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Startups

Go-Jek adds $1bn to war chest as Mitsubishi joins bandwagon

Mega-startups dominate Southeast Asia's fundraising as competition heats up

Go-Jek plans to use the funds it has raised to deepen market penetration in Indonesia, as well as strengthen its presence outside its home market, intensifying competition with regional rival Grab.   © Reuters

SINGAPORE/JAKARTA -- Indonesian ride-hailing operator Go-Jek announced on Feb. 1 that it is closing the first phase of its current fundraising round, in which it received funds from new investor Mitsubishi Corp., as well as existing shareholders Google, Tencent Holdings and JD.com. The total amount was just above $1 billion, according to a source familiar with the matter. The company's valuation is now close to $10 billion.

Mitsubishi, one of Asia's largest trading houses, has newly joined the investor bandwagon to seek collaboration between its Indonesian business and Go-Jek. The Japanese company has stakes in local convenience store and logistics businesses. Mitsubishi's investment was as big as tens of millions of dollars, Nikkei has learned.

Go-Jek's successful round of fundraising is yet another example of how startup funding in Southeast Asia increasingly heads to a handful of megaventures, with five "unicorns" receiving nearly 70% of the total last year. The trend will likely continue as they vie for supremacy in the region, bringing intensified competition that requires even more funds.

Go-Jek, which started a regional expansion last year, said it will use the funds to deepen market penetration in Indonesia as well as strengthen its presence outside its home market. While it needs money for new services and technologies, intensifying competition with regional rival Grab will require more funds for promotion as well. Go-Jek is looking to raise about $2 billion in this round, according to the source.

The Indonesian unicorn's latest announcement highlights a trend in Southeast Asian startups' fundraising, in which a few well-known companies capture the majority of investment.

According to data compiled by Singapore-based venture capital firm Cento Ventures, which focuses on the Southeast Asian market, the total investment in the region's tech startups more than doubled to $11 billion last year from $5.7 billion in 2017.

But the majority of the funds are being captured by a few unicorns. The total amount raised by five major unicorns -- Grab, Go-Jek, e-commerce operators Lazada (Singapore) and Tokopedia (Indonesia), and online travel company Traveloka (Indonesia) -- reached $7.3 billion last year, comprising 66% of the total investment. Grab raised $1 billion from Toyota Motor last June, while Lazada received $2 billion from Alibaba Group Holding in March.

Bigger companies tend to receive bigger investment, but this trend accelerated last year. In 2017, the same five startups raised a total of $2.9 billion, or 51% of the total.

Mark Suckling, principal of Cento Ventures, told the Nikkei Asian Review that this trend may continue. Big startups are "competing in the same markets for the same customers in the same sort of business," he pointed out. "As long as the funding is available to try and build the winner in those markets ... we will see more and more capital being put into each of those until somebody wins or until investors change their mind."

While mega ventures captured the majority of investment into the region, other startups also attracted more investment last year, with the total figure rising to $3.8 billion from 2017's $2.8 billion. These were led by fundraising activities by midsize startups that are neither ride-hailing nor e-commerce. Those deals include Indonesian fintech firm Akulaku's $100 million and Singaporean logistics operator Ninja Van's $87 million, according to Cento Ventures.

On the other hand, early stage fundraising activities declined, with the number of deals below $500,000 declining to 85 in 2018 from 126 in 2017. Cento Ventures in its report noted that this could partly be influenced by existing seed investors' migration toward later stage investment, as well as "the media's attention toward later stage mega-deals overwhelming signals from smaller ones."

Southeast Asia's overall growth in startup investments reflects the strong economic fundamentals of the region, said Suckling. "The economies are still growing relatively fast. People are becoming richer, more connected and they are expecting and demanding online services," he said, adding that startups see those increasing demands and investors also see that.

Moreover, high valuations for Chinese startups have apparently provided opportunities for Southeast Asian companies to attract more investor attention. Peter Xu, chief executive of incubator Plug and Play China, told the Nikkei Asian Review in an interview last September that its internal research had found that "valuations in China are two to three times higher than in Silicon Valley."

In terms of geography in Southeast Asia, companies in Indonesia and Singapore captured most of the investments, while investment into Vietnam nearly tripled to $127 million last year from $49 million in 2017, reflecting the country's high growth and large population.

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