Southeast Asia Tech Investment in 2018 FY 2018
ABOUT CENTO VENTURES Cento Ventures is a venture capital firm focused on technology startups building products and services emerging from the digital transformation of promising growth markets, particularly Southeast Asia. We are based in Singapore and backed by a team well experienced in internet business. We operate three funds that invest across industries through a disciplined, well-researched approach to locate technology investment opportunities originating from the Southeast Asian region. Our investments are guided by these three principles: Sectors ready for digital transformation We believe that there is a great opportunity for technology to solve some of the inefficiencies present in growth markets. However, technology alone does not digitise industries. Most of our investments apply innovative business models to industries that are set in their ways, using technology as an enabler. Early stage, but with proof points Cento Ventures aims to be the first institutional investor in most of our deals. We believe this helps us establish a solid relationship with the founder, and influence the strategic direction of the company. Our investments are most frequently at Series A and we usually lead the round. We maintain a realistic approach to investment and exit valuations, one that is driven by data we gather on venture capital deals in Southeast Asia. Expansion to multiple growth markets Cento Ventures seeks to help our founders build large digital companies that are leaders in their industry or category. In a fragmented region like Southeast Asia, operating across multiple markets is almost inevitable. We look for founding teams that share this ambition and focus our support on making their expansion easier. We have a suspicion that great companies born in one growth market have an opportunity to replicate their success across many others. Cento Ventures is convinced that the opportunity exists for Southeast Asian entrepreneurs to build transformational digital companies. Learn more about us at cento.vc or our Facebook or Linkedin pages. 2
Introduction
INTRODUCTION Cento Ventures has been tracking data on digital investment activity in Southeast Asia for a number of years. It is our pleasure to continue sharing the data and insights we accumulated in our second Southeast Asia tech investment report, covering up to the full year of 2018. The headline story of Southeast Asia is the continued growth in technology investment. A record amount of more than $11B was invested during 2018, almost doubling $5.8B invested in 2017. This suggests a healthy, and growing interest in the potential for Southeast Asia s tech startups. We estimate that this funding amount may be sustained in 2019 as companies like Grab, Go-jek, Tokopedia and Traveloka continue to attract capital. A closer look at the data partly emphasizes the progression of existing trends, but also reveals interesting findings emerging in 2018: - A few familiar companies capture most investment 2018 sees a continuation of mega-deals as later stage companies capture ever larger investments. Over 70% of funding in 2018 was captured by only 5 investments (Grab, Lazada, Go-Jek, Tokopedia and Sea Group). - A new wave of companies are approaching later stage Although the majority of capital will likely continue to be associated with a few familiar names, we also observe a growing cohort of other late stage companies who are raising larger rounds, putting them closer to the $1B valuation. The amount of investment and number of companies who have successfully raised between $5M $50M show a consistent growth, while those in the $50M - $200M cohort also grew compared to 2017. Several highprofile deals announced includes PropertyGuru s $180M, Akulaku s $100M, Ninja Van s $87M, Carousell s $85M and Carro s $60M round. - Concentration of capital by country Indonesia accounts for more than 70% of the capital invested in Southeast Asia. However, the distribution of deals better illustrates activity across the region. By deal count, allocations to Singapore, Thailand, Malaysia, and Vietnam appear to be consistent with the past few years. where the Philippines has been cooling off in both investment amount and number of deals since 2016. - Diversification of capital by sector We also continue to observe investment into a wider range of sectors. Fintech, real estate, logistics, and business automation startup investments demonstrate solid growth. Payment & remittances maintained the level of investment received during 2017. However, some sectors such as employment have not picked up investor interest despite having produced large exits in the past. - Series B is gradually growing The cohort of companies that received seed investment in 2013 does illustrate a significant increase in successful series B funding rate. However, the rates for other cohorts are still relatively low. More time is needed to see how much follow-on funding pipeline in Southeast Asia resembles those from more mature funding environments like the United States and Europe. 4
