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What is the reason behind the boom in investment in South East Asia?

A few decades ago the state of the Southeast Asian countries was not what it has become today. The concept that Asian entrepreneurs merely piggyback on Western investment is quite redundant in the face of the current exponential advancement in venture capital and equity investment in this region.

The year 2017 witnessed a quadrupled venture capital deal to 524 when 2012 is considered as the base year. The private equity deal value rose by a 75% margin to 15 billion dollars thereby breaking the decade-long zero-based growth phase. This marked the turning point for all economic indicators.  The information society attracted a vast magnitude of new capital, rising from 20% in 2014 to 40% of the deal count in 2017. It has been recorded that since 2012, Southeast Asia has given rise to 10 next-billion dollar start-ups including Grab, Go-Jek, and Traveloka through its dedicated funds’ dry powder. In fact, those who are interested in the game of casinos know that many online casinos in Singapore have also come up during the same period.

This committed but unspent capital has enabled these tech unicorns to rapidly achieve a market valuation of 1 billion dollars or even more. The mentioned three companies have produced a combined market value of 34 billion dollars taking Southeast Asia in the 3rd position behind China and India in the Asian Pacific region. The deal value is expected to rise over the next five years to a total of 70 billion dollars along with 10 more such tech unicorns at the very least by the end of 2024. This strident growth becomes a matter of concern when analysts try to answer the question of sustainability of this growth momentum after years of economic stagnation. Southeast Asia has faced bizarre economic growth, the regions’ average being as low as 7% per annum.

With the ignition in investment only in China and India, private equity investment in other countries of the region hovered around 6 and 9 billion dollars where the economy took a very large gestation period before take-off.  It took years of persistent private firms, government aid in start-ups, and solid economic growth to create a condition for this rapid transition to the next-phase growth in the majority of Southeast Asian countries.

A constant influx of new venture capital, a maturing bench of start-ups, strong exit momentum, and healthy returns are some of the reasons behind this boom in the Southeast Asian region.

The active investor count wrapping –up with private equity transactions deals at 10 billion dollars or more rose 45% from the previous five-year average at 124 in 2017.  Institutional investors increased to a large extent as well. The region’s strong macroeconomic pillars, probability of emerging as a regional champion, and intrinsic market deals of all sizes are attracting more investors. The investment basket primarily includes local venture capital funds, private equity funds, sovereign wealth funds, and global funds.

The above 1300 companies in Southeast Asia received their first batch of investment i.e. Series A financing since 2011, including 261 in 2017 is almost 5 times the level in 2011.  The receptivity of the region to investment is rising with growing demand in correspondence with growing supply and healthy recycling of capital. The exit deal value is seen to have risen by 86% from the previous average to 16 billion dollars. In accordance with such expanded portfolios of private equity funds, the potential market for secondary transactions is also broadened.

Association of Southeast Asian Nations (ASEAN) has also played a major role in accelerating the pace of economic growth in this region. The ten-member committee’s progress in creating a unified trade bloc contributes to entice companies to invest more in this region.

Healthcare enterprises that mostly focus on local markets are attracting capital to expand regionally. Fullerton Health, a booming enterprise for instance now is now functional in more than 500 clinics in eight Asia-Pacific countries. This baby company has been founded in 2011 by acquiring two healthcare providers in Singapore. This gives a clear picture of the booming economy that Southeast Asia has now become.

The government has also been a very encouraging partner in this phase of exponential investment in the region. Singapore’s start-up SG Founder program supports with 3 dollars in matching funds, up to 30000 dollars for every new dollar an entrepreneur raises. Companies seek to now raise a second round of 2 and 3 million dollars owed to this incentive.

The government of Vietnam announced in 2016 that it would offer legal and financial support to 2600 start-ups over the next decade through its’ accelerator, Vietnam Silicon Valley.

The number of Indonesian companies receiving the first round of seed rose by an amount of 300% from 2012 in the year 2017.  Indonesia and Vietnam’s in combination generated 20% of Southeast Asia’s private equity deal value in the previous five years. Vietnam and Indonesia is now considered as the hottest Southeast Asian market after Singapore from 2018-19 onwards.

The 50 billion dollar internet economy in this region is also estimated to quadruple by 2025. The technology sector is perceived to commit a 205 to 405 of deal value over the next five years. The information society that is the information and communication technology firms are exponentially growing and attracting vast venture and private equity investments.  Furthermore, investment in healthcare and education has been also redoubling in this phase. Although this sector is traditionally fragmented its growth potential is of great significance in the sustainability of the growth momentum of the Southeast Asian region.

Although investment has been booming in the region, uncertainty about global economic growth and new technologies are bound to create turmoil across certain industries. ASEAN’s perspective and support by evaluating deals and encouraging cross-border expansions, regulatory developments, and integrating unicorn clusters are helping industries to maintain the growth momentum. Building commercial excellence to boost organic growth, identification of the right talent for the biggest roles, and making the most of digital technology are some of the paths that these entrepreneurs have taken in the Southeast Asian region to sustain their growth momentum.  However, at the end of the day, the continuation of this phase will depend on how these investors will skilfully maneuver across challenges they are faced with.

 


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