At least 700 startups in the region are expected to exit between 2023-2025 in an ecosystem that is maturing at a rapid pace, according to a report titled “Southeast Asia Exit Landscape: A New Frontier” co-authored by Golden Gate Ventures, an early stage VC firm based in Singapore, and business school INSEAD.
The report looks at past exists in the 2015-2018 period using data from Crunchbase alongside forecasted future funding and global benchmarks, to calculate the probability and average time to exit for startups in the region. A survey was also conducted with 10 general partners in Southeast Asia for additional insights.
The report suggests that the strong exit momentum is driven by growing investment from corporate VCs and global private equity firms on the one side, as well as an increased number of acquisitions made by startups that have achieved unicorn status and initiatives by various stock exchanges to support more startup listings on the other.
A “pipeline to exit” has emerged in the region, notes Justin Hall, a partner at Golden Gate Ventures, in the report. This shows up most clearly in the first stage involving smaller acquisitions and the second stage involving local startups merging into a significant regional player.
“It’s interesting to see how the third stage, the exit of the regional entity itself (other than Sea Group IPO and Lazada) will spring out in the coming years,” Hall said in the report.
One of the notable factors driving the trajectory is that unicorns have become acquirers.
A total of 28 startup acquisitions were made by Southeast Asia’s 9 unicorns since 2015 up to now, Gojek leading the pack with 11 acquisitions since 2016, according to data tracked by Golden Gate. The largest acquisition made by Southeast Asian unicorns was Singapore-headquartered Trax acquiring US startup Shopkick for USD 200 million.
The report also notes on emergence of more funds from South Korea and Japan on top of Chinese tech giants like Tencent and Alibaba, alongside global players such as Warburg Pincus, which recently announced a new USD 4.25 billion fund specifically for Southeast Asia and China.
Additionally, initiatives from various stock exchanges such as an agreement between NASDAQ and SGX potentially further help startups in the region with a funding pathway, which envisions for them to be listed and raise capital on SGX first before heading to NASDAQ.
Michael Lints, another partner at Golden Gate Ventures and one of the report’s authors, told KrASIA that general partners surveyed by Golden Gate and INSEAD are also generally optimistic about the region’s exit momentum, citing US-China instability as a major factor driving investments into the region, with large online populations and “somewhat lower competition.”
An increase in available venture capital funding will also lead to more companies reaching the growth stage and become acquisition targets for MNCs, tech corporates and private equity funds. According to Ernst & Young, VC investment in the region increased in 2018 with 311 announced deals valued at USD 5.2 billion compared to 230 announced deals worth USD4.1 billion in 2017.