INTRODUCTION - Secondary sales and M&A continue to provide liquidity Although 2017 saw Sea Group s NYSE IPO, as well as several local IPOs in Indonesia, 2018 data indicates that trade exits and secondary sales of shares are still the main sources of liquidity in the region. Exits in the $50M - $100M range are increasing in frequency, with higher end valuations being in the US$150 - $300M range. The majority of acquirers in 2018 have been technology companies within Southeast Asia region. These companies tend to be those who are cash-rich and embark on acquisitions as part of a regional and platform expansion strategy. Some are active acquirers such as Grab, Go-jek and Traveloka; Grab and Go-jek have been consistently acquiring financial services player while Traveloka started acquiring travel companies regionally. At the same time, there are also many are first time acquirers that are earlier in their regional expansion phases such as Carro, 99.co, and Dahmakan. Singapore-based acquirers still contribute the largest number of deals while Chinese acquirers are the largest spenders. - The region continues to attract new acquirers from various traditional sectors A number of global (Global Yellow Pages, Ringier AG) and local companies (Thai Bev, Rajah and Tann, Concepcion Industrial Corporation) made their first acquisitions of Southeast Asia digital company this year. Though most transactions are relatively small, they still signify the region growing ability to attract new sources of liquidity. - Declining early stage activities Deals below $500K continue to decline since their peak in 2015. This could partly be influenced by existing seed investors migration toward later stage investment, and the media s attention toward later stage mega-deals overwhelming signals from smaller ones. Southeast Asia in 2018 remains a very attractive region for tech investors. We note that while some of the factors we highlighted in last year s report remain, others are changing. We think high-quality startups exist beyond a few heavily-invested parts of the region and there has been some improvement in bridging the funding gaps that remain. Every year that brings more successful exit stories will help inspire more founders to start companies and attract more investors to the ASEAN region. For the year ahead, we think Southeast Asia will continue to gain the attention of institutional investors looking for growth markets outside of China and India. Alternative assets such as venture and subsets of private equity in Southeast Asia will be the beneficiaries. We also expect to see a trend towards the emergence of value-chain specific funds and fund managers. Digitalisation is reaching ever further into numerous industry sectors and Southeast Asia hosts an increasing portion of many global supply chains. New venture firms and vehicles will emerge with clear sector-led investment theses for tech in the fashion industry, agriculture and food, labour, healthcare services, manufacturing, construction tech and so on. Southeast Asia s tech continues to mature, and we hope this report helps anyone, whether they are startup founders, investors, or policymakers, achieve a better understanding of the landscape that we all operate within. Thank you Mark Suckling Laphat Tantiphipop Marco Hadisurya 5
Investment landscape
$9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $- 250 200 150 100 50 - OVER $11B INVESTED IN 2018 Capital invested, $M and deals done, # 214 205 213 197 209 The amount of Southeast Asia internet technology related investment continues to set a new record in 2018, but the activity measured by the number of deals remains below its 2015 peak. 97 117 156 169 168 The amounts deployed in the second half of the year is significantly lower than the first half of the year, as a number of major funding rounds were already disclosed during H1 2018. e.g Lazada $2B, Grab s $2B, Gojek s $1.5B, and Sea Group $575M round. Notes: 54 42 $251 $211 $430 $1,048 $966 $1,113 $1,589 $2,088 $1,284 $4,470 $8,150 $2,970 2013 H1 2013 H2 2014 H1 2014 H2 2015 H1 2015 H2 2016 H1 2016 H2 2017 H1 2017 H2 2018 H1 2018 H2 The numbers exclude the investment portion carved out for secondary exits, and include various events that while count as investment in technology companies, are considered non- VC, e.g. ICO, project financing, corporate spin-off. Some early stage incubator-funded companies are not yet included in 2018 data Capital Invested # of Deals 7
