By 2025, tech startups in Southeast Asia could have a collective value of $1 trillion USD, according to venture capital firm Jungle Ventures (JV). The Singapore-based company founders, Anurag Srivastava and Amit Anand have a wealth of knowledge about emerging businesses in Asian markets. They believe all the signs are currently pointing toward tremendous growth in the region.
The JV report analysed the Southeast Asia startup scene and reviewed publicly available details on 31 companies. Each of those startups had a valuation of $250 million USD or more at the time. The research also accounted for businesses that had not disclosed other venture capital investment funds they had received.
Startups in Southeast Asia raised almost USD 2 billion in Q1 of 2021
Amit Anand admitted that the report’s conclusion was both surprising and unsurprising. It showed that Southeast Asia tech startups had a combined value of $340 billion USD, and this figure could potentially be much bigger with extensive data about undisclosed funding. With all these present and future investments, the expectation is that the valuation could multiply threefold in four years.
Push for Initial Public Offerings (IPOs)
Last year, Indonesia dominated the total share of tech startup funding in the region by 70%. Singapore was second with 14%, followed by Thailand and Malaysia at 5%, Vietnam at 4%, and the Philippines at 2%.
Even so, investors want to grow faster, according to Anand, and the Initial Public Offering (IPO) market presents an excellent opportunity to achieve this goal. They want to reap more money by investing in different industries and companies.
Unfortunately, various challenges are limiting the sector’s potential. First, the domestic stock markets cannot handle large IPO transactions. There is only sufficient capacity to manage smaller deals, which means companies must list abroad, especially in the US market. Furthermore, government regulations reduce the dual-listing IPO opportunities that can benefit the region.
Businesses have several options available. They can either sell their operations, merge with others, or go global by teaming up with a special purpose acquisition company (SPAC). SPACs are blank-check firms that help with acquiring existing private companies and listing on stock exchange platforms.
The SPAC approach is new to the area. Michael Lints, a partner at venture capital fund Golden Gate Ventures, believes it could open up the businesses to greater inspection from investors than before. However, this outcome is not that bad as additional transparency could lead to further investment and growth.
Some of the well-known startups in the region have already announced their plans to go public. For example, Singapore-based transport and food delivery giant Grab became a publicly traded company by registering with the United States Securities and Exchange Commission (SEC). The deal involves a partnership with Altimeter Growth Corporation; a SPAC linked to investment firm Altimeter Capital Management.
Another company going the IPO route is the online real estate company PropertyGuru. It is a similar SPAC-merger deal as Grab’s, forming a partnership with Bridgetown 2 Holdings. This company has the backing of American billionaire Peter Thiel of Thiel Capital and Hong Kong billionaire Richard Li of the Pacific Century Group. It will allow PropertyGuru to trade on the New York Stock Exchange (NYSE).
In Indonesia, a merger between delivery and ride-hailing giant Gojek and eCommerce marketplace Tokopedia formed the GoTo company. The startup’s dual-listing IPO plans for the US and Indonesia is experiencing delays despite conducting its pre-IPO funding exercise. The setback is due to the Financial Services Authority (OJK) trying to revamp the listing rules for tech companies.
Growth potential in Southeast Asia
The COVID-19 pandemic has devastated economies in Southeast Asia. Despite this, every sector has massive potential to grow and deliver great solutions to the citizens. The attempt by countries in the region to digitise their economies means the technology industry will thrive the most.
According to the e-Conomy SEA 2020 report by Google, Temasek, and Bain & Company, 70% of the residents are online, with 40 million connecting in 2020. That figure brings the total number of users to 400 million out of 580 million people. The populace is switching to digital solutions, which opens up opportunities for tech companies to exploit.
The Southeast Asia startup scene can also benefit from the region’s high scores in the Ease of Doing Business Index. All the countries are under the top-100 globally, with Singapore leading the pack ranked number 2 in the world. The Philippines is the lowest-ranked country in the area, with a score of 95.
With better regulatory approaches and government subsidies, tech startups in Southeast Asia can innovate and scale their operations. The accessibility and flexibility brought by technology will solve problems while reducing costs for the public. It would be unwise to dismiss the possibility of mergers and acquisitions, as it presents an opportunity to list and trade stocks in foreign markets as Southeast Asia tech startups continue navigating the impact of the COVID-19 outbreak in the region.