Despite the negative impacts of the COVID-19 pandemic in the Asia-Pacific (APAC), investment in the tech startups Southeast Asia is producing has remained surprisingly stable. According to the Southeast Asia Tech Investment 2020 Report by investment capital firm Cento Ventures, technology startups survived the havoc wreaked by the coronavirus on individuals, families, and companies.
One area that saw a slight slowdown was the number of early-stage funding deals, falling from 281 in 2019 to 238 in 2020. The distribution of deals in the region also reverted to the norm, with Singapore and Indonesia accounting for 64% of the deals concluded. The latter received a more significant chunk of startup backing at 70%.
The total investment value for Southeast Asian tech startups in 2020 amounted to $8.2 billion USD, dropping 3.5% from 2019. However, deals over $100 million USD represented more than half of the funding sums at 57%, and those over $50 million USD went up by 26% from 2019. This continuous investment boosted many companies, placing several beyond a valuation of $100 million USD or more. Examples included Shopmatic, Mekari, Sunday and Waresix.
Southeast Asia set to be a hub for investment and acquisitions in 2021
Others, such as JustCo, joined the list of unicorns in Southeast Asia, where the already-established major tech unicorns raised billions of dollars in funding in 2020 as well. Singapore’s multi-service delivery platform Grab led the region with over $10 billion USD raised, whereas Indonesia’s ride-hailing company Gojek came second with $6.2 billion USD. Indonesia also got the third and fourth spots, with eCommerce marketplace Tokopedia raising $2.8 billion USD and ticketing and booking platform Traveloka receiving $1.2 billion USD.
Sector diversification and public listings
According to Cento Venture’s report, super-app companies such as Gojek, which offer multiple services, received more than half of the tech investment alongside online retailers, exceeding $4 billion USD in 2020. The fintech sector was next in line, gathering substantial interest, especially in the payments segment. Logistics and local services made up the rest of the emerging industries.
As businesses rise in valuation, many are seeking to go public locally and globally. Public listing allows their financiers to exit the startups and direct funds into new ventures. It also raises money for the company in the stock market. The challenges, however, involve finding global partners and overcoming regulatory standards in developed countries.
Venture capital firm 500 Startups’ managing partner Vishal Harnal believes the initial public offerings (IPOs) of Grab and Indonesia’s on-demand platform GoTo Group will boost Southeast Asia’s startup ecosystem and produce even more unicorn companies. GoTo Group was formed from a merger between Gojek and Tokopedia, giving the new company a possible valuation of $18 billion USD.
Even though there is a risk of these large unicorns gobbling up the smaller startups, Harnal predicts there will be considerable investment in new firms. Moreover, employees of these now successful companies might be inspired to branch out and build their own businesses, thereby expanding the tech ecosystem in the region.
Cause for circumspection
While investors in Southeast Asia are hunting and desperately seeking the next IPO, companies in the region are holding off. According to Vinnie Lauria of venture capital firm Golden Gate Ventures, many startups in their portfolio have been caught up by this year’s investment frenzy. Despite receiving multiple requests, these businesses are deferring contemplations and plans of going public.
One great fear is that the listed companies might crumble once their investors meet their investment targets and cash out of the businesses. The goal, therefore, is to ensure the startups are stable and of significant quality to add sustainable value to the market.
That has not stopped the funding surge in the region, though, with the richest families pumping money into tech startups. These tycoons are hoping the rising valuations of successful technology businesses will counter the damage done to their economic situations by the COVID-19 pandemic. Thus, many of them are funding companies directly or opening venture capital firms to search for new investment opportunities.
Facing future challenges
The rise of unicorns in Southeast Asia is a sign of technological maturity and extensive growth in the region. Due to various limitations, such as inadequate land and insufficient natural resources, the Association of Southeast Nations (ASEAN) understands the need for the region’s digital transformation. Now, tech is bringing new jobs and opportunities, developing smart cities, and enhancing sustainable development.
Dilemmas still remain for the tech startups Southeast Asia is spawning every day. As an example, companies on their way to becoming unicorns face a significant problem in handling cybersecurity. Even so, technology business owners and experts have shown they can meet the various issues head-on and generate new ideas and innovations to elevate their industries.
Increased government investment and support for new businesses will enable them to overcome their vulnerabilities and boost the economic bloc.