8 Predictions for the Southeast Asian Tech Scene over the next 24 Months. Feb 2018

Transcription

1 8 Predictions for the Southeast Asian Tech Scene over the next 24 Months Feb 2018

2 Foreword Dear readers, Since 1999, I have been very fortunate to be part of the Southeast Asia (SEA) tech scene as an entrepreneur and investor, witnessing its explosive growth from nothing to its booming state today. Luke and I cofounded Catcha Group to build disruptive tech businesses from SEA, and our journey has been one where even our sometimes crazy expectations have been exceeded. There are now tens of thousands of people working in businesses like those we imagined, including 3,000 in our own companies, and SEA has become an emerging markets benchmark and test bed, enabling the lessons learned in this part of the world to be deployed in developing nations globally. The innovation of companies in SEA has become something to emulate and admire. In 2017, we decided to put together a report to analyse the next stages in the evolution of the SEA tech ecosystem as we saw it. That time was a poignant one for us, as it marked 10 years since we had founded iproperty, a company we sold in 2016 in one of the largest exits in SEA internet history. In this new report, we review the predictions that we made in 2017 and make 8 new predictions on the direction of the SEA tech scene over the next 24 months as we run up to Catcha s 20th anniversary of creating internet businesses in SEA. Hope you find this interesting and we can t wait to see what excitement the future brings. Patrick Grove If you have any questions on the report, please reach out via enquiries@catchagroup.com. Opinions expressed are solely perspective of Catcha Group. Neither Catcha Group or any of its respective affiliates or employees makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this document. All figures as in USD. 2

3 Review of our 7 predictions for the SEA tech scene made in Jan SEA will become a bigger internet market than the USA 2. Funding will be harder to get 3. At least three companies will raise $100m+ rounds 4. There will be another exit (IPO/M&A) in excess of $500m 5. The year of China 6. There will be a widespread embrace of fintech 7. A different startup will run out of money every week? By the end of 2017, the region attained 330m active internet users, overtaking the USA Number of deals fell by 34% from Grab, Go-Jek, Tokopedia, Traveloka, iflix and OneChampionship all raised $100m+ rounds Sea Group IPO-ed on the NYSE at $4.9bn and Razer IPO-ed on the SEHK at $4.4bn Alibaba, Tencent and Didi led three investments into Tokopedia, Go-Jek and Grab respectively representing the three biggest tech deals, worth $4.3bn in total, i.e 72% of total deal value in 2017 Total fintech funding increased by 40%. There are more payment apps than ever before in SEA this is a tricky one we have yet to find any evidence to either prove or disprove this Source: Google-Temasek e-conomy SEA Spotlight 2017, Pitchbook, Crunchbase, UOB State of Fintech in ASEAN, Tracxn. 3

4 8 predictions for the SEA tech scene over the next 24 months 1. By the end of 2019, SEA will have 460m internet users and $10bn raised in private tech funding 1 2. First Decacorn ($10bn+ valuation) will emerge from SEA 2 3. A new Unicorn will be built in less than 3 years from launch 3 4. Chinese companies remain the largest source of tech funding 4 5. At least 2 more IPOs in excess of $500m 6. Consolidation of the SEA tech landscape there will be 2 acquisitions in excess of $500m 6 7. Corporates and governments in SEA will invest at least $1bn in the startup ecosystem 7 8. At least one SEA country will accept/issue a virtual currency as a legal tender 8 4

5 Snapshot of the SEA tech ecosystem from 2001 to 2017 Seed Venture Growth Lack of Funding $11m raised in 14 private tech fundraising rounds.* Dotcom bust made raising public money for tech businesses harder in SEA Poor Internet Infrastructure 10% Internet Penetration; 0.6% broadband penetration Little Government Support Only SG and MY had formal govt agencies to support tech ecosystem Few Tech Entrepreneurs and Talent Small handful of tech businesses with limited success at the time Internet and Mobile Infrastructure Boom : Internet users and speed increased by 5x and 10x respectively :Smartphone sales increased by 4x, and avg device price dropped by 2x; mobile internet speed increased by 2x Influx of Early Stage Funding AWS s entrance lowered the cost of capital, making it cheaper than ever to start a tech business : Number of private tech deals increased 95% on average annually, with majority of funding concentrated in early-stage startup Foreign Tech Companies Entrance Entrance of foreign tech companies created more tech jobs. Rocket Internet attracted talent and capital into SEA Unicorn Era 6 unicorns were founded between , all took 4.7 years on avg to achieve unicorn status Private Tech Funding Explosion : Funding Value grew at a 94% CAGR, but 90% of total funding in 2017 went to 10 startups. Unicorns are using these funds to grow via M&A More Foreign Interest Than Ever : Two of the biggest SEA Tech acquisitions (JobStreet and iproperty) by Australian corporates. 2017: Chinese tech giants were involved in the 3 biggest tech deals Active Government Support Governments are actively pushing digital agendas and introducing more startup-friendly policies, from tax incentives to immigration law More Local Corporate Involvement Than Ever SEA-based corporates are actively engaging with startups via partnerships/investments, but yet to engage in significant M&A * Funding figures are only based on publicly available data, we acknowledge that data might be incomplete during this period. 5

