First, FAANG (Facebook, Apple, Amazon, Netflix, Google) in the US. Then BATX (Baidu, Alibaba, Tencent, Xiaomi and now possibly ByteDance) in China. And now GSG (Grab, Sea and GoTo) in Southeast Asia.
These colossal technology companies generally followed similar growth patterns. First, they became dominant in their original businesses, such as e-commerce for Amazon and internet search for Google. Then they grew their tentacles, making acquisitions in new sectors to add revenue streams and outflank competitors. Take Amazon as an example. Once an online bookstore, Amazon quickly grew to become an “everything store.” But the company moved beyond its e-commerce roots, due, in part, to acquisitions. To enter the grocery arena,
Amazon acquired Whole Foods Market and its distribution channels and retail locations in one $13.7 billion-dollar gulp. Amazon wanted to be a bigger player in the “Internet of Things,” so it swallowed up several home security companies including the $1 billion acquisition of doorbell-camera startup Ring. And as Amazon dived into the autonomous vehicle industry, it chose start-ups in that space, too. Amazon acquired 13 cloud computing companies between 2012 and 2020 to form what is today known as Amazon Web Services (AWS). AWS today represents 59% of Amazon’s operating income.
Apple could possibly be the pioneer of this Big Tech growth pattern with their first acquisition as early as 1988. In the span of the last 10 years, Apple has completed nearly 100 acquisitions, the most prominent ones were aimed at competing with Google Maps and more recently the $3 billion acquisition of Beats Electronics as a bet big on the future of headphones.
With a combined $1 trillion market cap, China’s BATX has a formidable influence over the Chinese digital economy. BATX has gone on a buying spree with 14 billion-dollar acquisitions. Alibaba led the pack with its $20 billion acquisition of logistics giant Cainiao and also spread its business reach tangentially by acquiring Ele.me (food), Koubei (lifestyle) and merging these two entities to take on rival Tencent’s Meituan. Chinese Big Tech has long seen Southeast Asia as a natural geography for expansion outside of their competitive home ground and tends to take a more aggressive buy-and-build strategy. This sometimes comes with dominant stakes in target startups, as in the case of Alibaba in Lazada, and Tencent in Shopee-owner Sea. In 2020, Southeast Asia tech companies saw heightened interest from US Big Tech.Facebook now owns a 2.4% stake in Gojek’s GoPay fintech arm, while PayPal owns 0.6% of GoPay. The move is expected to help Facebook and WhatsApp, which have more than 100 million users in Indonesia.
Many of them are now looking at Southeast Asian tech firms and expect a strong pipeline of deals in series B- and C-stage startups. The spike in the number of late-stage investors, secondary buyers, and special purpose acquisition companies (SPACs) has led to a positive outlook on the exit landscape for investors in Southeast Asian startups in the coming years.
A few more such deals are also in the works. Indonesia’s Tiket.com is exploring a SPAC listing while its local rival Traveloka is in advanced talks to go public through merging with Bridgetown Holdings, a blank-check firm backed by billionaires Richard Li and Peter Thiel. Even though the pandemic slowed the pace of exits in 2020, the rise of SPACs has piqued the interest of institutional investors.
In June 2021, Indonesia saw two of its unicorns, GoJek and Tokopedia (that contribute a combined 2% of Indonesia’s $1 trillion GDP) complete an unimaginable merger of a ride-hailing and eCommerce business over a Zoom call. The resulting GoTo Group has been hailed as an equivalent marriage of Amazon, Uber, Paypal, and Stripe. GoTo is planning a pre-IPO fundraiser before a purported dual public listing, likely in Jakarta and the US. Prior to the merger, GoJek also made some big bets acquiring mobile point-of-sales Moka for $130 million while Tokopedia bought wedding services marketplace Bridestory and child activities marketplace Parentstory for an undisclosed amount. We hope to see more active M&A in the works as GoTo stamps its authority to dominate its Indonesian market leader position and spread its business across Southeast Asia.
The Land Of The Unicorns
The tech ecosystem in Southeast Asia is maturing at an accelerating pace. There were only 7 Southeast Asia tech unicorns in 2016 and as of June 2021, Thailand-based eCommerce logistics Flash Group and newcomer Carro joined the 19-strong unicorn club.
M&A activity is expected to increase based on a recent report launched by INSEAD and Golden Gate Ventures which cited that startups in Southeast Asia would actively pursue M&A in the ensuing 12 months.
Reputed global VCs like A16z, Hedosophia, Valar along with Tiger Global are now busy looking for the next Sea, Grab, or Gojek in Southeast Asia. With deeper pockets to dip into, the emerging Big Tech companies will invest and acquire to expand their business empire. Looking back, 2019 was a good year for tech M&A in Southeast Asia. The region clocked in 60 deals, including Bigo ($1.45 billion), Wavecell ($125 million), Coins.ph ($72 million), and Red Dot Payment ($65 million).
