Tech startups stay safe bet in ASEAN

Alibaba Group was last week reported to be in talks about a potential US$3 billion investment in Singapore’s Grab. Since its first investment in Lazada four years ago, this deal might be the biggest bet by the Chinese e-commerce behemoth in the region, Bloomberg reported, and it is placed on the ASEAN tech startup scene.

“The growing middle-class, deepening mobile penetration, and the increasingly tech-savvy population are key reasons attracting more and more foreign investors,” said Linda Liu, economist at Maybank Kim Eng.

According to the latest report by Singapore-based venture capital firm Cento Ventures, Southeast Asian tech startups raised US$5.6 billion in the first half of 2020, down 13% from the year earlier. This is less steep than the 16% drop in India and the 21% decline in the European Union.

In the second quarter, e-commerce startups were the most appealing, attracting US$691 million, followed by logistics (US$360 million) and fintech (US$496 million), according to numbers from DealStreetAsia.

Indonesian e-commerce unicorn Tokopedia was named the largest capital raiser in the region in the second quarter with US$500 million from Singapore’s Temasek Holdings.

Vietnamese e-commerce platform Tiki also secured US$130 million from private equity fund Northstar Group.

Since the demand for online shopping has picked up, logistics and delivery companies also received a great deal of attention from investors, as seen in the case of Singapore’s Ninja Van and Indonesia’s Kargo Technologies pulling in US$279 and US$31 million a few months ago. Ride-hailing giant Gojek also wrapped up a US$1.2 billion investment in March.

Traveloka, Southeast Asia’s largest online travel app, has bagged US$250 million to bolster operations in these volatile market conditions.

Meanwhile, hefty sums also found their way into fintech as investors still believe in the immense opportunities in this segment. In May, Singapore-backed Validus, the leading financing platform for small- and medium-sized enterprises (SMEs), secured more than US$14 million in its ongoing Series B+ funding round which was led by Vertex Growth Fund and Kuok Group’s Orion Fund.

“With the US-China tech war intensifying and tighter scrutiny by the United States and the EU on China’s tech investments, ASEAN’s startup scene will likely continue to see healthy flows, especially from China. Increasing appetite from a diverse group of foreign investors, such as those from the US, Japan, the Republic of Korea, as well as regional leaders Indonesia and Singapore, will also help buttress growth in ASEAN tech investments, including in Vietnam,” Liu added.

For example, in last July, Enterprise Singapore inked a partnership with Singapore-based venture fund Quest Ventures and Vietnamese government-backed Saigon Innovation Hub to expand its Global Innovation Alliance network to Ho Chi Minh City. The partnership will help connect Singaporean and Vietnamese tech startups to set up, test-bed, and commercialise solutions.

Vietnam has the third-largest population in the region and has a sizeable and young consumer base with growing disposable income – 70% of the population is under 35 years of age and its emerging middle class is expected to reach 26% of the population by 2026.

Today, only Indonesia, Singapore, and Vietnam in ASEAN are home to companies valued above US$500 million, with the likes of VNG, VNPay, and Tiki. Vietnam leapfrogged from the second least active tech startup ecosystem to the third-largest within ASEAN between 2017 and 2019.

Despite the pandemic, investment flows into Vietnam’s startups were still impressive, retaining its fourth position with US$166 million in the first half of 2020, after Indonesia (US$2.8 billion), Singapore (US$447 million), and Thailand (US$176 million).

Besides, the country has been ranked by Euromonitor International second after the US among the world’s most active, dynamic, and potential markets for mergers and acquisitions deals this year.

“The increasing number of internet users, rising internet penetration, and steady increase of the share of e-commerce in total retail sales in Vietnam makes it a core and high-potential market for us. Vietnam presents a tremendous opportunity for us to grow and succeed in the digital space, with large marketplaces such as Shopee, Lazada, Tiki, and Sendo – all of whom are our merchant partners – experiencing record-breaking growth in the past year,” Jacky Ha, commercial director of ShopBack, Vietnam told VIR.

Apple Thy, country market manager at Traveloka Vietnam, also said, “We see various exciting opportunities in Vietnam to expand our business and we will continue to innovate our products and services to cater to the evolving needs of our users as well as look for collaborations with our key stakeholders, especially the government.”

Likewise, Swaroop Shah, CEO of Validus Vietnam, said the country is one of their key geographies given its huge untapped market and fragmented competitive landscape. Within its first year of operation, Validus has emerged as the leading SME lending marketplace in Vietnam with zero non-performing loans during the COVID-19 outbreak.

Sha added that the current downturn actually urges the market to rationalise. Most tech startups are focusing on profitability and sustainability, a totally different landscape compared to a few years back when everyone was pushing for growth at any cost. This will eventually provide better value for investment.

Some tech startups even lower their valuation which makes it a good time to invest, given the long-term potential.