6 Number of internet users in SEA increased by ~17x since 2001 overtaking major developed countries SEA # Internet Users ( ) 000 Overtook USA # Internet Users 330m Overtook combined # Internet Users of Germany, UK and France 219m 246m Overtook Japan # Internet Users 111m 127m 148m 166m 186m m 24m 29m 37m 48m 58m 68m 75m 80m Source: World Bank, Google-Temasek Report, Internet Live Stats 6

7 Fixed broadband speed increased by 10x since 2007, improving user experience for internet-based products SEA Fixed Broadband Speed ( ) 11.2M 7.8M 1.1M 1.2M 1.5M 1.6M 1.9M 2.3M 2.9M 3.9M 5.5M 10x Source: Akamai 7

8 SEA private tech funding increased exponentially from 2010 once the region had more than 100m internet users SEA Private Tech Funding ( ) % increase in funding as # internet users exceeded 250m $5,954.3m % increase in funding as # internet users exceeded 100m Smartphone sales increased by 4x, average price per smartphone dropped by ~2x, funding increased by 531% $0.0m $0.0m $0.3m $0.0m $6.9m $4.0m $6.0m $4.7m $5.2m $90.8m $213.3m $128.6m $1,271.0m $507.0m $811.0m $2,285.4m Source: Crunchbase, Pitchbook; Figures are as at 31 Dec Only disclosed deals from startups that are backed by angels, accelerator/incubator, seed funds, and VC/PE funds are included. Funding figures from 2001 to 2006 are based on publicly available data and we acknowledge that data might be incomplete during that period. 8

9 Larger internet population and better internet speed led to exponential growth in SEA private tech funding SEA Private Tech Funding, # Internet Users, Fixed Broadband Speed ( ),000,000,000,000,000 In 2014, SEA dominated the top 3 on the list of countries with most app downloads per user globally, with Malaysia topping the chart at 4.84 app downloads per user, followed by Indonesia of 4.15 and Philippines of m 127m 148m 166m 186m 219m 5.5M 246m 7.8M 330m 11.2M $5,954.3m ,000,000 -, m 75m 80m 3.9M $2,285.4m 2.9M 2.3M 1.9M $1,271.0m 1.5M 1.6M 1.1M 1.2M $811.0m $507.0m $6.0m $4.7m $5.2m $90.8m $213.3m $128.6m Internet Users 39% Funding 1646% Internet Speed 37% Funding 60% Internet Users 17% Internet Speed 44% Funding 161% Source: World Bank, Google-Temasek Report, Internet Live Stats, Akamai, Crunchbase, Pitchbook; Figures are as at 31 Dec Only disclosed deals from startups that are backed by angels, accelerator/incubator, seed funds, and VC/PE funds are included. 9

10 1 Prediction: By the end of 2019, SEA will have 460m internet users and $10bn raised in private tech funding,000,000,000,000,000,000,000 0 SEA Private Tech Funding, # Internet Users, Fixed Broadband Speed ( E) 166m 148m 127m 111m 68m 75m 80m 2.9 M 1.1 M 1.2 M 1.5 M 1.6 M 1.9 M 2.3 M $1.3bn $0.8bn $0.0bn $0.0bn $0.0bn $0.1bn $0.2bn $0.5bn $0.1bn 330m 246m 11.2 M 219m 186m 7.8 M $6.0bn 5.5 M 3.9 M $2.3bn 386m 16.0 M $8.5bn 22.8 M E 2019E 460m $10.0bn The 2018E and 2019E estimates for the # internet users assumes that 2017 # internet users continue to grow at the average annual growth rate between 2009 and was the year that # internet users started to grow massively between 2009 and 2010, the # internet users increased by 39%, highest YoY growth since 2001 The 2018E and 2019E estimates for fixed broadband speed assumes that the 2017 speed continues to grow at the average annual growth rate between 2014 and was the year that internet speed saw a massive improvement between 2014 and 2015, internet speed improved by more than 40% YoY for the first time Source: World Bank, Google-Temasek Report, Internet Live Stats, Akamai, Crunchbase, Pitchbook; Figures are as at 31 Dec Only disclosed deals from startups that are backed by angels, accelerator/incubator, seed funds, and VC/PE funds are included. 10

