Southeast Asia, home to 650 million consumers across 10 countries, is about to enter the unicorn zone and will spawn the next wave of startups valued at $1 billion or more, said Singapore-based private equity firm Asia Partners’ co-founder Nick Nash.
“The last big country to go through the unicorn zone successfully was China from 2003 to 2013. As the US’s moment is slowing down, China has left its unicorn zone and the trade war is beginning, Southeast Asia’s moment has just begun. We’ll be looking at a dozen unicorns [to emerge out of the region].
“And that’s not just because of the capital that is coming in but think about the employees of the first unicorns who will want to become founders over the next 20-30 years,” he said during his keynote presentation at Wild Digital SEA 2019 in Kuala Lumpur on Thursday.
The Harvard graduate spent more than a decade at General Atlantic as principal and head of Southeast Asia between 2002 and 2014 before moving to Sea Group, Southeast Asia’s first unicorn startup to list on the NYSE stock exchange.
He left Sea Group last December and announced in May the launch of Asia Partners, which will invest $20 million to $100 million into Southeast Asian tech startups. The firm has so far secured $80 million for the first close of its debut fund. DealStreetAsia has previously reported that the firm plans to raise over $300 million. Nash has roped in former Naspers top executive Oliver Rippel as his co-founder and partner.
Nash seems to be a strong believer in the growth story of Southeast Asia, calling the region “Asia’s best-kept secret”.
“We’re growing incredibly quickly – something that is not fully well-appreciated. What’s incredibly timely today is that Southeast Asia is not only a largely exciting region but also one of the most strategic parts of Asia for the next 15 or 20 years.
“There is no debate that we are in the middle of a complete realignment of trade relationships between China and the US. And over the last two months, the Chinese stock markets are down 13 per cent and in fact, most of the other stock markets around the world are also down,” he noted.
The market that remained unaffected by the ongoing US-China trade war? Southeast Asia.
“Over the last 19 years, since the beginning of the century, Southeast Asia has actually defied the common wisdom that emerging markets are high risk. But within Southeast Asia, there are incredible stars like Vietnam and Indonesia that have remarkably low volatility.
“Vietnam has been growing at 6-7 per cent for the last 19 years. It’s not just the real economy that’s producing great outcomes – people are making money in Southeast Asia,” added Nash.
According to him, technology growth in Southeast Asia has delivered some 20 per cent return to LPs in the past two decades, after all the fees they paid to GPs. It’s an under-appreciated story, where very few people realise how good the results have been from the region.
“In the last 10 years, who’s the best consumer IPO and the best Asia IPO in the world in tech? It’s a Southeast Asian company (Sea Group)! I’ve had the great fortune and honour to be part of the story for many years of my career. But more importantly, this is a victory for Southeast Asia – that it has not just received, but also delivered 63 per cent returns to the global capital market.
“So here’s one specific thing: there is a demand for more when the next Southeast Asian company goes to the NYSE, Hong Kong Stock Exchange or NASDAQ. I can’t emphasise how important this is when my colleagues and I had the great pleasure to ring that bell two years ago. This opens up and reconnects Southeast Asia to US capital markets in a way that had not happened for 25 years since the 1990s,” he said.
Drawing comparisons to China, Nash added that most of the successful Chinese tech companies worked the old-fashioned way – working hard to build a great business and use the home base to their advantage.
In other words, localisation. It does not matter where the primary innovation came from.
“In almost every case, the original new idea comes from the US or Japan or China but mark my words, these are not copycats. They take a pretty good idea and deeply localise it to what we need here in Southeast Asia.
“We win because of our insights and our local execution. So this is the recipe. This is the playbook for how we will follow and we’ll do a few things on our own to adapt to our needs. This will be capitalism with Southeast Asian characteristics.”
Nash is not the only one who is gearing up to invest in the region. US-based private equity major Warburg Pincus has just closed a $4.25 billion fund dedicated to China and Southeast Asia, the first vehicle with a special focus on the region.
Its managing director and head of Southeast Asia, Jeff Perlman, recently said the region is “exhibiting many of the strong investment themes and trends which have driven [its] China business over the last 25 years”.
The PE firm claims that in recent years, it has become one of the largest and most active investors in the region, with a particular emphasis on Vietnam, Indonesia and Singapore. Some of its investments include ride-hailing startup GOJEK and Vietnamese fintech firm Momo.
Singapore-based Vertex Ventures has also gathered some $230-million for the first close for its fourth Southeast Asian fund to back tech startups across the region and India. Another major VC firm, China and US-based GGV Capital, which backed Grab, set up shop in Singapore early this year to track the region and India.