Southeast Asia Has A Consumer Story To Tell

Southeast Asia has grown considerably well over the past decade.?

Since 2015, the region’s GDP has expanded by over 56%—from an estimated US$2.5 trillion to nearly US$3.9 trillion.

With the vibrant economic growth, the region emerged as a robust private capital market. Meaning, local and foreign private investors found it a strong market to park their money in. Particularly VCs, given the region’s nascent startup ecosystem.

As per a recent report by PitchBook, the VC deal count in the region more than tripled to 1,771 between 2015 and 2021, while the deal value grew 10x to US$18.1 billion.?

In 2022 came a turning point as the world plunged into a global slowdown and funding winter descended. Yet the region saw US$16 billion in venture capital invested across 1,688 deals. The startup story turned even more somber last year, thanks to rising geopolitical tension and a high-interest macro environment. So VCs wrote just 1,036 checks totaling US$11 billion in 2023.

Singapore and Indonesia rose as shining stars in the region, attracting the lion’s share of venture deals and dollars.

All this while, it is not just the robust economic growth that is making VCs all excited. A lot of it has to do with the region’s still unfolding consumer story.?

The region’s population is nearing 700 million, with Indonesia reaching 300 million people in the next couple of years. But what makes Southeast Asia stand out is how young its population is.?

The region’s median age of the population is younger than 30 years. For China, it is 39.8 years. Whereas, for the US and Japan, it stands at 38.5 and 49.5 years respectively.?

More interestingly, the working population of Southeast Asia is set to grow by 24 million people by 2030. And that will drive the spending power of younger generations, causing the middle and upper classes to expand. In turn, the region’s domestic consumption will rise steadily and healthily.

This young population is also driving the growth of the Southeast Asian digital economy, which is projected to reach nearly US$300 billion in just a couple of years.

VCs have been hooked on the Southeast Asian consumption story for a while now.?

That’s why consumer products receive a large proportion of VC dollars invested in the region. In 2023, more than 36% of VC money was invested into the B2C segment, up from around 17% in 2021, as per the PitchBook report. In comparison, this figure was 3.5% for the US last year.

However, between 2021 and 2023, the number of deals in the Southeast Asian B2C landscape dropped from 14.4% to 12.8%.?

This implies two things. First, investors wrote bigger checks. And second, the B2C space became more crowded and competitive. Since the sector already tested and launched business ideas that worked in more mature markets such as the US, Europe, and China, the speed of new idea implementation naturally slowed down, notes the PitchBook report.?

This year, so far the funding has remained stuck in the slow lane. Still, in February, regional startup funding increased to US$388 million across 63 deals from US$246 million in 61 deals in January, as per the data collated by DealStreetAsia.

Even as growth-stage capital and exits continue to be challenges that the Southeast Asian startup ecosystem is yet to overcome, entrepreneurs and investors do not doubt the future potential of the region.

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

Funds, More Funds

As per the data collated by PitchBook, the private capital raised by PEs and VCs in 2023 was around US$8 billion, a bit less than 2022, but considerably higher than 2020 and 2021.

Southeast Asia-focused investors continue to increase their dry power this year as well. For instance, the past week saw a slew of them hitting a close.?

Global investment firm B Capital has raised US$750 million for its second Opportunities Fund to invest in late-stage companies in tech, healthcare, and climate tech sectors primarily in North America and Asia. This fund nearly doubles the amount raised by its predecessor and will invest mostly in existing portfolio companies like Carro and Kopi Kenangan, while also seeking new ventures. Key to its strategy is leveraging its partnership with the Boston Consulting Group to provide portfolio companies with global consulting support.?

Philippines-based early-stage VC firm Kaya Founders has successfully raised over US$18 million as of the second close of its two latest funds. With investors like Pavilion Capital and Concentric Equity Partners on board, two-year-old Kaya is set to invest in 30 to 40 early-stage startups across Southeast Asia over the next four years from these new funds, dubbed Zero to One and One to Ten. Their focus? Innovative companies from pre-seed to series A stages, primarily in e-commerce, logistics, and fintech. Additionally, Kaya has been chosen as a co-investment partner for the US$8.9 million Startup Venture Fund, backed by the Philippine government to boost the local startup scene.?

The Malaysian Employees Provident Fund (EPF) will invest up to US$53 million (RM250 million) into the nation's mid-to-growth stage companies through its partnership with pan-Asian VC firm Gobi Partners. EPF is the largest domestic investor in the country with an AUM of RM702.48 billion (US149.4 billion) as of December 2023. These investments will target six key areas—healthcare (with a focus on the aging population), agricultural advancements, financial inclusivity, sustainable energy, quality education, and social infrastructure.