11 The SEA tech ecosystem in 2017 is like China in 2008 = China in 2008 SEA in 2017 Internet Population 300m 330m Combined Market Capitalisation of Market Leaders ~ $22bn ~ $22bn Tencent: $13bn Baidu: $6.6bn Tencent: $13bn Baidu: $6.6bn Source: World Bank, Internet Live Stats, Crunchbase, Company Annual Report, Press Releases 11

12 2 Prediction: First Decacorn ($10bn+ valuation) will emerge from SEA China in 2010 = SEA in 2019E Internet Population 459m 460m Combined Market Capitalisation of Market Leaders $94.5bn Tencent: $13bn Baidu: $6.6bn $86.5bn* Tencent: $13bn Baidu: $6.6bn Average SEA unicorn valuation could reach up to $12.4bn Source: World Bank, Internet Live Stats, Crunchbase, Company Annual Report, Press Releases. *Estimation is based on extrapolation from SEA market capitalisation in 2017, assuming SEA between 2017 and 2019 achieve the same growth rate of market capitalisation per internet user as China between 2008 and

13 Global internet companies entered SEA via organic expansion, investments and acquisitions SEA # Internet Users ( ) 0,000 0,000 The entrance of Rocket Internet and AWS kickstarted the SEA startup scene s flywheel 330m 246m 0,000 0,000 0,000 Influx of USA tech companies into SEA 111m 127m 148m 166m 186m 219m 0,000 68m 75m 80m 0, Source: World Bank, Google-Temasek Report, Internet Live Stats 13

14 Rocket Internet brought capital and talent into SEA whilst AWS lowered the cost of starting up a tech business Talent Thriving Startup + Capital + Infrastructure = Ecosystem Unicorns founded Investors Entrepreneurs AWS expanded to SEA in 2010, creating price competitiveness with local cloud computing providers AWS lowered the cloud computing cost by almost 100x compared to the early 2000s This made it cheaper than ever to start a tech startup Talent, capital and infrastructure combined to create a powerful tech startup ecosystem, creating a SEA Unicorn era Source: a16z, Press Releases, LinkedIn, Company Websites 14

15 Private funding increased exponentially since 2010, but was highly concentrated in late-stage startups in 2017 SEA Private Tech Funding ( ) Number of deals fell by 34% while total deal value increased by 2.6x $2.3bn $6.0bn $5bn to five startups $1.3bn $0.8bn $0.5bn $0.1bn $0.2bn $0.1bn Early-Stage Late-Stage Number of Deals Early-stage Capital Influx Concentration of Late-stage Funding Source: Pitchbook, Crunchbase; Figures are as at 31 Dec Only disclosed deals from startups that are backed by angels, accelerator/incubator, seed funds, and VC/PE funds are included. Late-Stage funding includes deals that are larger than $20m. 15

16 Largest SEA private funding rounds in Indonesia and Singapore tops the list 4,000 3,500 3,000 $3,440m 90% of total funding in 2017 went to 10 startups Super concentrated: 90% of funding went to 4% of deals 90/4, not even 80/20 HQ 2,500 2,000 1,500 1, Founded / # Employees Industry - $2,000m $1,750m SG IDN IDN IDN MY SG TH SG SG SG 2012 / 8,300+ $1,348m $1,200m $1,100m 2010 / 2, / 1,410+ $500m $500m 2012 / 1,460+ $303m$223m Grab GO-JEK Tokopedia Traveloka iflix One Championship 2014 / 603+ $100m $100m $101m $65m $161m $84m $50m $50m $45m $45m Transportation Transportation E-commerce Online Travel Media Media E-Commerce Retail Finance Transportation 2011 / 95+ acommerce 2013 / 710+ Trax Image Recognition 2010 / 236+ Singapore Life 2014 / 20+ Total Raised to-date Total Raised in 2017 Obike 2016 / 100+ Latest Round Date Jul 2017 May 2017 Aug 2017 Jul 2017 Aug 2017 Jul 2017 Nov 2017 Jun 2017 Apr 2017 Aug 2017 Recent Investors Source: Crunchbase, Pitchbook, LinkedIn; Data is as at 31 Dec Only disclosed deals from startups that are backed by angels, accelerator/incubator, seed funds, and VC/PE funds are included. 16

