Most tech startup founders hope to sell their company for millions, but recent data shows that, in Southeast Asia, these exits aren’t paying off as much as desired. The economic shockwaves of the global lockdown continue to impact the tech industry, and although the number of startups exiting neither increased nor decreased compared with the previous year, few of these raised significant cash.
According to an upcoming report by Cento Ventures, a Singapore-based venture capital firm, the largest exit raised only $77 million USD. In comparison, the preceding six months saw three that each brought in $100 million USD. In fact, the overall exit proceeds in the Southeast Asian tech industry fell by around 50% in the first half of 2020.
Startup exit landscape
This is a powerful indicator for the overall health of the startup ecosystem in Southeast Asia, as tech startups and investors respond to the global coronavirus lockdown. From January to June, there were 28 liquidity events, compared to 27 in H2 2019. The exits this year consisted of two initial public offerings (IPOs), and 26 trade exits. However, the proceeds from the 27 exits in H2 2019 topped $718 million USD, while the last six months saw them only reaching $386 million USD.
The investment market is volatile and we were seeing drops in funding even before the pandemic. We explore the changing landscape.
The report, authored by Mark Suckling, a partner at Cento Ventures, posited the difficulty of administration during the COVID-19 lockdown as a potential cause: “Our suspicion is that some potential deals may have stalled, as the sort of extensive due diligence required by acquirers was harder to accomplish during this period “
The report discusses the ongoing dominance of tech startups based in Indonesia and Singapore, which benefited from the majority of the exit proceeds. Thailand and the Philippines had relatively few this year. In 2020 so far, most startup exits were acquired by companies from China, Singapore, and Indonesia.
Investments continue despite uncertainty
Despite the decrease in exit proceeds, some firms are still receiving healthy levels of investment, from both local and foreign investors. Early in the year, Gojek—the Southeast Asian ride-hailing giant—managed to raise $1.2 billion USD. An impressive feat amidst a turbulent economy and the funding will aid expansion plans, with Gojek hoping to take on its biggest rivals, Grab.
This funding is especially noteworthy since Venture Capitalists (VCs) and investors in the area have been growing increasingly cautious about tech valuations, notably, SoftBank Group Corp. They have struggled to justify the high price of co-working firm WeWork and Indian hotel management company Oyo. Softbank is a huge investor based in Japan and has poured $3 billion USD into Grab.
According to the internal memo obtained by Bloomberg and written by Gojek Co-Chief Executive Officers, Andre Soelistyo and Kevin Aluwi told employees that further activity was on the horizon: “We’re not stopping there as we are still seeing strong demand among the investment community to partner with us…There are a number of exciting ongoing conversations that we will be able to update you on very soon.”
Grab and Gojek are the two most valuable startups in Southeast Asia, having both attained decacorn status, and rumour has it they are considering a possible merger. Regulators in Singapore and Indonesia are likely to push back against such a massive amalgamation, which would inevitably reduce competition in the industry. If the merger does go ahead, any new funding for Gojek will undoubtedly place them in a stronger negotiating position. Currently, both companies’ ride-hailing services are suffering due to the economic slowdown during the pandemic. They both recently reduced their workforces in response and put expansion plans on hold.
Grab is receiving its own investments too, reportedly raising $200 million USD from Stic Investments, a South Korean private equity firm that hopes to increase its exposure in Southeast Asia, and an undisclosed co-investor. The investment will be welcome for Grab, valued at $14 billion USD in 2019, and will help them to regain any ground lost during the pandemic.
How does 2020 compare to 2019 when it comes to funding. Take a look back at the previous year’s fundraising figures.
Investments aren’t just going towards ride-hailing companies. Singapore-based logistics startup Ninja Van has received $279 million USD in funding to scale its operations to match the surging demand for eCommerce deliveries in Southeast Asia. Ninja Van is planning to use the new capital to make inroads into the business-to-business sector, in addition to scaling its current services.
The startup ecosystem in Southeast Asia remains in flux, as tech startups and investors struggle to respond to the global lockdown and prepare for the future amidst economic uncertainty. Though the number of tech startup exits remained stable this year, the staggering drop in proceeds reflects the caution that many investors experience when faced with such a tumultuous market.