On the right track: Southeast Asia set to drive Asia’s growth in the 2020s

In 2019, private equity firm Asia Partners released a ten-year outlook for Southeast Asia.?

Southeast Asia is entering a golden age of rising affluence that has been associated with large tech companies' formation in China, Korea, and Japan in the past.?

That’s what it said then.?

Three years down the line, Asia Partners reviewed its prediction and concluded it still holds true, despite the Covid-19 pandemic and economic slowdown derailing the region’s growth.?

More importantly, in its 2023 Southeast Asia Internet Report, Asia Partners reaffirmed that Southeast Asia will drive Asia’s growth in the 2020s.?

Another prediction that the PE firm made was this: Southeast Asia would produce more than 20 billion-dollar tech companies by 2029 and at least half of them will pursue IPO over the next decade.?

Asia Partners’ latest report noted that the region is already ahead of this trend—having seen seven tech unicorn IPOs since 2019, including that of tech giant GoTo and e-commerce firm Blibli.?

In fact, Asia Pacific was the bright spot for the global IPO market last year. With 845 IPOs totaling US$120.6 billion in proceeds, the Asia-Pacific IPO market took the smallest hit by the global economic downturn and geopolitical tensions, accounting for 63% of global deals and 67% of global proceeds in 2022, as per EY.?

China played a major role, of course. Southeast Asia, on its part, saw 136 IPOs with total proceeds of US$6.3 billion—although it was 52% lower than US$13.3 billion raised from 152 IPOs in 2021.?

Overall, the total number of technology, media, and telecom companies with over a US$1 billion market cap in Southeast Asia grew from 9 in 2004 to 28 in 2022. And Asia Partners is confident of the region hitting its IPO target by 2029.?

When it comes to private markets, the region boasts 52 unicorns. Unsurprisingly, the total private funding in Southeast Asia in 2022 dropped 32% to US$15.8 billion from 2021’s record high of US$23.18 billion.

What stood out was that there were almost 10% more deals last year than in 2021. Well, investors did rush to pick early-stage bets amid all the uncertainty, so they wrote a larger number of small checks.

Now Asia Partners predicts 2023 will have its own challenges, but deal-making won’t come to a standstill. Moreover, the PE firm believes it will be investors calling the shots this year.?

On that note, let’s dive in for this week’s recap.?

Dry Powder Power

It’s no secret that PEs and VCs globally are sitting on a huge pile of cash.?

Their dry powder—the money they have raised but not yet deployed—is at a record high. US$1.3 trillion for PEs and US$580 billion for VCs, despite everything.?

And this week, we saw more investors adding onto that dry powder.

Two Singapore PE firms—Capital Square Partners (CSP) and Basil Technology Partners (BTP)—came together to establish and close the US$700 million CSP Fund II for tech investments.?

The new fund, backed by global PE firms including HarbourVest, TPG NewQuest, and Committed Advisors, will be managed by executives from both CSP and BTP.

Singapore- and New York-headquartered B Capital Group has closed approximately US$2.1 billion Growth Fund III. The seven-year-old VC firm will deploy the capital for growth investments—series B and above—across the globe, specifically in companies in the US and Asia, over the next three years.

CVC Capital Partners has also reportedly reached the first close of its sixth Asia fund at US$3.5 billion. The fund has a hard cap of US$6.5 billion, as per Mergermarket.?

Ups and Downs this week

First, the buzzing deals. Singapore-based fintech firm Pilon has raised a US$5.2 million seed round led by Wavemaker. The fact that the firm works with banks and financial institutions in Southeast Asia to digitalize their business processes—an area investors have been gung ho about since the pandemic days—explains its relatively large seed investment.??

Another Singapore-based firm, Transcelestial, which offers wireless technology that creates an invisible laser communications network between buildings, cell towers, and poles without needing physical wires, has raised US$7 million in fresh funding for its series A2 round, led by?Airbus Ventures and Kickstart Ventures.

Indonesia-based online marketplace for creators and influencers, Desty, has raised US$4.35 million in fresh funding for its extended pre-Series A round from its existing backers including Square Peg Capital and Jungle Ventures.

In the Philippines, Mayani, an agritech firm has secured US$1.7 million in a seed funding round led by Silicon Valley investor AgFunder.?

Elsewhere in Asia, Indian fintech firm PhonePe has raised US$350 million at a US$12 billion valuation from General Atlantic. The deal, which made PhonePe a decacorn, marks the first tranche of a US$1 billion fundraise that the company has been targeting.?

In China, Fengtai Technology, an industrial information security provider, secured US$36.8 million in series B funding from Addor Capital, China Capital Management, and China Internet Investment Fund. Shein, the fast-fashion retailer which is eying an IPO, is looking to raise up to US$3 billion at a marked-down valuation of US$64 billion, as per Financial Times.?

On the downside, the brutal layoffs have continued in the tech sector. Google’s parent company Alphabet axed 12,000 jobs—or 6% of its workforce—last week. Now joining the likes of Google, Microsoft, Meta, Amazon, and Salesforce are IBM and Spotify, which are slashing 3,900 and 600 jobs, respectively.

Rise of Climate tech funding in Southeast Asia

Climate tech emerged as one of the sunrise sectors in 2022. According to a new report by DealStreetAsia, climate technology companies in Southeast Asia raised US$1.11 billion in venture capital in the first 11 months of 2022.?

This was almost double the US$607 million that VCs invested in climate tech firms in 2021, a record year for startup funding across the globe.??

Climate tech companies offer solutions that either mitigate climate change by reducing greenhouse gas emissions or aid the world in adapting to the impact of climate change. It is the first time Southeast Asian startups working on such solutions have raised more than a billion dollars in a year.?

For context, between 2012 and 2021, climate change-focused companies in the region raised a total of US$1.71 billion. Overall, climate tech investments accounted for 7.8% of total venture funding in Southeast Asia in 2022, compared to 2.6% in 2021, the report said.?

Singapore-based climate tech startups received 80.4% of the overall financing since 2012, while Indonesian and Vietnamese climate tech firms accounted for 13.1% and 5.3% of total funding, respectively. Among all the climate tech segments, the renewable energy sector shined the most, receiving 41.5% of the total climate financing since 2012.

And that’s the wrap for this edition of #ICYMI. We will continue to curate the weekly highlights of the Asian tech ecosystem in case you missed what made the buzz in the week that just went by. You can subscribe to #ICYMI to get it every Thursday to stay abreast of noteworthy tech developments.