Southeast Asia Tech Investment – 2018

The headline story of Southeast Asia is the continued growth in technology investment. A record amount of more than $11B was invested during 2018, almost doubling $5.8B invested in 2017. This suggests a healthy and growing interest in the potential for Southeast Asia’s tech startups. We estimate that this funding amount may be sustained in 2019 as companies like Grab, Go-jek, Tokopedia, and Traveloka continue to attract capital.

A closer look at the data partly emphasizes the progression of existing trends, but also reveals interesting findings emerging in 2018:

A few familiar companies capture most investment

2018 sees a continuation of ‘mega-deals’ as later stage companies capture ever larger investments. Over 70% of funding in 2018 was captured by only 5 investments (Grab, Lazada, Go-Jek, Tokopedia and Sea Group).

A new wave of companies are approaching later stage

Although the majority of capital will likely continue to be associated with a few familiar names, we also observe a growing cohort of other late-stage companies who are raising larger rounds, putting them closer to the $1B valuation. The amount of investment and number of companies who have successfully raised between $5M – $50M show consistent growth, while those in the $50M – $200M cohort also grew compared to 2017. Several high-profile deals announced includes PropertyGuru’s $180M, Akulaku’s $100M, Ninja Van’s $87M, Carousell’s $85M and Carro’s $60M round.

Concentration of capital by country

Indonesia accounts for more than 70% of the capital invested in Southeast Asia. However, the distribution of deals better illustrates activity across the region. By deal count, allocations to Singapore, Thailand, Malaysia, and Vietnam appear to be consistent with the past few years. where the Philippines has been cooling off in both investment amount and number of deals since 2016.

Diversification of capital by sector

We also continue to observe investment into a wider range of sectors. Fintech, real estate, logistics, and business automation startup investments demonstrate solid growth. Payment & remittances maintained the level of investment received during 2017. However, some sectors such as employment have not picked up investor interest despite having produced large exits in the past.

Series B is gradually growing

The cohort of companies that received seed investment in 2013 does illustrate a significant increase in successful series B funding rate. However, the rates for other cohorts are still relatively low. More time is needed to see how much follow-on funding pipeline in Southeast Asia resembles those from more mature funding environments like the United States and Europe.

Secondary sales and M&A continue to provide liquidity

Although 2017 saw Sea Group’s NYSE IPO, as well as several local IPOs in Indonesia, 2018 data indicates that trade exits and secondary sales of shares are still the main sources of liquidity in the region. Exits in the $50M – $100M range are increasing in frequency, with higher end valuations being in the US$150 – $300M range.

The majority of acquirers in 2018 have been technology companies within Southeast Asia region. These companies tend to be those who are cash-rich and embark on acquisitions as part of a regional and platform expansion strategy. Some are active acquirers such as Grab, Go-jek and Traveloka; Grab and Go-jek have been consistently acquiring financial services player while Traveloka started acquiring travel companies regionally.

At the same time, there are also many are first time acquirers that are earlier in their regional expansion phases such as Carro, 99.co, and Dahmakan. Singapore-based acquirers still contribute the largest number of deals while Chinese acquirers are the largest spenders.

The region continues to attract new acquirers from various traditional sectors

A number of global (Global Yellow Pages, Ringier AG) and local companies (Thai Bev, Rajah and Tann, Concepcion Industrial Corporation) made their first acquisitions of Southeast Asia digital company this year. Though most transactions are relatively small, they still signify the region growing ability to attract new sources of liquidity.

Declining early stage activities

Deals below $500K continue to decline since their peak in 2015. This could partly be influenced by existing seed investors migration toward later stage investment, and the media’s attention toward later stage mega-deals overwhelming signals from smaller ones.

Looking ahead

Southeast Asia in 2018 remains a very attractive region for tech investors. We note that while some of the factors we highlighted in last year’s report remain, others are changing. We think high-quality startups exist beyond a few heavily-invested parts of the region and there has been some improvement in bridging the funding gaps that remain. Every year that brings more successful exit stories will help inspire more founders to start companies and attract more investors to the ASEAN region.

For the year ahead, we think Southeast Asia will continue to gain the attention of institutional investors looking for growth markets outside of China and India. Alternative assets such as venture and subsets of private equity in Southeast Asia will be the beneficiaries. We also expect to see a trend towards the emergence of value-chain specific funds and fund managers. Digitalisation is reaching ever further into numerous industry sectors and Southeast Asia hosts an increasing portion of many global supply chains. New venture firms and vehicles will emerge with clear sector-led investment theses for tech in the fashion industry, agriculture and food, labour, healthcare services, manufacturing, construction tech and so on.

Southeast Asia’s tech continues to mature, and we hope this report helps anyone, whether they are startup founders, investors, or policymakers, achieve a better understanding of the landscape that we all operate within.