Robust second quarter for Southeast Asian startups but speed bump ahead

Hands cup a model globe showing the eastern hemisphere. Photo by Getty Images Pro via DealStreetAsia.

Southeast Asia’s startups raised at least $2.8 billion in the second quarter of this year, only slightly lower than the $2.9 billion in the previous quarter, shows DealStreetAsia Research and Analytics’s latest report.

According to Southeast Asia Deal Review: Q2 2020, the quarter saw at least 184 deals, up 26 per cent over Q1, and 63 per cent over the second quarter of last year.

Since startups can take anywhere between six months to ten months to close a funding round, deal activity in the first two quarters is reflective of negotiations that predated COVID-19. The pandemic may have delayed closing of some of these rounds, which may explain the deal volume surge in Q2.

“Deal value is a lagging indicator of the initial reaction to COVID-19,” said Insignia Ventures Partners founding managing partner Yinglan Tan. “Dealmaking will continue to be affected as investor timelines slow down.”

The largest transactions recorded in the second quarter were Temasek’s $500 million investment in Tokopedia; Facebook and PayPal’s investment in Gojek, which is estimated at $300 million; and Ninja Van’s $279 million Series D round.

The appetite to invest in seed-stage startups remained strong in Q2 as investors continued to diversify their portfolios. E-commerce, edtech and fintech – sectors which saw greater traction in the wake of the pandemic as consumers were compelled to move online – drove the surge in dealmaking.

As the largest consumer market in the region, Indonesia remained the top investment destination in the second quarter, while Singapore’s share of the investment pie shrunk. Vietnam, the first country in the region to lift social and economic lockdowns, witnessed a significant pickup in fundraising activities by way of deal count and value.

Startup investments showed an uptick in Myanmar and the Philippines, driven by significant investments in fintech-focused companies such as Wave Money (Myanmar) and Voyager Innovations (the Philippines).

Despite indications of resilience in the second quarter, it remains unclear how startup investments will fare in the coming quarters as industry stakeholders and consumers grapple with uncertainties regarding the long-term impact of the pandemic on domestic and global economies.

“We think that the real impact of COVID will be shown in numbers in Q3 and Q4. Most of the Q2 deals were negotiated before the COVID period,” said East Ventures co-founder and managing partner Willson Cuaca. “We expect the total value of deals to decrease towards the end of the year, but the quantity may remain stagnant or increase, especially for early-stage deals.”

The region’s venture capital firms have accumulated substantial dry powder, which offers room for optimism. Southeast Asia-focused VC firms raised $1.3 billion in the first three months of 2020 alone.

“If you look at all the VCs, they have recently raised [capital], including Insignia Ventures, Jungle Ventures, us and Vertex Ventures,” said Openspace Ventures founding partner Hian Goh. “There is no need to reduce funding, but I’m sure we are all interested in securing a good price.”

Access Southeast Asia Deal Review: Q2 2020 to review the state of startup fundraising in the second quarter and how they compare historically. This report is available to DealStreetAsia Research & Analytics subscribers.

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.