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A look at investments in the digital future following a strong momentum for Southeast Asia’s internet economy in 2020

THE YEAR OF COVID was also the year that technology proved itself to be indispensable in people’s daily lives in Southeast Asia. It kept locked-down consumers connected and entertained. It helped sustain businesses. It kept people supplied with deliveries of food and other essential goods. It maintained their health with online doctor appointments, and kept them educated with online classes. On average, Southeast Asians spent an hour more a day on the internet during pandemic-imposed lockdowns. Forty million new internet users were added in Singapore, Indonesia, Malaysia, the Philippines, Thailand and Vietnam last year, giving the region 400 million users, with 70% of Southeast Asia online, according to research conducted by Bain & Company, Google and Temasek.

Now, as we start to glimpse a world beyond COVID-19, what will the lessons of 2020 mean for investments in the digital future?

The outlook for the internet economy has never been more robust. Our research found that 90% of new users of digital services plan to continue using them. So even when people put away their masks and life returns to something resembling normal, consumption of digital services is expected to continue to rise.

In addition to strong demand and a vibrant digital ecosystem to support it, there is an abundance of capital for investment, with private equity investors sitting on record levels of dry powder. Sequoia Capital and Wavemaker Partners both announced the close of their Southeast Asia funds in July 2020, while others like Openspace Ventures had completed their first close. In January, 2021 Tower Capital Asia reached the first close of its Southeast Asian private equity (PE) fund, Tower Capital PE Fund I, at $250 million, and in March, Asia Partners Fund Management had the final close for its $384 million debut fund, the largest first-time tech fund focused on the region.

The number of tech investments by private equity and venture capital (including early stage) has risen in recent years, and largely maintained its momentum during 2020. The total value of investments in non-unicorn companies (those valued at less than $1 billion) exhibited strong growth. Early-stage funding (Seed, Series A, Series B) makes up more than 95% of yearly deal transactions and the average deal size for early-stage funding continues to swell. Between 2016 and 2020, Series B doubled while Seed and Series A nearly tripled. At the same time, however, mid-stage funding plateaued. There were 17 Series C and D deals in the first half of 2020, down slightly from 19 in the same period the year before, with the total amount raised increasing by 9% to $700 million.

While non-unicorn investing rose steadily, big-ticket unicorn investments declined since 2018. Southeast Asia is home to 12 unicorns in the consumer internet space. Among those, Transport & Food unicorns received the lion’s share of all funds from both private equity and venture capital that were raised between 2016 and 2019 — $15 billion out of $40 billion. E-Commerce unicorns came in second, with $7 billion. These two sectors are now mature and heavily consolidated around a handful of late-stage champions. It is unlikely that they will continue to see record rounds of fundraising.

Online Travel is largely consolidated around a few global and regional players, with a level of investment that historically has been lower than Transport & Food and e-Commerce. Although this sector was buffeted by structural challenges during the pandemic, it remains fundamentally attractive. Investors injected fresh rounds of capital into Traveloka in July 2020, for example.

There is a fundamental issue at hand for unicorns: because investors have become more cautious about heavy cash-consuming businesses, these late-stage companies need to focus more on their path to profitability.

Indeed, investors are concerned about the high multiples of internet and tech companies. They will be more selective and prefer companies that, even if not yet profitable, can show a trajectory to positive unit economics and a high ratio between customer acquisition cost and customer lifetime value. Investors also are more focused on companies with technology that drives improvements in efficiency and service (e.g., logistics, access to healthcare).

Unicorns have gotten the message and are publicly addressing the issue. For example, Indonesia’s e-commerce company Bukalapak announced its focus on increasing gross profits rather than focusing on transaction growth or GMV. Similarly, Grab streamlined its core businesses to emphasize Digital Financial Services, Transportation and Delivery, a move that is aimed at helping the super app move toward profitability.

While e-Commerce, Transport & Food, Travel and Media are largely consolidated and have seen multiple rounds of late-stage funding over the past three years, much of the deal activity has shifted to the nascent sectors of FinTech, HealthTech, and EdTech. For example, FinTech continued to ride its momentum with a wave of prolific investments despite the pandemic. In 2020, Indonesia’s Moka was acquired by Gojek, Myanmar’s Wave Money secured an injection from Ant Financial, and Grab raised fresh capital from MUFG. More investments and consolidations are expected in the coming years as financial and strategic investors capitalize on the fast-growing digital financial services sector.

Even with record amounts of available capital, investors in the region spent the first half of 2020 concentrating on steering their portfolio companies through the COVID-19 storm. Deal activity resumed in the second half of 2020 and has continued into 2021. Yet as investors show a growing appetite for the internet and tech sector, they also are being more selective, cautiously separating the wheat from the chaff before signing the term sheet.


Alessandro Cannarsi is a Bain & Company, Inc. partner based in Singapore, Bennett Aquino is an associate partner based in Singapore.

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