$5M+ DEALS CONTINUE TO GROW. < $5M DEALS COOL $0.5M or smaller deals** $0.5M+ to $2M deals $2M+ to $5M deals 39 108 207 147 126 85 29 55 117 109 110 86 13 20 43 45 59 53 $9 $26 $46 $34 $27 $21 $31 $64 $147 $138 $136 $107 $44 $75 $135 $157 $201 $190 $5M+ to $10M deals $10M+ to $50M deals $50M+ deals 34 31 26 17 13 6 $40 $111 $132 $218 $232 $270 40 36 26 26 11 6 $126 $223 $610 $673 $829 $948 20 13 8 7 6 2 $212 $980 $1,010 $2,459 $4,330 $9,583 Capital invested, $M Deal # **Various incubator funded early stage companies are yet to be included in 2018 data 8
AVERAGE DEAL SIZE REMAINS STABLE ACROSS STAGES Deals done by series, # Average deal size by series, $M $11.5 $11.6 14 26 21 $9.5 $10.3 109 26 22 33 29 100 146 37 $6.0 13 9 108 $4.1 3 22 57 6 53 116 248 189 168 122 $3.5 $0.7 $3.2 $2.9 $3.0 $2.8 $2.5 $0.5 $0.5 $0.6 $0.4 $0.4 Pre A A B C+ Pre-A A B 9
CAPITAL AND DEALS ARE STILL CONCENTRATED Share of capital invested by country 2018 2017 58% 75% 18% 16% 13% 4% 2% 3% 0.8% 7% 2% 2% In 2018, Indonesia and Singapore continued to capture the majority of investment activity in Southeast Asia. The remainder is split relatively evenly across the rest of the region, with an overall slow down in the Philippines. 2016 2015 37% 2014 39% Share of deals done by country 2018 35% 67% 32% 34% 33% 15% 11% 8% 11% 6% 12% 8% 9% 6% 3% 2% 4% 9% 3% 3% 8% 3% Capital invested in 2018 is skewed towards Indonesia due to the outsized funding for large domestic companies such as Go-jek and Tokopedia. Singapore maintains its share of capital distribution as a new cohort of later-stage companies such as Ninja Van, Carousell, and Carro continues to raise larger rounds. On the share of deals done, this is fairly consistent with the last few years data. 2017 30% 34% 13% 10% 9% 5% Notes: 2016 2015 24% 29% 29% 31% 20% 12% 11% 10% 8% 10% 9% 8% The data excludes Sea Group (Garena), Grab, Lazada and other companies that have a truly regional footprint and are therefore hard to allocate to a particular country. 2014 25% 40% 9% 10% 8% 8% Indonesia Singapore Malaysia Thailand Vietnam Philippines Country of origin is defined as where the company was founded and where it is believed to generate its core revenues 10
VIETNAM ATTRACTING MORE CAPITAL Capital invested and deals done in Malaysia 76 Capital invested and deals done in Thailand 37 37 35 40 44 31 18 23 12 16 8 $18 $31 $111 $108 $304 $148 Capital invested and deals done in Vietnam $4 $28 $125 $98 $166 $77 Capital invested and deals done in Philippines 39 30 29 26 30 22 15 18 9 14 8 9 $20 $35 $44 $58 $49 $127 Capital invested, $M Deal # $10 $10 $30 $38 $36 $33 11
FINTECH, REAL ESTATE, B2B SOFTWARE - KEY NEW SECTORS Deals done by sector, $M Proceed (US$M) Multi-vertical $0 $53 $270 $770 $2,550 $4,795 Retail $71 $182 $230 $934 $937 $1,790 Financial Services $37 $7 $130 $134 $187 $414 Real estate $4 $2 $9 $17 $56 $260 Business Automation $6 $13 $28 $29 $78 $155 Logistics $1 $15 $34 $65 $136 $125 Payments and Remittances $19 $26 $85 $113 $100 $116 Local services $9 $376 $441 $827 $46 $97 Travel $34 $12 $78 $176 $387 $51 Entertainment / Non-Gaming $1 $4 $52 $83 $392 $50 Advertising & Marketing Technology $8 $22 $117 $24 $79 $29 Employment $3 $4 $11 $10 $21 $23 Healthcare $0 $12 $26 $29 $102 $16 Education $0 $7 $12 $9 $15 $10 Entertainment / Gaming $4 $8 $11 $11 $5 $4 Others $0 $0 $1 $3 $4 $3 Comms & communities $4 $23 $16 $48 $0 $0 While online retail (e-commerce and C2C) and local services (on-demand services and urban transportation), along with multi-vertical companies (often a mix of the two), remain most heavily funded categories. Other categories gradually attract increasing attention. Financial services have for some time, and are likely to continue attracting investment. Investment in travel is expected to rebound with the impending Traveloka s funding in 2019. In 2018, we have also seen emerging interest in other categories such as real estate, business automation and logistics. 12
