Southeast Asia Digital Economy: Investor Growth

Southeast Asia's Rising Tech Investment

Tech firms located throughout Southeast Asia are increasingly capturing the interest of global investors. The amount of capital raised by startups in the region exceeded $8.2 billion in 2020. This represents a substantial increase – approximately fourfold – compared to the figures recorded in 2015.

The upward trajectory persisted into 2021, as mergers and acquisitions (M&A) activity reached an unprecedented peak. The first six months of 2021 witnessed $124.8 billion in regional M&A deals, marking an 83% surge year-over-year.

Consequently, a crucial inquiry arises: which entities are actively investing within Southeast Asia?

Key Investor Groups in Southeast Asia

An examination of the current investment landscape reveals three primary categories of investors who are fueling expansion and innovation within Southeast Asia’s technology sector.

• Venture Capital Firms: These firms specialize in providing funding to startups and small businesses with high growth potential.
• Corporate Venture Capital (CVC): Large corporations are increasingly making direct investments in promising tech companies.
• Private Equity Firms: These investors typically acquire established businesses, aiming to improve their operations and increase their value.

Each of these investor types plays a distinct role in shaping the future of the Southeast Asian tech ecosystem. Their combined contributions are driving significant economic development and technological advancement.

Big Tech in Southeast Asia

Southeast Asia is increasingly appealing to technology companies from both the United States and China. The region boasts a 70% internet penetration rate, exceeding the worldwide average.

Digital service adoption is still developing; significant growth in areas like e-wallets and online shopping only began with the onset of the pandemic.

Early Chinese Investment

Tencent and Alibaba, leading Chinese tech companies, were early investors in Southeast Asia’s e-commerce sector. They provided crucial support to companies like Sea Limited and Lazada.

Their involvement has since broadened to encompass various other internet-based services. Alibaba’s portfolio includes investments in Akulaku, M-Pay (eMonkey), DANA, Wave Money, and Mynt (GCash).

Tencent, similarly, has invested in Voyager Innovations (PayMaya), SHAREit, iflix, Ookbee, and Sanook, demonstrating a strong commitment to the region.

U.S. Tech Firm Expansion

American tech companies have also recently increased their presence in Southeast Asia. In June 2020, Gojek secured $3 billion in Series F funding from investors including Google, Facebook, Tencent, and Visa.

Google, in collaboration with Singapore’s Temasek Holdings, invested approximately $350 million in Tokopedia in October of the same year.

Microsoft’s involvement dates back to 2018 with an undisclosed investment in Grab. Further solidifying their commitment, they invested $100 million in Indonesian e-commerce company Bukalapak.

Key Investments Summary

• Alibaba: Akulaku, M-Pay (eMonkey), DANA, Wave Money, Mynt (GCash)
• Tencent: Voyager Innovations (PayMaya), SHAREit, iflix, Ookbee, Sanook
• Google: Gojek (with Facebook, Tencent, Visa), Tokopedia (with Temasek Holdings)
• Microsoft: Grab, Bukalapak

Venture Capital Investments in Southeast Asia

During the first quarter of 2021, startups located in Southeast Asia secured $6 billion in funding, as reported by DealStreetAsia. This surge in investment indicates that 2021 is poised to be another year of record-breaking venture capital activity within the region.

The area is increasingly gaining recognition as a prime location for capital investment when compared to other parts of Asia. A significant expansion in regional VC investment occurred between 2015 and 2020, increasing 5.2-fold from $1.6 billion to $8.2 billion, as illustrated below.

Southeast Asia presents numerous avenues for VC investment, particularly considering its market size. Between 2015 and 2020, China experienced approximately $300 in VC investment per capita.

In contrast, Southeast Asia’s equivalent figure was $47.50 per capita, representing just one-sixth of China’s level, despite recent substantial investment increases. This disparity suggests considerable potential for further investment to foster the region’s expanding digital economy.

Factors Driving Investment

The region’s expanding population and promising growth trajectory are becoming more attractive as China faces demographic challenges. Furthermore, China’s digital economy is experiencing increased market saturation and maturity.

Family Offices

Southeast Asia is attracting significant interest from family offices, with many choosing to establish operations in Singapore. Since 2020, over 229 such offices have been officially registered in Singapore, managing an estimated $20 billion in assets, as reported by the Monetary Authority of Singapore (MAS).

The first international office of Vulcan Inc., the family office of Microsoft’s co-founder Paul Allen, commenced operations in Singapore in 2019. Similarly, Bayshore Global Management, overseeing the family wealth of Google co-founder Sergey Brin, also set up a hub in Singapore during 2020.

Recently, prominent figures like Ray Dalio, founder of Bridgewater Associates, and James Dyson, founder of Dyson, have also established family offices within Singapore’s financial landscape.

Billionaires originating from East Asia are also participating in this trend. Shu Ping, who founded the globally recognized Haidilao hotpot chain, launched Sunrise Capital Management in Singapore in 2019.

Furthermore, the family office associated with Joseph Phua, managing partner of Turn Capital and co-founder of the Taiwanese livestreaming platform 17Live, completed acquisitions of both Taiwan-based Dapp Pocket, a blockchain firm, and Coinomo, a cryptocurrency exchange, in 2021.

Investment Trends

Family offices located in the Asia-Pacific region are demonstrating a growing preference for allocating private equity funds to investments in venture and growth-stage companies. According to UBS, 77% of APAC-based family offices are currently engaged in growth-stage investments.

A substantial 66% are also actively pursuing venture-stage investment opportunities. These figures exceed the global averages of 70% and 57%, respectively, indicating a heightened appetite for risk and innovation within the region.

The Future Trajectory of Technology in Southeast Asia

Southeast Asia is rapidly ascending as a significant force within the global technology landscape, driven by a beneficial geopolitical situation and a demonstrated history of successful exits for investors.

The region boasts a youthful and digitally adept populace, with an average age of 27. Recent data indicates that the year-over-year growth in internet users within Southeast Asia has exceeded that of South Asia, China, and the United States.

The digital economy of Southeast Asia is currently in a relatively nascent phase of development. Representing only 3.7% of the region’s overall economy, it is projected to more than double in size by 2025.

This expansion signifies considerable potential for further growth, particularly when contrasted with the levels of digital penetration observed in more established markets.

The surge in mergers and acquisitions, alongside increased activity involving U.S. Special Purpose Acquisition Companies (SPACs), suggests a positive outlook for future investment, even for companies in their early stages.

A growing number of investors are becoming more willing to allocate capital to younger companies, establishing clear pathways for realizing returns through acquisitions at reasonable valuations or Initial Public Offerings (IPOs).

While China currently dominates as Asia’s most active venture capital ecosystem, its leading position may face challenges in the long run.

These challenges stem from external pressures, such as geopolitical friction with Western nations, and internal obstacles, including restrictions on foreign listings and increased regulatory scrutiny of internet services.

Governments throughout the rest of Asia are actively learning from China’s experiences and are deliberately avoiding similar restrictive policies regarding regulations and governance.

Southeast Asia, in particular, presents a highly conducive environment for growth, characterized by supportive policies and incentives designed to attract technology companies.

Furthermore, the region fosters innovation through the creation of regulatory sandbox environments, allowing for the experimentation and testing of novel technologies.

Key Factors Driving Growth

• Young Population: A demographic advantage with a high proportion of tech-savvy individuals.
• Digital Economy Expansion: Significant potential for growth in the digital sector.
• Favorable Policies: Supportive government regulations and incentives.
• Investment Trends: Increasing M&A activity and SPAC interest.

These elements collectively position Southeast Asia as a compelling destination for technology investment and innovation.