Investment in startups in Southeast Asia is projected to rise to $70 billion by 2024, thanks to government and private sector support and years of solid economic growth in the region, consulting firm Bain and Company said in a report. (Antara Photo/Rosa Panggabean)

Startup Investment in Southeast Asia Projected to Reach $70b by 2024: Study

BY : SARAH YUNIARNI

NOVEMBER 21, 2018

Jakarta. Investment in startups in Southeast Asia is projected to rise to $70 billion by 2024, thanks to government and private sector support and years of solid economic growth in the region, consulting firm Bain and Company said in a report.

The study titled "Investing in Southeast Asia: What's the Boom" estimates that the region will gain at least 10 new startups with a market valuation of $1 billion each within the next five years.

"Investment in Southeast Asia over the past decade has been surprisingly low, despite the region's average annual economic growth rate of 7 percent, a burgeoning middle class and a rapidly growing pool of digital natives. Such conditions have ignited a powerful investment dynamic in China and India," Bain and Company senior adviser for Southeast Asia, Suvir Varma, said in a statement.

He said private equity investment in the region had peaked at $9 billion for years, which resulted in the tipping point taking longer to reach.

"But years of having the right conditions in place helped speed the transition to this next phase of growth," Varma said.

Bain and Company noted that support by governments in the region has boosted the startup ecosystem, while also creating initiatives that play a key role in supporting venture capital and vibrant startups.

Southeast Asia has created a single trade bloc, improving the region's attractiveness as an investment destination, by reducing tariffs on goods and services and establishing a trade zone that operates more like a unified market than a patchwork of national economies.

The region has since 2012 seen the emergence of 10 unicorn startups – including Singapore-based ride-hailing firm Grab, Indonesian ride-hailing firm Go-Jek and online booking and ticketing company Traveloka – which have a combined market value of $34 billion.

Last year, the region recorded 524 deals by venture capitalists, a figure that has quadrupled since 2012. Meanwhile, the value of private equity deals rose 75 percent to $15 billion last year, breaking out of a decade of stagnant growth, the report said.

More than 1,300 companies in Southeast Asia secured seed rounds, or Series A funding, between 2011 and 2017.

Last year alone, 261 companies secured Series A funding – five times the amount recorded in 2011.

As the most developed in the region, Singapore is still Southeast Asia's investment hub, but a thriving startup ecosystem is emerging across the region, especially in Indonesia and Vietnam.

In a survey by the consultancy, nearly 90 percent of investors indicated that beyond Singapore, Indonesia and Vietnam were the hottest markets in Southeast Asia in 2018 and 2019.

Investors have shown interest in Indonesia, with the number of companies in the archipelago that raised first-round funding having increased by more than 300 percent last year, compared with 2012.

Strong exit deals and healthy returns also contributed to faster investment. Last year, exit deal value grew to $16 billion, up 86 percent from the previous five-year average.

Challenges and Upcoming Trends

A joint study by technology giant Google and Singaporean wealth fund Temasek showed that the region's internet economy is projected to generate more than $240 billion in revenue by 2025, due to the widespread use of smartphones.

Bain and Company also predicted that the financial technology sector in the region would pique the interest of investors, with the consulting firm expecting the region to gain another three or four unicorn startups by 2024.

The consultancy further reported that more than 60 percent of the top private equity and venture capital professionals in the region said technology would be the leading sector in terms of investment this year and next year.

As the ecosystem keeps growing and the number of successful investment stories continue to attract capital to the region, competition will intensify in the sector despite uncertainty in the global economy and the emergence of new disruptive technologies.

"Investing in Southeast Asia is taking off, but new challenges – notably intensifying competition and rising valuations, which are at their highest level in a decade – will require investors to tread carefully. At the same time, uncertainty about global economic growth is rising, and new technologies are accelerating disruption across many industries, which could turn up the pressure in sectors such as health care and med-tech," said Alex Boulton, principal of Bain and Company.

The consulting firm suggested companies expand their businesses out of their home bases, as the current trend shows that such actions accelerate growth, while also reducing the risks associated with generating revenue from a single market.

Companies must also increase their efforts to hire the right talent for leadership roles, as it is deemed a persistent challenge in the region.

The consultancy said more companies must embrace digital technology to keep up with the rapidly changing market.

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