Southeast Asia has minted 19 unicorns so far this year alone and is on track to surpass the total number of such companies with valuations of $1 billion or more made over the past decade.
According to data collected by DealStreetAsia published in its latest private capital markets report, 21 companies became unicorns between 2013 and 2020. Lazada was the first one in 2013, followed by Grab and VNG in 2014.
Other startups expected to hit the billion-dollar valuation mark soon are Malaysia-based e-wallet TNG Digital, Philippine fintech provider Voyager Innovations, Vietnam-based e-wallet MoMo, Masan Group’s retail subsidiary VinCommerce, and Singapore-based B2B fashion platform Zilingo, the report noted.
Grab Financial Group, a unit of Grab, could also be a unicorn — the Financial Times reported that it was valued at $3 billion after raising $300 million in January this year.
Singapore-based patent analytics startup PatSnap became the first company this year to join the unicorn club after it raised $300 million in a Series E round led by SoftBank in March.
The latest to join the club is Indonesia’s fintech startup Ajaib, which bagged $153 million in a Series B financing led by DST Global on Monday. Ajaib is now the country’s seventh unicorn, just two-and-a-half years since its launch.
Southeast Asia’s sudden unicorn boom comes amid increasing internet and mobile adoption accelerated by the pandemic.
A report published by Temasek, Google and Bain last year found that 40 million people across the six major economies in Southeast Asia – Vietnam, Thailand, Malaysia, Indonesia, Singapore, and the Philippines – came online for the first time in 2020. This brought the total number of internet users to 400 million in a region of 583 million people.
According to the report, the region’s internet economy is set to surpass $300 billion in value by 2025.
One Hong Kong-based investor, who asked not to be named as he was not authorised to speak to the media, said the next crop of unicorns from Southeast Asia will be smaller than the likes of Grab, GoTo and Sea Ltd. These “super app” companies grew on the strategy of building ecosystems with a wide range of products and use cases.
Unlike these larger companies that have focused on ride-hailing, e-commerce, and deliveries, the unicorns that emerged this year mostly specialise in one sector such as logistics or used car sales. Six of the new unicorns are fintech players – Nium, Kredivo, Xendit, Advance Intelligence Group, Ascend Money, and Ajaib — while Matrixport is in the related field of cryptocurrency.
The investor, who said he is bullish about Southeast Asia, highlighted that most unicorns are “crowned on potential — large addressable markets, increasing or sizeable gross merchandise value (GMV) — and much less on their track record of monetisation.”
The fintech industry has emerged as a key unicorn maker as more people have smartphones today and have built trust in digital payments, investment and banking services, Edy Widjaja, a partner and Southeast Asia financial services practice leader at Bain, said in an interview with DealStreetAsia. Fintech players such as buy now, pay later firms are also riding on an e-commerce boom in the region.
But he noted that not all financial services players were positively impacted by COVID-19. For one, the lending industry slowed down as concerns over the quality of borrowers soared amid the economic slowdown.
Indonesia’s peer-to-peer lending segment was hit particularly badly, with more than two dozen companies forced to close between 2020 and the first half of this year.
Another reason for the surge in unicorns is the lack of high-return investments, causing investors to turn to venture capital, Widjaja said. Central banks and governments have also injected record amounts of money into the market, giving investors access to cheap cash.
“Some (investors) are a bit more ‘I need to jump on board because the other guys are interested as well.’ There’s a bit of that today – a bit more than I like – but again it’s not excessive,” Widjaja said.
Corporate investors are also becoming more active, he added. According to CB Insights, global corporate venture arms injected more money than ever in the first half of this year – $79 billion, up 133% from the year before.
“This (boom) is not going to last forever, but… I would be quite bullish here for the next five years,” he said, adding that apart from more unicorns and investments, secondaries, listings, and acquisitions will also become more prevalent in Southeast Asia.
Citing CB Insights figures, Prosus Ventures’s Southeast Asia investment head Sachin Bhanot said the sudden rise in unicorns is a worldwide trend. A total of 136 new unicorns were added between April and June this year, which was a quarterly record, while in the first six months of 2021, tech startups raised $292 billion, just $10.6 billion shy of 2020’s entire pool.
“Growing valuations are not phenomena restricted to Southeast Asia alone,” Bhanot said.
But while the number of Southeast Asian unicorns may be increasing quickly, the lack of local exit routes in the region means it is still less attractive than China, despite the ongoing crackdowns on the tech industry within the country, said one investor at a Singapore-based venture builder firm, who requested anonymity.
China, he said, still has clearer paths to exits and liquidity, as companies can do dual listings in both Shanghai and Hong Kong and gain access to nearly 200 million retail investors, alongside capital-rich institutional investors.
Southeast Asia’s markets remain tepid and work in silos, making it difficult for investors to trade across borders. In Singapore, allowing SPACs and a $1.1 billion fund to boost markets would not help much if there is no continuous flow of money and a sizeable investor pool to tap, said the venture executive.
“Look at what startups like Bibit and Ajaib did for mega IPOs like Bukalapak and the IDX liquidity,” he said, referring to how ten of thousands of retail investors bought Bukalapak’s shares on its opening day, helping to push the e-commerce’s shares to the 25% limit minutes after opening. “Retail investors from across the region should be allowed to invest in other Southeast Asian markets through regulated platforms.”
However, an initial public offering (IPO) is only a milestone, as Bukalapak and others have discovered. The Indonesian company’s stock has underperformed since its early trading days, dropping to the lowest limit on the third day of trading and several times after that. This has drawn the ire of retail investors, the Nikkei Asia recently reported.
Several more tech giants are expected to go public by the end of this year and early year, including Grab, GoTo, PropertyGuru, and Kredivo. Their performance in the public markets could provide a clearer sense of whether Southeast Asia’s market is all hype, or offers real value.