SERIES B REMAINS A CHALLENGE % of companies raising seed round that raised follow-on rounds 100% 90% 80% 70% 60% 50% 40% 30% We tracked Southeast Asian startups that announced seed funding between 2013-2015 and compare the rate of follow-on fundraising with data from the US and Europe where it appears that startups in Southeast Asia have been able to attract Series A funding at a broadly similar rate. We also observed a clear rise in Series B follow-on funding rate for the 2013 cohort, and a gradual increase for 2014-2015, compare to the previous year data. 20% 10% 0% Seed Follow-on Round 1 Follow-on Round 2 Follow-on Round 3 SE Asia 2013 SE Asia 2014 SE Asia 2015 US 2008-2010 Europe 2010 Although we believe the follow on funding rates will continue to increase through time, it is still too early to tell how Southeast Asia later stage funding environment compared to those of a more mature ecosystem. https://www.cbinsights.com/research/venture-capital-funnel-2/ http://www.atomico.com/news/the-state-of-european-tech-2016 13
THERE IS A GROWING CROP OF $100M+ COMPANIES SEA beyond recognized leaders: Ø 5 companies with combined value of just under $5B are crossing into unicorn territory in 2018 Ø ~30 companies with valuations above $100M and combined value of $ 4-5B ~10 B ~1+ B Regional 2018 entrants Singapore Indonesia Malaysia Vietnam Thailand Philippines Southeast Asia has produced a dozen companies valued above $1B with Bulakapak crossing into unicorn territory and Zilingo, PropertyGuru, Carousell and Qoo10 coming close within 2018 ~100+ M* Carro M-Daq Akulaku RupiahPlus A more comprehensive view of the region s capability to generate shareholder value in digital space is provided by looking at the group of companies we believe are valued in excess of $100M, based on a recent substantial financing or liquidity event and known business developments. * List of US$ 100M+ companies is not exhaustive Publicly-listed company 14
OTHER $100M+ COMPANIES PRESENT IN THE REGION Select $100M+ enterprise value businesses executed via prior acquisition / non-third party funded subsidiary Regional Singapore Indonesia Malaysia Thailand Vietnam Philippines An overview of the value being created in the digital space in Southeast Asian would be incomplete without noting: ~100+ M* Select $100M+ enterprise value businesses by global players targeting SE Asian market or by SE Asian based players targeting a global opportunity. Bigo Revolution Precrafted Razer Search A significant and growing set of digital businesses previously acquired by or created within larger companies and continuing to grow around their respective opportunities within Southeast Asia A number of overseas players - usually from adjacent markets in North Asia - focusing on Southeast Asia as a primary source of growth A number of Southeast Asiaoriginating companies that build their domestic advantage into a significant international footprint beyond Southeast Asia * List of US$ 100M+ opportunities is not exhaustive Publicly-listed company 15
M&A & SECONDARIES PROVIDE MOST LIQUIDITY Proceeds realized at exit, $M Liquidity events, # Exit valuations, $M $931 1 $502 5 $98 5 6 3 $327 $250 $390 $201 $9 $35 $250 $894 $1,109 $1,081 $2,120 $2,124 28 41 69 55 44 44 $55 $20 $30 $8 $2 $6 $10 $151 $110 $94 $68 $55 $24 $16 Trade Exit + Secondary IPO Trade Exit + Secondary IPO Top decile Top quartile Median 16
EXITS ARE HAPPENING, BUT STILL RELATIVELY FEW IN NUMBER Liquidity events and proceeds, <$1M Liquidity events and proceeds, $1M+ to $5M Liquidity events and proceeds, $5M+ to $20M 13 34 12 14 12 22 23 16 17 4 8 10 9 8 4 10 6 8 $7 $9 $16 $9 $10 $15 $11 $22 $38 $31 $50 $26 $95 $76 $119 $169 $68 $103 Liquidity events and proceeds, $20M+ to $50M Liquidity events and proceeds, $50M+ to $100M Liquidity events and proceeds, >$100M 7 4 4 5 5 5 3 3 3 3 4 2 2 2 2 1 1 $70 $162 $189 $160 $265 $173 $67 $239 $220 $163 $170 $254 $- $1,057 $543 $620 $3,397 $1,650 Amount, $M Events, # 17
KEY ACQUIRERS ARE FROM SE ASIA & APAC REGION Country of origin of acquirer, by deals done, 2013-2018* Country of origin of acquirer, by capital invested, 2013-2018*, $M 38 2,035 26 22 948 12 11 11 7 7 6 5 3 2 2 577 493 427 356 199 192 176 86 61 40 40 37 34 5 SE Asia Countries Others SE Asia Countries Others *For the top 150 liquidity events 18
Methodology