17 3 Prediction: A new Unicorn will be built in less than 3 years from launch Companies Year Founded Year achieving Unicorn (or $500m+ Valuation*) Years Taken JobStreet * 19 iproperty * 8 Garena Tokopedia Go-Jek Lazada Traveloka Grab Company X 2018/ < 3 years It is becoming faster than ever to become a Unicorn it took 4.7 years on average for the Unicorns above to attain $1bn+ valuation Source: Crunchbase, Press Release, Company Website. 17

18 4 Prediction: Chinese companies remain the largest source of tech funding In 2017, we saw unprecedented participation from Chinese companies in late-stage funding 3 biggest tech deals at $4.3bn in total, i.e 72% of total deal value Total SEA Private Tech Funding # of Mega Deals $6.0bn $2.3bn 3000 $0.5bn $0.8bn $1.3bn Source: Pitchbook, Crunchbase. Data as at 31 Dec Only deals with disclosed investors and size of more than $100m are included. 0 18

19 5 Prediction: At least 2 more IPOs in excess of $500m As funding levels increased over the last few years, the size of exits increased as well. We have seen more IPO than M&A as huge exit option in recent years. The successful IPOs of Sea and Razer have boosted investors confidence in SEA s future Tech IPO prospects SG raised $529m in Nov $4.4bn SG raised $884m in Oct $4.9bn Total SEA Private Tech Funding CHN Acquired JPN Acquired SG Sep 2013 $200m $0.5bn AUS Acquired MY Nov 2014 $586m $0.8bn AUS Acquired MY Nov 2015 $534m $1.3bn CHN Acquired SG Apr 2016 $1.96bn* $2.3bn SG Jun 2017 $3.13bn* $6.0bn Source: Pitchbook, Crunchbase. Data as at 31 Dec * Alibaba acquired 51% stake in the deal, later in Jun 2017 acquired another 32% stake at a valuation of $3.13bn 0 19

20 6 Prediction: Consolidation of SEA tech landscape there will be 2 acquisitions in excess of $500m With enormous late-stage funding, tech unicorns will use M&A to expand product offerings. Notably, Grab and Go-Jek are building out their mobile payments capability via M&A Increased funding and valuations lead to higher expectations by investors for faster and bigger results, which then drive the tech M&A market as companies cant rely on organic growth anymore With hugely successful startups acquiring more companies, it will help create a stronger M&A ecosystem, thereby generating more liquidity and encouraging more investment in the region We have seen this done by Google and Facebook in the US and Alibaba and Tencent in China it will happen here as well SG Acquired IDN Apr 2017 $100m CEO Anthony Tan: Deals similar to Kudo may be targeted The most active Unicorn acquirer in SEA We have seen startup valuations increase dramatically over years. As valuation expectations normalize moving forward, we expect to see more corporates and unicorns using M&A to grow Source: Bloomberg 20

21 Encouraged by the private sector, governments push hard to improve the startup ecosystem Malaysia Singapore Thailand Vietnam Indonesia Philippines N/A N/A Policies Govt-Driven Initiatives Govt Agencies Tax incentive for startups and investors Friendly immigration policy for foreign talent Tax incentive for startups and investors Friendly immigration policy for foreign talent Tax incentives for investors Friendly immigration policy for foreign talent Tax incentives for startups Malaysia Digital Hub Digital Free Trade Zone Kuala Lumpur Internet City $250m allocated to support the startup ecosystem Smart Nation Infocomm Media Masterplan Singapore Fintech Festival $150m Digital Fund for the Startup Ecosystem Digital Innovation Park Digital Govt Plan $21.5m to build Saigon Silicon City Center Vietnam Silicon Valley E-Commerce Roadmap 1000 Startup Digital National Movement Program Philippine Roadmap for Digital Startups Tech Scene Love Index 21

