Despite the economic impact of the COVID-19 pandemic, the Southeast Asia startup ecosystem has proven to be very resilient. In fact, a regional record number of exits are predicted by the Southeast Asia Exit Landscape Report 2.0 from investment firm Golden Gates Ventures over the next few years.
Compared to the previous report, there have been significant changes in the startup ecosystem. We examine some of the latest research’s highlights.
Continued strong forecast on exits in Southeast Asia
The global health crisis has done more than just keeping people in their homes. It has also slowed down the economic growth and significantly reduced the number of exits in 2019 and 2020 as tech startups in Southeast Asia opted to remain backed by companies for longer.
We explore how tech exits in Southeast Asia dropped in 2020
A recent report from EY showed that 56% of Southeast Asian executives are planning to actively pursue mergers and acquisitions (M&A) for the next 12 months—the highest since 2013. Golden Gate Ventures projects that M&A activity will increase after recovering from the pandemic by more than $30 million USD with SPACs, acquisition deals and large mergers during 2021 growing.
Despite the slowdown in global M&A activity in the first quarter of 2020, the industry started to recover during the second half. Golden Gate Ventures forecasts the number of exits between 2020-2022 will total 468.
Compared to the previous Landscape report number of 412, the uptick in the number of exits in the region paints a robust picture of the future of the startup ecosystem. Thanks to the maturing scene, more secondary buyers, and the emergence of SPACs, Golden Gate Ventures estimates that the drive in ASEAN exits will be through M&A activity (80%) alongside IPOs (5%) and Secondary sales (15%).
Increased investments into the region
The pandemic has, expectedly, reduced the funding and deal activity in the region. However, compared to the rest of the world, Southeast Asia took a relatively light hit—only a 13% decrease in invested capital and 15% in the number of deals in 2020.
While not ideal, the area’s tech startups have recovered remarkably. Based on the data from DealStreetAsia, PWC, and Genesis Ventures, there was $6 billion USD in funding in the first quarter of 2021 alone, making it the start of what seems to be the most robust year in the region’s history.
Singapore remains top of the charts with around $3.66 billion USD raised while Indonesia, Vietnam, Thailand, and the Philippines become increasingly attractive as their economies mature. Notably, more than half of the funding was raised in very large rounds by tech unicorns like Gojek, Grab, and Traveloka.
Although fundraisers by privately-held companies dipped by 3% in 2020, this bodes well for the future of the entire Southeast Asian startup ecosystem, especially considering the current economic climate and the impact of the pandemic.
Golden Gate Ventures partner Michael Lints pointed out a marked increase in the number of series B rounds in 2020 compared to two years ago. Not only that but there are more opportunities now for companies to start bigger rounds in the later stages and stay private, which is the sign of a maturing economy.
With an enormous rise of SPACs in 2020 and early 2021, Golden Gate Ventures predicts that the number of exits will increase dramatically. Not only do SPACs give tech startups more flexibility when listing in the US markets, but they also help these companies position themselves.
Great infrastructure, great rewards
The report also pointed out that older companies, founded years ago, are suddenly seeing a sharp demand for their services because of the pandemic. Thanks to the infrastructures and processes they put in over the past few years, these tech startups can keep up with the orders and double their sales, giving them a distinct advantage in this time of uncertainty.
Because of this, the relatively young tech ecosystem in Southeast Asia can survive and even thrive. Due to rising demands, eCommerce companies, last-mile delivery companies, and the digital health industry performed the best compared to other sectors.
The COVID-19 pandemic is posing a challenge to the growing number of potential exits in the Southeast Asia landscape. But thanks to the resilience of the industry, 2021 sees tech startups in Southeast Asia recovering swiftly.
In fact, 2021 could be the strongest year yet for funding in the region. With the emergence of SPACs, secondary buyers, and a maturing economic environment, M&A is high on the priority list for many Asian executives. Not only that, but more companies can expand their reach through acquisitions, signaling the potential of a global focus on the Southeast Asia startup ecosystem. With so many booming companies, the number of exits in the region is likely to soar.