Ventures in the Southeast Asian jungle
By Sharmila Ganapathy-Wallace May 26, 2017
- Still sees a Series B gap and not enough later stage investors in the ecosystem
- Asean represents an enormous stand-alone opportunity for startups
JUNGLE Ventures managing partner David Gowdey (pic) points out that while Silicon Valley has the highest number of unicorns in the world, we don’t want to necessarily replicate Silicon Valley in Asia, as the former is highly structured, ultra- competitive and hard to break into.
“In this part of the world, there are a number of unicorns, the key point is that having high valuations is not the be all and end all. There are fantastic companies out there that are generating huge amounts of value creation, profits and doing phenomenal businesses that are never going to achieve this high valuation,” he emphasises during his talk at Wild Digital.
He notes that access to capital in this part of the world has gotten a lot better in the last few years.
“Over the last two years, a significant amount of fresh capital has been raised by local venture capital funds, predominantly for Series A investments, while later stage investors tend to be more globally focused.”
He says that in Southeast Asia (SEA) venture investments and mergers and acquisitions (M&As) have been growing.
“SEA also weathered the 2016 slowdown better than other regions. Corporates in this part of the world are actively investing in companies, whether it’s Singtel or Axiata. There’s just a lot of activity and that continues.
“The interesting thing that we’ve seen in the last three years is a lot of Series A investments and we’ve also seen a lot of the late stage investors starting to come into the market.”
According to Gowdey, CB Insights had VC investments in SEA at US$2.1 billion in 2016 (excluding family offices, HNIs and other sources of capital).
“If you remove the Go-Jek and Grab rounds from the Q3 2016 numbers, then investments have been on a downward trajectory in 2016. The first quarter of 2017 however, has started out strong and it appears that will continue throughout Q2.”
Gowdey points out that capital markets in SEA today are much more robust than three years ago. “Foreign investors have lead late stage investments (80% of all capital went into eight companies in 2016) and local/regional VCs have formed to support earlier stage companies. However, there is still a Series B gap and not enough later stage investors in the ecosystem.”
The CB Insights data showed that US$191.6 million was invested in 38 deals to Southeast Asian companies in the first quarter of this year, compared to US$87.3 million in the last quarter of 2016.
Commenting on M&A activity in SEA, Gowdey believes it will be interesting to see over the next few years whether Grab or Go-Jek will start to acquire smaller businesses and whether some traditional companies will start buying startups.
“Asean represents an enormous stand-alone opportunity for startups and is sizeable, in its own right, to generate billion dollar companies. Consumers are mobile, social and increasing their adoption of digital consumption. However much more growth is yet to come,” he enthuses.
SEA, he says, offers entrepreneurs some exciting possibilities from which to build strong digital businesses. These comprise strong macro tail winds (gross domestic product growth, emerging middle class, urbanisation, young populations), unique problem sets (un/underbanked population and logistics) and historically slow-moving traditional players, who to date, have under indexed on digital.
“There’s massive opportunity for value creation over the next 10 years,” Gowdey predicts.
A Singapore-based venture capitalist, Jungle Ventures invests across all early stages of startups. It has invested in more than 30 startups across the Asia Pacific region, including India, Singapore, Malaysia, Thailand and Indonesia.