22 Corporates in SEA are exploring ways to interact with startups no one-size-fits-all solution Partnership: Joint Venture (JV) Proof of Concept (PoC) Business Development As a Paying Customer Accelerator / In-House Lab Investment: Limited Partner (LP) Corporate VC (CVC) Acquisition: Corporate Development Strategic partnerships with companies with aligned interests Partner with large corporates to test innovative solutions in a protected environment Popular in the financial industry Distribution channel partnership with startups with huge user base Pay startups directly for their product or services Structured program to provide mentorship and/or capital to participating startups Investing in VC funds to tap into the deal pipeline of innovative companies Investing in startups directly for both financial and strategic purposes Acquiring startups with high synergies to expand product offering or reduce cost base Still yet to see a major acquisition of a consumer tech company / / / acquired For $90m in Dec 2017 Source: Pitchbook, Crunchbase, Press Release, Company Websites. 22

23 Governments Corporates 7 Prediction: Corporates and governments in SEA will invest at least $1bn in the startup ecosystem Bigger Capital Pool More Opportunities More Participants - the ecosystem has evolved beyond startup entrepreneurs and investors Source: Screenshots from the Jakarta Post, The Star Online, Digital News Asia, Straits Times, Deal Street Asia. 23

24 8 Prediction: At least one SEA country will accept/issue a virtual currency as a legal tender Then Jan 2014 Central Bank of Malaysia has no plans to regulate bitcoin (Source) Jan 2015 Monetary Authority of Singapore to regulate virtual currency intermediaries for money laundering and terrorist financing risks (Source) Jul 2014 Thailand approves fully-legal Bitcoin exchanges (Source) March 2014 Central Bank of Vietnam officially does not support Bitcoin (Source) Jan 2015 Central Bank of Indonesia warns against Bitcoin use (source) Now Dec 2017 Central Bank of Malaysia releases draft rules for cryptocurrency exchanges (Source) Feb 2018 Monetary Authority of Singapore confirms it will not ban cryptocurrency (Source) Dec 2017 Thailand Finance Ministry promotes crypto education over its prohibition (Source) Jan 2018 Government of Vietnam is accelerating the adoption of cryptocurrency regulation (Source) Jan 2018 Central Bank of Indonesia studies the use of a central bank digital currency (Source) Mar 2014 Central Bank of the Philippines issues warning on digital currencies (Source) Jan 2018 Central Bank of the Philippines grants first cryptocurrency exchange licenses (Source) While most governments do not recognize virtual currencies as legal tenders now, governments are becoming more open to virtual currencies role in society due to massive public interest 24

25 8 Predictions for the SEA tech scene over the next 24 months 1. By the end of 2019, SEA will have 460m internet users and $10bn raised in private tech funding 1 2. First Decacorn ($10bn+ valuation) will emerge from SEA 2 3. A new Unicorn will be built in less than 3 years from launch 3 4. Chinese companies remain the largest source of tech funding 4 5. At least 2 more IPOs in excess of $500m 6. Consolidation of the SEA tech landscape there will be 2 acquisitions in excess of $500m 6 7. Corporates and governments in SEA will invest at least $1bn in the startup ecosystem 7 8. At least one SEA country will accept/issue a virtual currency as a legal tender 8 25

26 Catcha Group overview

27 Catcha Group overview 18+ Years of enabling disruptive businesses 60+ Investments globally held directly or indirectly 30+ Countries which our portfolio companies are present in 3,000+ Employees globally across portfolio of companies #1 Market leadership across multiple categories $2bn+ Value creation since inception across portfolio 5 IPOs in the last 10 years (4 on ASX, 1 on Bursa Malaysia) $550m+ Combined value of 2 strategic exits over the last 3 years 10x Average return on investment across major portfolio assets Our portfolio of companies past and present Video on Demand service for emerging markets, currently present in 24 countries with 5m+ monthly users, raised $303m in funding since inception in 2015 Malaysia s largest coworking space with over 100,000 sqft in total to date Purpose-built digital hub for the SEA regional tech ecosystem SEA s leading digital media group. Acquired by Media Prima for $24m in May 2017 SEA s No. 1 network of online automotive portals with 7 brands across Malaysia, Thailand and Indonesia Leading operator of online classifieds businesses in emerging markets. Its 17 portfolio companies are present in 19 markets SEA s leading internet and digital conference, held across 5 cities with attendees Operator of Asia s no. 1 network of property websites. Acquired by Rupert Murdoch s REA Group for $534m in Nov 2015 If you have any questions on the report, please reach out via enquiries@catchagroup.com. Opinions expressed are solely perspective of Catcha Group. Neither Catcha Group or any of its respective affiliates or employees makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this document. All figures as in USD. 27