METHODOLOGY Key premises: Numbers and conclusions in this study rely upon a company s reported last round valuation. At best this is a partial reflection of a company s true value. To all in our audience who appreciate the importance of financing terms over headline valuations, and who recognise that a more complete understanding of any underlying business is helpful, we apologise. To atone for this oversimplification, we d like to take this opportunity to give a commendation to the great work being done by a few in academia who probe deeply into the contradictory nature of how tech valuations are reported, and produce splendid research that will one day help us as an industry upgrade our reporting systems and, perhaps, change how tech company narratives are formed. In this report, our recognition goes to Will Gornall and Ilya A. Strebulaev (professors at the Sauder School of Business at the University of British Columbia and the Stanford Graduate School of Business, respectively) for their comprehensive work on Squaring Venture Capital Valuations with Reality, available here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455 and with media coverage http://nymag.com/intelligencer/2018/11/fake-unicorns-are-running-over-the-venture-capital-industry.html Geographies covered: This iteration of our report does not make an attempt at covering some of the newer digital ecosystems within ASEAN beyond the customary six countries, or the developments in counties starting to gravitate towards SE Asia venture scene such as Pakistan, Bangladesh, Sri Lanka, Hong Kong, and Taiwan. Data sources and completeness : Our data is compiled from a number of sources, although we primarily rely on public press announcements and community disclosures from the companies and their investors. Our team researches the validity of claims to an extent possible and supplements incomplete information with insights from our own industry sources and, on occasion, somewhat educated guesswork. In this report, we analysed and verified close to 2,500 financing and liquidity events. Inevitably, a few large deals would avoid detection on occasion of exceptionally secretive nature of the transaction or due to the methodology we apply. It is also our impression that we are likely seeing only half or less of the pre-series A activity in the region due to a sheer volume of deals in $ 10-250K range happening in the market while total dollar value of inflow and outflows is unlikely to be impacted heavily, do take our number of deal assessments for pre-series A with a large handful of salt. Finally, as new facts come to light and as erstwhile announcements are verified, we adjust our databases retroactively, leading to mild inconsistencies between various versions at the same period. Category definitions and company profiles include: This report aims to describe the state of financing and liquidity generated by companies focused on digital technology-driven opportunities in Southeast Asia. The exact definition of what a digital technology-driven opportunity constitutes is a subject of much debate. While leaving biotech, new materials and space tech out is relatively straightforward (but including software and digital services enabling these industries), telling an offline company with digital elements apart from a business where value creation is primarily tied to either its technology core or its digital distribution is anything but simple. We have generally taken a view that if something is valued as a technology company, we can trust its investors that it probably is. At the same time, we also endeavour to exclude categories that, while adjacent to digital economy, tend to attract non-vc capital to a degree where their financing / liquidation events interfere with the signal from the rest of the ecosystem (notably, excluding the companies with valuations determined by token economics). Furthermore, we currently do not include traditional TV stations, content producers, telcos, IT infrastructures and system integration companies into our reporting. Hence, this excludes a number of otherwise very important names absolutely worth a closer look under different circumstances such as Circles, Life, MyRepublic, Airtrunk, NetTV, One Championship, and others that would occasionally be included in other digital ecosystem reports. 20
