ASEAN countries on track for historic VC high in 2017

National flags and the Association of South East Asian Nations (ASEAN) logo on display ahead of the 27th ASEAN summit in Kuala Lumpur, Malaysia, November 18, 2015. REUTERS/Olivia Harris

ASEAN countries are on track to reach historic highs of venture capital (VC) deal flow in 2017, with Singapore posting 711 disclosed deals with an aggregate value of $7.305 billion since 2012, followed by Indonesia with 285 disclosed deals with an aggregate value of $3.477 billion for the same period.

There is an active interest in the region from technology investors, and its close proximity to India and China has seen Southeast Asia emerge as a technology hub, having pulled in more money already than any previous year, according to the CB Insights report.

To date, the region has already closed 244 deals this year through 31 July, putting it on track for a new annual high of 422 transactions for the year. With nearly $5 billion in total funding, Southeast Asia has already seen more venture capital than any prior year. According to information compiled by venture capital intelligence platform CB Insights, the current run-rate is set to see the region reach 422 deals with an aggregate value of $9 billion.

In 2016, Southeast Asia posted $3.1 billion worth of value across 343 deals, which 2017 has already surpassed. However, deal volumes stagnated through 2015/2016, with 2016 posting 343 deals compared to 349 transactions in 2015.

The leading VC firms investing in the region are 500 Startups, East Ventures, Golden Gate Ventures, CyberAgent Ventures, Wavemaker Partners and Gobi Partners.

500 Startups operates two funds – 500 Durians 1 and 500 Durians II – with its best-funded portfolio firm being Singapore-based Carousell, which has raised $42 million in venture funding. East Ventures ranks second in the region and raised its fifth fund in January 2017. Its more notable portfolio firms are housing property portal 99.co and startup media firm Tech in Asia, as well as Indonesian marketplace Tokopedia, which has raised $247 million to date.

Q2 2017 has been the most well-funded quarter for Southeast Asia’s technology ecosystem, in terms of both deal volume and aggregate deal value. Grab and Go-Jek accounted for the majority of deal value this year. Grab closed a $2 billion Series G round in July, while Go-Jek closed a $1.2 billion Series C round in May. Other notable deals include a $550 million Series E into Singaporean gaming startup Sea, formerly known as Garena,, and Indonesia’s Traveloka raising $500 million from investors including Expedia.

Within Southeast Asia, a large part of deal share continues to go to Singapore. The city-state saw over 700 rounds since 2012, the most of any country in the region. In second place was Indonesia, which closed less than half the deals that Singapore did, followed by Malaysia, Vietnam, and Thailand. Much of this growth is rooted in macroeconomic trends that are seeing the expansion of their digital economies and middle classes.

Justin Hall, the principal of Golden Gate Ventures, predicts that investments will continue to grow in both frequency and size, particularly with regards to growth-stage financing.

Hall says, “There are a tremendous amount of post-Series A companies that will be looking to raise a growth stage round within the next 18 months, and now there are more funds, both regional and global, capable of and willing to write cheques of that size. With the added element of Chinese investment and M&A dollars, we’re still quite bullish about the direction of the region.”

For the 2018-2021 period, Hall also sees “extraordinary upside potential for B2C- and B2B2C-focused investments” as investors diversify away from consumer internet plays, with Hall seeing significant potential to for “solving real, meaningful pain points for Southeast Asian consumers.”

Relative to investment destinations like Malaysia and Indonesia, the city-state of Singapore functions as a superconnector to various Indo-Asia Pacific and international markets, as well as an ASEAN hub for the time being. Will the city-state retain this leading role, given its leadership in both deal volume and deal value?

For the time being, Hall believes it will. He offers, “Singapore will be an island of economic and political stability in Southeast Asia for at least a generation, and that will bestow advantages that the other metropolises will have enormous difficulty displacing. For the most successful regional companies, many will necessarily need to reincorporate in Singapore to obtain late-stage financing.”

“Most global VCs will expand into Singapore if and when they decide to tackle the region. The labour market, while small, is still the most educated and technically savvy (albeit expensive). While the potential upside of the market is modest, especially vis-a-vis Indonesia or Thailand, as a superconnector and gateway to ASEAN, there is no better country.”

However, a key shortfall in the ecosystem at this time are liquidity/exit events for ventures, as far as Hall is concerned. He observes: “The last remaining piece of the puzzle is exits. Within the next two to three years, the region will need to show that it can successfully exit companies in a way that brings meaningful returns to entrepreneurs, investors, and LPs.”

“If it can do that, then the ecosystem here will, in my mind, become well and truly established. Hence, I see the better funds working to really grow out their M&A and acquisition networks more than anything else.”

“I don’t see much experimentation in really niche specialities for the short- to mid-term, which in my opinion is usually a symptom of too much money in the ecosystem, which subsequently requires funds to differentiate themselves via specialities to retain access to good deal flow. I think the broadly speaking you’ll still have funds that lean more towards B2B or B2C, but not anything really vertically-focused.”

Meanwhile, Michael Smith, a partner at early-stage venture firm SeedPlus, continues to see companies being founded in Singapore possessing a regional reach. Smith says, “While many of these are broadly in the technology space, a number are focused on deeply technical product foundations. We’ve seen an increased focus on B2B, robotics, automation etc. since 2016, and believe these areas will continue to be dominant trends for Singapore companies.”

More broadly, given the differing development profiles of companies in the region, Smith believes that each country hsa different things to offer the startup and investment community. For

He highlights the immensity of Indonesia’s market size as a highly appealing factor, as well as the progress of the Catcha Group in Malaysia, citing the recent funding round raised by iFlix.

He explains: “Malaysia most closely resembles Singapore in terms of culture and doing business, and provides access to a larger population. We are confident Singapore will remain the leader when it comes to the strength of the overall ecosystem and its defining role as the regional hub both for startups and most of the globe’s internet giants.”

He adds, “Funds will continue to grow and there will be new funds that will focus on specific niches or work with government programs on particular categories –  aerospace, for example. Overall, we think most funds will focus on specific funding rounds rather than categories, such as seed or Series A, and that they will look at opportunities across the entire region.”

Also Read:

Indian tech startups see rise in exits, IPO route gains momentum

Japan: Toyota backs Preferred Networks with $94.7m investment

Corporate VC activity in Asia sees uptick in H1 2017 amid global surge

Corporate VC funding rises in India in 2016, China sees a decline

 

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.