In a report released in November this year by Bain & Company, Southeast Asia's venture capital and private equity market were examined in depth and the findings truly put into perspective the 'boom' that the region is experiencing. With investment continuing to pour in from all angles, venture capital and private equity investment in Southeast Asia will undoubtedly continue to grow over the coming years, as predicted by the report.
Now let's take a closer look at five of the key findings from Bain & Company, to draw a clear picture of the investment climate throughout the region and the factors and key players that have contributed to such rapid growth.
The number of venture capital deals in the region has quadrupled from 2012 to 2017.
According to the report, during the course of 2017, there were as many as 524 recorded venture capital deals–four times as many as 2012 levels. The significance of this finding is that after a decade of growth that was considered 'slow' and seemingly disproportionate to continuous GDP growth, now the quantity of the deals has increased sharply. This is one of the key reasons why the region is considered to have entered a growth phase that is anticipated to continue over the next seven years.
The value of venture capital deals has risen drastically compared to 2016.
Possibly the most dramatic increase of all those reported is the 75% increase from the previous year in the value of venture capital deals to $15 billion. Another catalyst for the growth phase, it is predicted the value of deals will hit $70 billion by 2024. The bulk of the new capital has been poured into the technology sector which accounted for 40% of new capital. This is double the figure recorded for new investment in the tech sector in 2012.
Southeast Asia has given birth to 10 unicorns.
A unicorn is a term that refers to new companies that reach a value of 1 billion dollars or more in a short timeframe. Since 2012, these 10 unicorns have accounted for $34 billion of new capital and the most prominent of these are namely Grab and Go-Jek. Grab, a ride-hailing start-up based in Singapore is by far the highest value of all unicorns, bringing in $11 billion dollars. Go-Jek, another ride-hailing startup, that is based in Indonesia is the second highest value unicorn at the $5 billion dollar mark. The rest of the unicorns are spread across e-commerce platforms such as Lazada and Tokopedia, online travel, gaming, and real estate.
The report predicts another 10 unicorns by 2024.
In a report released by Google and Temasek earlier this month, these sectors are the pillars for the 'start-up fever' and the internet economy that is taking Southeast Asia by a storm. We also examined this report and you can read it here.
Indonesia and Vietnam are rising in the ranks to compete with Singapore as Southeast Asia's 'investment hub'.
When thinking about investment in Southeast Asia, one's mind will most likely turn to Singapore, which is responsible for three of the top six highest-valued unicorns that have come out of the region (including the front-runner, Grab). However, as Southeast Asia continues to build an impressive eco-system of startups, investing is starting to spread more across other parts of the region, including Indonesia and Vietnam. The two nations generated 20% of the region's total private-equity deal value and that figure is predicted to grow over the next five years. In a survey produced by Bain & Company, an overwhelming 90% of investors believed that aside from Singapore, Indonesia and Vietnam will be the biggest markets for investment growth in the region.
Smart investment strategies will be key for private equity growth over the coming years.
Although the report paints a very promising picture of the investment climate going forward, there will always be challenges, especially as the region becomes saturated with more investors. Companies that diversify across Southeast Asia tend to grow faster and reduce the risks associated with relying on one single economy stream. It's also critical that these companies are continuously striving for commercial excellence and build their top line as well as utilising the digital tools that are available to improve their strategy and performance commercially.