The National University of Singapore (NUS) has set aside US$14.9 million (S$20 million) for the development and commercialization of deep tech research, particularly those technologies that address global challenges like climate change and food security. Half of this investment will help NUS faculty and researchers bring their deep tech projects to market, while the rest supports the NUS Graduate Research Innovation Programme, aiding entrepreneurs in launching deep tech-based businesses. This move supplements NUS's collaboration with NTU and Temasek in a US$55 million deep tech initiative, for startups stemming from the two universities’ research.

What Stood Out This Week

Job Cuts: Temasek-backed cashback and rewards platform ShopBack has slashed 24% of staff, around 195 people, in the push for sustainable growth. Affected employees will be offered at least two months' payment, an additional month’s salary as severance pay for every full year of service, and a bonus equivalent to one month’s salary. ShopBack’s layoffs come a month after the company reported a 20% decline in revenue and a 29% rise in losses before tax for the financial year ending March 2023.?

Meanwhile, pan-Asian insurance firm FWD has laid off close to 10 employees in Singapore, as per a report by Tech in Asia. This comes a few months after FWD delayed plans for a Hong Kong IPO for the second in September 2023.?

GoTo Tales: Indonesian tech company GoTo Group is venturing deeper into financial services to drive growth by launching a buy now pay later service in partnership with TikTok.? The group’s fintech arm recently onboarded co-founder and former CEO of BNPL platform Atome David Chen, who now heads GoTo’s consumer lending and BNPL business. This comes almost three months after the two firms closed the merger of Tokopedia and TikTok Shop.?

Another good news for GoTo Group. They made a profit on an adjusted EBITDA basis in the last quarter of its 2023 fiscal year, as the group’s net revenue rose 26% to US$273 million. The company reached an adjusted EBITDA of US$4.9 million in Q4 2023, compared to US$197 million in adjusted losses a year ago. Thanks to the cost management and going after broader market segments, as per the company. Meanwhile, GoTo has announced a US$200 million share buyback program.

TikTok versus the United States: The US has passed the bill that forces TikTok's Chinese owner ByteDance to divest the U.S. assets of the short-video app within six months, or face a ban. ? TikTok—used by about 170 million Americans—is planning to exercise its legal rights to prevent a ban. The bill gives the company 165 days to file a legal challenge after it is signed by President Joe Biden. However, 2024 being the election year in the US will make it harder for TikTok to overcome this crisis.

Meanwhile, TikTok has earned a whopping US$16 billion in revenue for the US market in 2023. Overall, ByteDance recorded US$120 billion in revenue in 2023, up 40% from the previous year, driven by TikTok’s massive growth, particularly in China.

Buzzing Deals

• Singapore-based digital exchange Tokenize has landed an additional US$11.5 million in a series A round from VC firm Trive and high-net-worth individuals. This boosts Tokenize Xchange’s series A funding to US$23 million, taking it closer to its total target of US$33 million by the end of 2024. The startup will use the fresh money to expand its team, aiming to grow its headcount by 5x in Singapore in the next 18 months. Tokenize is also working to secure a digital payment token license in Singapore, where it is currently operating under an exemption. Founded in 2017, Tokenize also has a presence in Malaysia and Vietnam.
• Hong Kong-based blockchain gaming and NFT firm Animoca Brands has made a strategic investment into Param Labs, a United Arab Emirates-based game development company specializing in multiplayer blockchain games. While the deal size remains undisclosed, the move will accelerate Param’s scalable Web3 infrastructure and expand its intellectual property partnerships. More than that, this investment deepens Animoca Brands’ presence in the Middle East and North Africa.
• Singapore-headquartered independent gaming studio 9 Lives Interactive has raised a US$3 million funding round led by Mechanism Capital. Sfermion, 3Commas Capital, and Momentum 6 also chipped in. The startup will use the funds to develop its debut game featuring a cat-themed hero shooter called Nyan Heroes. Even though the game is still in the pre-alpha stage, it has seen over 13,000 sign-ups.
• Vietnamese electric vehicle maker VinFast’s founder Pham Nhat Vuong has launched a new venture called V-Green to develop and deploy an EV charging station ecosystem to support VinFast vehicles. Called V-Green, the new company will invest nearly US$404 million over the next two years to build new stations, and upgrade and complete VinFast’s existing charging infrastructure.?

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.