges are encouraged by the possibilities for tech startups.
Global Gate Venture anticipates that trade sales, M&As, and secondary sales by local and regional tech unicorns will be the main reason for startup exits, not mergers with foreign firms or China.