As the decade of the 20-teens ticks to a close, it brings encouraging news to investors in Southeast Asia’s growth economies. New tech industries that have emerged across the 10-country ASEAN region are now in full liftoff mode. The region’s nine current unicorns include companies like Go-Jek of Indonesia and Singapore-based Grab, each of which started in ride-hailing, then grew to offer multiple services (such as an e-wallet) on customers’ mobile screens. Other startups are meeting market demands in sectors from education tech to logistics.
And investors have an even stronger reason for optimism as we exit this booming ASEAN decade: the increase in exit opportunities. Past concerns about ability to cash out are easing greatly, which they should. Our VC firm, founded in Singapore in 2011, recently teamed with researchers at INSEAD for an updated analysis of the Southeast Asia exit scene. We looked at statistical trends as well as underlying factors that drive exits. Our findings show dramatic rises in both the frequency and scale of activity, with further gains projected in the early to mid-2020s. (Golden Gate Ventures-INSEAD report)
Rising Numbers and Firms That Grow Large
This year, ASEAN tech startups are on pace for about 160 exits of all types. That’s nearly triple the 2011 figure of 59, and we expect over 700 during the 3-year period of 2023-25, an average of more than 230 per year. Also, these exits cannot be attributed simply to there being more startups in play. We see new forces taking effect.
Secondary sales, for instance, were once a non-factor, but now they’re significant. With ASEAN startups growing to larger sizes, global players such as private equity firms are coming aboard as later-stage investors, and we project about 120 of the 700+ exits in 2023-25 to be secondaries.
Most ASEAN exits will continue to occur by acquisition. But a new dynamic now drives acquisitions: the rise of unicorns expanding throughout the region. Last year, Indonesia-based Traveloka bought travel-booking startups in its home country as well as the Philippines and Vietnam. ASEAN unicorns altogether have made 28 acquisitions thus far, and though one firm’s buying spree counts heavily—Go-Jek alone has acquired 11 companies since 2016—the action should proliferate as more startups reach billion-dollar status. Southeast Asia’s present crop of nine unicorns will likely double to 18 by 2025.
High-growth startups breed exits by several means. They acquire fellow startups for reasons that range from buying market presence to obtaining needed technology. (Singapore’s Grab, expanding into Indonesia, bought a 3-year-old startup called Kudo. The move equipped Grab with Kudo’s unique customer-interface system while giving the young firm’s investors an early payout.)
As noted, high-growth startups also invite secondaries, and some achieve IPOs. Our studies with INSEAD project gradual increases in the number of Southeast Asian IPOs, with a conservative estimate of around 20 in the 2023-25 window. We further expect to see larger, more significant IPOs. In 2017, the SEA Group, known for its Garena online game unit, became the first ASEAN startup to go public on the New York Stock Exchange. IPOs on regional exchanges may be healthier, too, as the Singapore Exchange and others are adopting measures to help startups get listed and succeed.
Foreign Capital Streams In
Another big factor that feeds ASEAN exits is the growing presence of acquirers and investors from outside the region. To put it bluntly, the world has noticed that Southeast Asian markets are hot. The U.S.-China trade war fuels the fire, pushing contract work and foreign investment southeastward. Chinese tech giants themselves are moving into the region, often acquiring local firms: Alibaba recently bought the online grocer RedMart from our VC firm’s portfolio. More broadly, there’s been a tremendous wave of entries by global PE firms, holding companies, and corporate venture funds.
Investments by global PEs rose from a total of seven in 2010 to 57 in 2018. Major firms in the mix include Blackstone, KKR, and Warburg Pincus, which this year closed a $4.25 fund aimed at Southeast Asia along with China. A few months ago, I noted SoftBank and Naspers becoming regional players. Meanwhile, CVC (corporate venture capital) deals in Southeast Asia grew from just one during 2010 to around 50% in 2016-18, highlighted by Toyota taking a $1 billion lead in Grab’s Series G round.
Do all these investments spell imminent exits? Of course not. Grab’s leaders have even stated they’re not rushing to an IPO; they intend to wait until the time is ripe. The flood of external capital does, however, send two clear signals. It means that many smart investors expect to be rewarded sometime sooner than eternity. And it suggests they see strong fundamentals among ASEAN startups.
This article was written by Vinnie Lauria from Forbes and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.