Unicorns of Southeast Asia
This does not take into account the acquisition activities undertaken by other companies like Intuit QuickBooks which bought TradeGecko for a reported $80 million in 2020. And one of Genesis’ portfolio companies GoWork is currently undergoing final diligence which could see a merger with one of Europe’s leading flexible workspace and service office providers.
Singapore-based TPG-Backed PropertyGuru is also eyeing a $2 Billion Thiel SPAC listing and already on an acquisition spree to acquire all shares in Australia’s REA Group operating entities in Malaysia and Thailand, which include iProperty.com.my and Brickz.my in Malaysia; and thinkofliving.com and Prakard.com in Thailand.
We are entering an exciting era for technology and venture across Southeast Asia. With these M&A and SPAC opportunities, downstream benefits would be the emergence of more serial entrepreneurs with a demonstrated track record of starting, operating, and exiting a startup. The founders of successful companies would have new liquidity to invest in the ecosystem, either aggressively or as angel investors investing in early-stage businesses. And we may see a blossoming of the startup engine as ex-employees of these exits are likely to set up their own startups. So, Southeast Asia as the Silicon Valley of the East? Watch this space.
References
How Big Tech got so big: Hundreds of acquisitions [link]
Visualizing Chinese Tech Giants’ Billion-Dollar Acquisitions [link]
How these millennial tech founders pulled off Indonesia’s biggest-ever business deal [link]
M&A deals to drive increase in exit events in next 2 years for SEA startups [link]
Gojek and Tokopedia’s holding group GoTo plans fundraising ahead of blockbuster IPO [link]
The rise and rise of Southeast Asia’s tech M&A [link]
How SE Asia finally caught the eye of A16z and other western tech VCs [link]
Southeast Asia Exit Landscape: A New Frontier [link]
Ben J Benjamin shares with Prof Claudia Zeisberger, Professor of Entrepreneurship & Family Enterprise at INSEAD about the type of start-ups venture debt funds like Genesis prefer to invest in – funding stage, industry, business model and geographical location.
Follow Claudia Zeisberger for other insightful discussions:
UNICON is the flagship event organised by National University of Singapore (NUS) Entrepreneurship Society (NES). Founded in 1992, the NES is a tertiary organisation in Singapore, dedicated to promoting entrepreneurship at NUS and empowering the next generation of entrepreneurs.
In this Masterclass, Dr. Jeremy Loh shares the following insights on the various financing options for startups and the fundamentals of venture debt:
Different funding sources: Personal savings, friends and family, crowdfunding, angel investments, series A-E fundings, IPO or acquisition.
Ideal conditions for equity financing: unique and disruptive business model, high growth, have prior business success or investor connections, and willing to give up equity.
The relationship between venture equity and shareholder dilution
Venture debt can be used to extend cash runway, supercharge growth, lower equity dilution, and increase valuation.
How venture debt can be successfully used as a complementary financing tool to equity financing.
The collaboration will extend Pace as an alternative payment option to over 20 international brands in the region, including consumer brands such as Michael Kors, TUMI, Victoria’s Secret, Bath & Body Works, Steve Madden, as well as Nike in Thailand and Pedro in Malaysia.
“We are very impressed with the incredible growth that Pace is experiencing. As one of the newer entrants, Pace has quickly captured the fintech market in the region,” said Jeremy Loh, managing partner of Genesis Alternative Ventures, in a statement.
In this Masterclass on the fundamentals of venture debt with entrepreneurs at global early-stage VC Antler, Dr. Jeremy Loh shares the following insights:
Background of venture debt industry
Blended costs of capital of traditional bank debt, venture equity and venture debt
The relationship between venture equity and shareholder dilution
How venture debt can be successfully used as a complementary financing tool to equity financing
Advice for future founders with big ambitions and need capital to scale
Aozora Bank invests in Genesis Alternative Ventures fund, signs MOU to support Japanese start-ups’ expansion into Southeast Asia
Singapore, 4 June 2021 – Genesis Alternative Ventures said today that Aozora Bank has invested in its US$80 million venture debt fund and the two parties have also agreed to support the expansion of Japanese start-ups into Southeast Asia. Genesis and Aozora’s wholly-owned subsidiary, Aozora Corporate Investment, signed a Memorandum of Understanding (MOU) today for a business partnership that will, among others, provide “a more comprehensive support framework to Japanese venture-backed companies looking to expand into Southeast Asia.” The MOU will also see the two parties share information and expertise on venture debt and venture capital in Asia, execute joint marketing strategies targeting customers, introduce investment and financing opportunities for venture capital-backed companies in the region, and co-host events related to the venture capital industry.
