The Southeast Asian tech deck is running hot right now! Investors around the world want a piece of the action. 2021 saw a record high of USD 124.8 billion in M&As. And guess what? Even without Grab’s USD 40 billion merger with Altimeter, the M&A activity still represents record levels. Also, in the first half of 2021, venture capital transactions had already hit USD 10 billion. The figure surpassed the USD 8.2 billion registered for the entire year of 2020.
So why are Venture Capitalists (VCs) investing in Southeast Asian companies, and what draws them to look there?
The driving factors
Population and Growth aspects
The Southeast Asian subcontinent faces rising population and growth aspects that supersede China. The latter currently sits on a saturated and mature digital economy market. Now, this is what is enabling VCs to look at other countries.
Another aspect is that the region has also attracted interest from special purpose acquisition companies, or SPACs. According to data from Dealogic, four of the eight Asia-related targets got unveiled in 2021.
Let’s speak statistics!
The regional VC investment grew by 5.2x between 2015 and 2020. With that said, a promising future is in store for Southeast Asia.
Between 2015 and 2020, China witnessed nearly USD 300 of VC investment per capita (or person). For Southeast Asia, the same metric sits at USD 47.5 per person. And this is despite the recent investment boom. This hints that Southeast Asia is an unexplored subcontinent with substantial opportunities for VCs. The digital economy in the region has a long way to go. Also, Southeast Asia comprises a population of 650 million people.
Venture capital transactions so far!
So far in the calculations, Jungle Ventures looked at publicly disclosed information on 31 startups that had a valuation of at least USD 250 million. Also, the firm made provisions for public non-disclosure of venture capital transactions.
Another factor driving this wave of VC investments in Southeast Asia is the Covid-19 pandemic. With travel restrictions and work-from-home still in place, there is an inclination towards digital platforms. Investors, too, are scouring for internet-based companies to grow their businesses speedily. In 2020, Southeast Asia was home to around 400 million internet users. And 10 per cent of them went online for the first time amid the pandemic.
The real deal: potential
According to industry reports, the digital economies of Singapore, Malaysia, Indonesia, the Philippines, Vietnam and Thailand are poised to cross USD 300 billion by 2025.
Additionally, there are no shortages when it comes to investment funds. The tech startups are recipients of large cheques written by investors, including private equity firms. According to a DealStreet report, in the first quarter of 2021, Southeast Asian startups raised a record of USD 6 billion in funding. And note that this was only the first quarter, that is three months.
What lays ahead
The technology startups in Southeast Asia, in 2020, had a combined valuation of USD 340 billion. The figure is forecasted to increase at least threefold by 2025. Over the next four years, Jungle Ventures expects the tech startups in the region to reach USD 1 trillion.