Despite some positive results that obscure the gravity of the situation, the global economic climate is facing numerous challenges.. Governments and businesses are performing strategic balancing acts to navigate the difficult period, from COVID-19 pandemic variants to sanctions for the Russia-Ukraine war. While the economy rebounds in 2021 fueled enthusiasm for the future, 2022 trends in Southeast Asia and around the world indicate a need for caution.
According to Bain & Company’s Asia-Pacific Private Equity Report, 2022, current Southeast Asia startup trends indicate that businesses in the region are experiencing both positive and negative factors. For example, while governments provide funding and supporting initiatives to boost startup ecosystems, they also add more regulatory hurdles and raise taxes on these budding companies. Some countries, such as Indonesia, levy additional local taxes on businesses even when the transactions are initiated from abroad.
We take a closer look at the rising insurtech scene in Southeast Asia
In January, the World Bank Group (WBG) released its Global Economic Prospects Report, highlighting both the encouraging and troubling developments. The global recovery is slowing, with lingering supply chain restrictions, inflation, climate change concerns, slowing stimulus packages, geopolitical battles, and other inhibiting challenges.
There is still hope despite the global economic crisis and Southeast Asia appears set to weather the storm and sustain its fiscal recovery efforts. While the WBG believes East Asia and the Pacific will fall short of pre-pandemic levels, the startup investment market appears to be ripe for venture capital (VC) firms and private equity (PE) investors.
2021 investment market recap
According to DealStreetAsia, at least 834 Southeast Asian startups received $23.18 billion USD in equity funding. Surprisingly, twenty companies received approximately 59% of the PE-VC funding. VC firms achieved 21 final closes, nearly doubling their total from 2020. In addition, they achieved 50 fundraising milestones, compared to 27 in 2020 and 44 in 2019, with more than 20 businesses becoming unicorns.
Alpha JWC Ventures had the highest deal at $433 million USD, followed by B Capital Group at $415 million USD and AC Ventures III Capital LP Fund at $205 million USD. With a $200 million USD fund, Openspace Ventures topped the list. Since 2020, at least 16 VC firms have debuted their funds, with seven reaching final closes being first-time VC funds. The median closed fund value was $50 million USD, the lowest figure since 2018.
According to Bain & Company’s report, investment in Southeast Asia has increased, with five megadeals accounting for 33% of total deal value. This figure represents a 143% increase from 2020, owing primarily to some of the economic restraints imposed by the COVID-19 pandemic. The majority of investments in Southeast Asia and Asia-Pacific focused on the Internet and technology sectors.
Investment outlook for 2022
Despite the challenging global economic climate, Southeast Asia continues to pique the interest of investors. The region’s shift to digital economies has boosted the startup ecosystem, with internet and tech firms emerging to address various problems, including food insecurity and access to financial solutions. The global supply chain realignment that has pushed manufacturers to relocate from China to Southeast Asian nations like Vietnam makes the region an increasingly attractive market.
Furthermore, the investment momentum from last year has carried over and will affect the entire region. For example, the International Financial Law Review’s (IFLR) M&A Report 2022: Vietnam predicted that due to its stable political and investment environment, the country would see a high number of mergers and acquisitions (M&A) in 2022. Its international agreements with other governments made it a lucrative market for investors as well.
Trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP), make Southeast Asian countries more accessible to investment, particularly from Chinese companies looking to expand. Companies like Grab have gone public, inspiring investors to look for Southeast Asia’s next big tech unicorn.
Russia’s invasion of Ukraine has created a volatile economic environment for the rest of the world, with sanctions driving up energy prices and other commodity costs. The war further enhances supply chain disruptions, forcing countries to deal with product and raw material shortages, as well as the possibility of inflation in most areas. Regardless, Southeast Asia can look for alternative solutions to meet various needs.
There are many challenges caused by the global economic crisis and Southeast Asia will face a tough time navigating through them. Inflation, higher food and fuel prices, supply chain disruptions, limited tourism revenue and other factors put pressure on VC firms to be more cautious with their investments. We took a look at the 2022 trends in Southeast Asia and while they may look grim, easing travel restrictions and searching for regional solutions for problems created elsewhere may provide the stability needed to attract investors.
Southeast Asia startup trends currently show the need for new companies to innovate unique and revolutionary products in order to stand out and for others to pivot to embrace the changing conditions.