For Aozora, the partnership with Genesis follows a recent arrangement with SVB Capital, the investment arm of the US high-tech commercial bank Silicon Valley Bank. Dr Jeremy Loh, Co-Founder and Partner of Genesis Alternative Ventures, said: “We look forward to partnering Aozora to introduce venture debt to start-ups in Southeast Asia and Japan. “We believe that venture debt is ideal for young companies with strong growth trajectory as it will allow them to expand without diluting founders’ equity.” Aozora Bank is a full-service Tokyo-based bank with assets of more than ¥5 trillion and backed by some of the largest investment firms in the world. It launched a Japan venture debt fund in November 2020 for Japanese technology companies
Venture debt, generally deployed by way of senior, secured non-convertible debenture accompanied by equity options, is appropriate for emerging, high-growth businesses that need to extend their cash runway to get to the next stage of growth. These companies may lack the track record to meet traditional criteria for bank loans or their founders may wish to minimize equity dilution
Genesis was founded by Ben J Benjamin, Dr Jeremy Loh and Mr Martin Tang in 2019
About Genesis Alternative Ventures Genesis Alternative Ventures is Southeast Asia’s leading private lender to venture and growth-stage companies funded by tier-one VCs. Genesis is founded by a team of venture lending pioneers who have backed some of Southeast Asia’s best-loved companies. Armed with a strong reputation among entrepreneurs and investors, Genesis is a trusted partner in empowering corporate growth while minimizing shareholders’ equity dilution. Genesis was founded by Ben J Benjamin, Dr Jeremy Loh and Martin Tang in 2019.
For media queries, please contact: Catherine Ong Associates | Catherine Ong Romesh Navaratnarajah Mobile: (65) 9697 0007 | Mobile: (65) 9016 0920 cath@catherineong.com | Email: romesh@catherineong.co
A great insightful discussion with Ben J Benjamin from Genesis Alternative Ventures on the state of the funding climate in SEA and the role of Venture Debt!
When talking about fundraising the first type of funds entrepreneurs usually talk about is equity financing, let’s call it the typical VC fundraising route. But depending on the stage your startup is in, debt financing might be a good fit.
With a maturing tech-ecosystem, growing companies, bigger needs for working capital, and more profitability (or at least road to profitability) the need for alternatives to equity financing grows as well. Debt financing is a great option to explore.
The Genesis Forum casts the spotlight on Southeast Asia’s trailblazing founders and thought-leaders who share their experiences about the innovation and impact ecosystem in Southeast Asia.
Genesis Forum 2021: Highlights
Genesis Forum 2021: Introduction
Genesis Forum 2021: PwC Singapore presents Southeast Asia Venture Debt Industry Report 2021. Co-authored by Genesis Alternative Ventures and PwC Singapore
Genesis Forum 2021: Panel Discussion 2: “Profit First, Impact at Scale: Identifying Meaningful Impact Investment Opportunities in Southeast Asia”
Genesis Forum 2021: Breakout Room 2 “The Future of Work and Living”. Conversation with industry leaders
Genesis Forum 2021: Closing Remarks. Mr. Harvey Toor, Chief Investment Officer, Singapore Management University
Genesis Forum 2021: Keynote address. “Profit with purpose, my personal journey to here”. Dato’ Sri Nazir Razak
Genesis Forum 2021: Panel Discussion 1: “The Dual Role of Debt and Equity Financing for Venture-backed Companies in a Hyper-liquid Capital Market”.
Genesis Forum 2021: Breakout Room 1 “Ketahanan”: The Resilience of These Indonesia Start-ups”. Conversation with industry leaders
Genesis Forum 2021: Breakout Room 3 “Accelerating Financial Inclusion Across Southeast Asia Through Fintech”. Conversation with industry leaders
About Genesis Alternative Ventures
Genesis Alternative Ventures is Southeast Asia’s leading private lender to venture and growth stage companies funded by tier-one VCs. Genesis is founded by a team of venture lending pioneers who have backed some of Southeast Asia’s best loved companies. Armed with a strong reputation among entrepreneurs and investors, Genesis is a trusted partner in empowering your company’s growth while minimising shareholders’ equity dilution.
www.genesisventures.co
www.genesisventures.co/Forum2021
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In Southeast Asia, venture debt is fast emerging as an alternative and complementary source of financing for high-growth technology companies that traditionally only raised equity as a source of capital.
At its core, venture debt is entrepreneur-friendly as it helps founders and cash-hungry startups avoid over-diluting shareholder equity at early stages of a company’s growth. Used appropriately, venture debt can also extend the cash runway between fundraising rounds, sometimes helping companies achieve performance targets set by equity investors (or avoid dreaded valuation down-rounds). Another benefit of venture debt is that, in appropriate instances, it is able to support companies facing unexpected market turbulence or short-term capital traps.
While already an established alternative financing source in the US, Europe, Israel and India, venture debt has only recently emerged in Southeast Asia as a mainstream financing option for high growth tech companies. In 2015, the Singapore Government identified venture debt financing as a key driver to boost the local start-up ecosystem. Singapore launched a S$500 million venture debt programme to encourage qualified lenders to provide venture debt to technology start-ups. In recent years, there has been a marked increase in venture debt activity in the region.
For more information, download the full report here.
