Tech for the Win

Despite the pandemic, tech start-ups in Southeast Asia have been performing rather well. Here’s why.

In spite of the myriad devastating effects of the pandemic, the one industry that seemed to stand resilient head and shoulders above the rest was tech. The tech start-ups from Southeast Asia and the United States seemed to be the forerunners in this regard, with several IPOs being launched in the US during this period, many at record prices. Although the South Asian tech start-up ecosystem is relatively younger in this regard, the resilience seemed to have been driven forward by older firms who suddenly saw a spike in demand for services owing to the pandemic.

According to Southeast Asia-centric venture capital firm Golden Gate Ventures’ partner Michael Lints: “We’ve built infrastructure over the past eight to nine years when it comes to e-commerce, logistics, some on the healthcare side as well. And when the pandemic happened, people were suddenly stuck at home. If you look at the pickup for most of the e-commerce companies, they at least doubled their revenue. For last-mile logistics companies, they’ve increased their revenue. There was a lot of pickup on the digital healthcare side as well.”

Know when to walk away, know when to run

While tech fared rather well, a major downside noted during the COVID-19 pandemic was the rapid withering of venture capital funding from most other sectors. Although Southeast Asia’s start-up ecosystem was not immune by any means, it still performed relatively well with around $8.2 billion invested in 2020 and fewer exits given the circumstances (exits occur when a company’s shares go public/when an investor takes out their investment from the firm). The investment flow has continued strongly into 2021 as well, with almost $6 billion worth of funding recorded in the first quarter alone.

According to tech conglomerate TechCrunch: “It’s important to note that more than half of that funding was raised in very large rounds by unicorns like Grab, Go-jek and Traveloka, but Cento Ventures found there was also an increase in investments between $50 million to $100 million for other start-ups. These are usually Series B and C rounds, which Golden Gate Ventures says creates a strong pipeline for potential exits over the next three to four years.”

As for exits, Golden Gate Ventures opines that Mergers and Acquisitions (M&As) will be the chief exit strategy for Southeast Asian start-ups, accounting for almost 80% of the deals. Secondary sales (15%) and Initial Public Offerings (IPOs, 5%) are set to be the other main strategies.

Concurrently, research has found that a record number of M&A deals went forth in 2020, in spite of the effects of the global pandemic. As many as 45 M&A deals took place, especially in fintech, social networking, ad tech, media and e-commerce as larger companies went on a tech acquisition spree. Experts agree that such tech acquisitions may create a cascading effect throughout the industry ecosystem in southeast Asia. With firms like Gojek and Trax making high-profile acquisitions, the buying of tech start-ups is a trend that is set to continue unabated for the near future.

Another point of note that TechCrunch opines may add to the exits are funds looking to cash out. A 2019 report by Golden Gate Ventures forecast that the first batch of institutional venture funds launched between 2010 and 2012 will start reaching their tenure by 2020. They would therefore start exploring exit opportunities for their portfolios, leading to a major rise in M&A and secondary deals. This will then cause an increase in the typically low number of secondary markets in southeast Asia as well.

Reference: Anyone interested in the full Southeast Asia Exit Landscape Report 2.0 (Golden Gate Ventures)can access it here