METHODOLOGY Company classification: Country of origin: Determined by the country in which the company was founded, and has its primary base of operation (defined in terms of revenue, if known). At the (subjective) point where the company has both operations in multiple countries in Southeast Asia and substantial revenues generated in multiple countries, then it may be classified as Southeast Asia / regional in the country of origin. Sector classification: Cento s definition of the industry segment in which the company s primary business focus sits. A full taxonomy of sector allocation is listed below. In cases where a company focus on multiple sectors with different units generating thought to generate substantial revenue, then multi-vertical category is used. We also note that a company s sector may change as the company progresses; the company s sector is evaluated according to the primary business focus during the event of financing. Advertising & Marketing Technology: companies that facilitate the acquisition of customers including coupons and rebates, price comparisons and affiliate marketing Business automation: tools that automates non industry-specific business activities such as CRM, ERP, workplace communication tools, etc. Comms & communities: social networks and dating Education: provision of goods and services revolving teaching and learning, including adult training and education Employment: companies that manage and facilitate the management of employees including onboarding, benefit, payroll, etc. Entertainment/ Gaming: gaming development, distribution and publishing Entertainment/ Non-gaming: content production and news aggregation Financial Services: companies that apply technology into traditional banking services i.e. lending, wealth management, etc. Healthcare: provision of goods and services revolving around medical and wellness services including, but not limited to, e-pharmacy, medical tourism and telehealth Local Services: platforms that connect local merchants/ service providers to consumers in an urban setting including, but limited to, ride-hailing services, local search and directory and food delivery Logistics: companies that facilitate the movement of goods including, but not limited to, acquiring, storing and transporting of goods Payments and remittances: companies that facilitate movement of capital Real Estate: construction, buying & selling and management of real estate assets, including the tools facilitating those activities Retail: companies that sell or rent goods using internet technology, including tools that facilitate those activities e.g. Store-front management software, POS systems, etc. Travel: tourism and hospitality Fund definitions: Mapping fund allocations is an inexact science. We count the number of funds that have been observed doing early stage tech investment in Southeast Asia. We also try to assess the allocation of those funds to the region. In some cases (e.g. Cento Ventures) that is equivalent to 100% of their AUM. In many others with a broader, or no particular geographic focus, Southeast Asia allocation is an estimate based on information received from the fund manager, or the relative number of deals that they have done within the region compared to elsewhere. Besides that, the collected fund information is also compared with third-party data sources such as Pitchbook and Preqin. Currency: $ refers to United States Dollar (US$) unless otherwise stated. 21
METHODOLOGY Deal definitions: Deal stage: Each series definition is determined as follows: - Pre-Series A: amounts of $10K - $1M. Purpose of investment tends to be building the idea/team; in some cases, the company generates revenue. - Series A: amounts of $1M - $3M. The product has been built and proven via initial but repeatable revenue. Investment purpose tends to be establishing domestic position, and sometimes scaling regionally. - Series B: amounts of $3M-$10M. Investment purpose tends to be building scale, either domestically or regionally. - Series C+: any amount invested later than Series B. Series C, Series D, later series investments, pre-ipo, mezzanine. Deal type: We focus mainly on venture capital deals investments made by fund entities into early stage startups, whether they are from independent funds of corporate venture capital entities. This is a subset of the total number of early stage tech deals in the region. We separate the following from most of our data, apart from the total capital invested and total deals done chart: - Corporate transfers: events where a corporate entity funds an entity in the region in which it owns a majority or significant minority stake (e.g. Rocket Internet, Lippo Group) - Project financing: A deal which was a partnership for an identified purpose e.g. Grab-Honda. - Non-Southeast Asia deals: e.g. India and China focused companies that happen to use Singapore for their corporate domicile. 22
Contact www.cento.vc team@cento.vc +65 6816 2810 Office address: 56B Pagoda Street, Singapore 059215 Mailing address: Cento Ventures, 3 Church Street, Level 8, Singapore 049483 23