SINGAPORE -- Startup funding slowed down in Southeast Asia last year as the COVID-19 pandemic clouded the region's economic growth prospects and made investors more cautious.
According to data compiled by DealStreetAsia, a Singapore-based media company in the Nikkei group, Southeast Asian startups raised a total of $8.6 billion in 2020, down 2% from 2019.
This contrasts with the brisk startup investment trends seen in the U.S. and China, where fast-growing big tech startups drew risk money under the global low interest rate environment -- U.S. startup funding rose 13% to $156.2 billion in 2020, according to a PitchBook report, suggesting that Southeast Asia's young digital economy has yet to have enough companies that would draw such investors.
Lockdowns and travel restrictions in the region also made it difficult for investors to conduct face-to-face meetings and due diligence, especially for cross-border investment deals. Even the regional financial hub, Singapore, keeps strict border controls, so people cannot easily enter or get out of the city-state, where investors and startups used to have meetings often.
The pandemic's impact clearly surfaced toward the end of the year: In the first quarter of 2020, the region's startups raised $2.9 billion, but the amount was reduced to $2.2 billion in the second quarter, $1.8 billion in the third quarter and $1.6 billion in the fourth quarter.
In 2020, the top-funded startup in Southeast Asia was Indonesia's ride-hailing superapp Gojek, which raised a total of $1.65 billion from Facebook, PayPal and state telecom operator Telkomsel, among other investors.
Gojek's Singaporean rival, Grab, was second, raising a total of $1.05 billion. The majority of this was a $700 million investment from Japan's Mitsubishi UFJ Financial Group, announced in February, as the they seek collaborations in digital financial services.
Over the past few years, Grab and Gojek, now both worth over $10 billion, were the top-funded companies in the region. But as the pandemic changed peoples' styles of working and living, their core ride-hailing businesses slowed down. Instead, startups in other sectors were starting to attract more investment.
One such area is fintech, digital financial services such as e-payments, online lending and cryptocurrencies. Indonesian e-payment operator LinkAja raised $100 million from a group of investors including Grab in November. Fintech startups in aggregate raised $1.25 billion through a total of 125 deals.
Meanwhile, the work-from-home shift has given rise to logistic and delivery services. Thailand's Flash Express, which boasts of its technology-based efficient delivery operations, raised $200 million in October from a group of investors. The logistic sector's growth came in tandem with expansion of e-commerce platforms such as Indonesia's Tokopedia, which raised $350 million.
Looking ahead, as the global economy starts to recover and investors have more expectation of returns, industry experts say other sectors will also rise in 2021.
One key sector will be "edtech," or online education services, which have already seen a boom in China and India, and some local startups are raising huge amounts of funding.
The DealStreetAsia data showed investment in edtech startups in the region in 2020 was only $54 million. But "there has been an uptick of activity across both early and late-stage [edtech] deals due to the shift to remote learning, which accelerated the adoption of education technology," Peng T. Ong, co-founder and managing partner of Monk's Hill Ventures, a Singapore-based venture capital firm that invests across the region, told Nikkei Asia.
"The pandemic has forced schools to adapt to remote or hybrid learning environments, and we will continue to see increased demand from parents and teachers to make the virtual classroom more engaging for students," he said.
Peng said his company remains "cautiously optimistic" about 2021, pointing out that the region's untapped opportunities provide "a lot of room for entrepreneurs to come in and use technified business models to create value."
Another focus in 2021 will be whether more Southeast Asian startups seek an IPO and raise funds from the public market, given the current IPO and stock market booms. Some of the region's biggest startups, such as Tokopedia, have recently indicated an IPO in the near future.
"There have been numerous conversations of companies in Southeast Asia considering to list via a SPAC," said Michael Lints, partner at Golden Gate Ventures in Singapore, referring to the recent boom in the U.S. of listing by using a special-purpose acquisition company.
"There are definitely opportunities to consider listing in 2021 or 2022. The market is hungry for more tech-company listings. With the recent direct-listing ruling on the NYSE, SPACs and public investors looking for returns, we'll probably hear more stories of startups making the consideration," he added.
Peng of Monk's Hill Ventures pointed out that the stronger startups are not in a hurry to go public, saying, "As there is sufficient private equity money to support them, these companies will aim to build more robust, predictable businesses before they expose themselves to the public markets."
