The House View Archives - Page 2 of 2

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Genesis is exploring various deeptech startups in healthcare, energy storage, sustainable energy, and smart mobility. We believe that beyond the first wave of Southeast Asia startups that are disrupting retail, commerce, and finance for consumers and businesses, the next wave of disruptive startups is already in their early growth phases. For instance, plant-based to lab-grown food companies; sustainable farming and energy; and healthcare technologies are leveraging cheaper, faster processing chips to develop home-based devices that can monitor individuals outside the clinical environment.

Battery Technologies That Could Power The Future

Cheaper, denser, lighter, and more powerful. These are the attributes of a futuristic battery pack that every device maker wants. From iPhones to laptops and electric vehicles (EVs), a battery that can store energy for use continuously without having to charge for at least 24 hours would be a breakthrough.

At CES 2022, HyperX showcased the Cloud Alpha Wireless, claiming the wireless headset can operate for 300 hours, (or more than 12 days of use.) Avid gamers would be thrilled to have this device. Range anxiety is an issue that all car manufacturers are working hard to resolve; and the Mercedes-Benz Vision EQXX concept EV was unveiled with a claimed range of 1,000 km, packed with a 100kWh battery that is 50% smaller and 30% lighter. Current Tesla EV models can push the 600km range with additional specifications. With more EV models launching into mass production, would 2022 be the year that the EV tsunami comes ashore?

Entering The Metaverse Will Become A Necessity For Brands

For the uninitiated, the metaverse is an immersive virtual world that will serve as a form of the embodied internet. It is a general term most commonly associated with Mark Zuckerberg’s dream of migrating social media platforms into virtual and augmented realities.

Bloomberg shares that fashion and beauty companies are selling visions of metaverse makeovers, in which avatars get dressed and dolled up. Luxury brands like Gucci, Balenciaga and Burberry have been sketching and planning digital fits to adorn digital users. Louis Vuitton released an exclusive capsule collection that featured the League of Legends gaming universe, including special Prestige skins for the League of Legends Champion, Qiyana. PulpoAR will offer virtual makeovers. Other companies, like Procter & Gamble, are adding more subtle beauty experiences like BeautySPHERE, which walks users through the ingredients and processes used to make their cosmetic products.

Digital Twins in Healthcare

Digital twins of human organs and systems are a closer prospect, according to a Forbes article on The Five Biggest Healthcare Tech Trends In 2022, and these allow doctors to explore different pathologies and experiment with treatments without risking harm to individual patients while reducing the need for expensive human or animal trials. A great example is the Living Heart Project, launched in 2014 with the aim of leveraging crowdsourcing to create an open-source digital twin of the human heart. Similarly, the Neurotwin project – a European Union Pathfinder project – models the interaction of electrical fields in the brain, which it is hoped will lead to new treatments for Alzheimer’s disease

TeleHealth Could Be A Quarter of Trillion Dollar Industry

According to the HIMSS Future of Healthcare Report, remote healthcare and telemedicine have gone mainstream with the pandemic restricting people from going out. During the first months of the pandemic, the percentage of healthcare consultations that were carried out remotely shot up from 0.1% to 43.5%. Analysts at Deloitte say that many doctors and patients have shed their discomfort with video visits, setting the stage for their continued use post-pandemic. McKinsey is of the view that Telehealth could be worth $250 billion with the acceleration of consumer and provider adoption of telehealth and extension of telehealth beyond virtual urgent care in the US.

In line with the envisaged growth in remote healthcare and aging population demographics, new generation wearable technologies equipped with heart rate, stress, and blood oxygen detectors are needed to enable healthcare professionals to accurately monitor vital signs in real time at home. GE Healthcare is creating the next generation of patient monitoring with wearable sensors. In the future, light-weight, even printable technology could help in ensuring patients’ safety in recovery after medical operations. Monitoring technologies offering precision in performance could give healthcare officials new possibilities to monitor patients from afar.

Some of these technology trends may be available very soon and others will be very important in the future as they begin graduating from R&D labs and enter the marketplace. We hope to see more great tech become commercially ready as these will impact our lives and make us healthier people. Until 2023!

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Southeast Asian ride-hailing and food delivery giant Grab raised $2 billion in debt [1] in Q1’2021 in what it said was the largest institutional debt in Asia’s technology sector, as the company expands its regional services. The five-year senior secured loan was upsized from the initial $750 million after the company secured commitments from international institutional investors. Just a year earlier, Grab raised $4 billion of equity from SoftBank and Toyota and added $500 million of debt [2] from debt investors.

While it may not be apparent at first, experts will suggest that debt becomes an increasingly important part of a startup’s capital structure as it grows. In many cases with late-stage companies, part of the reason is that the cost of debt is less expensive and dilutive than equity. Debt providers play a crucial role in providing startups’ first credit lines helping them to build their credit track record over time. Debt investors, including large growth debt fund and traditional financial institutions, begin to take comfort in a 10-year-old (or more) startup that now has historical financials and a level of credit-worthiness that these lenders can fall back on.

Grab was founded in 2012 and raised its first clip of debt financing in 2017. The company sought $2.5 billion of equity to fund growth of its ride-hailing service in Southeast Asia and tapped on $700 million in debt facilities from leading global and regional banks to expand its car rental fleet in Singapore and Indonesia, two of its key markets. In this period of time, venture debt had just emerged as a debt financing opportunity for early growth startups but the enormous debt quantum was out of reach for Southeast Asia venture debt players then.

Is this a one-off situation unique to Grab or are startups in Southeast Asia following the footsteps of raising larger rounds of debt financing as they grow? Let’s take a look at a few more examples.

Last year, Kredivo (an Indonesian digital lending and credit scoring platform) secured $100 million of debt facility, taking its total debt raise to $200 million in all. UnaBrands, a specialist that consolidates smaller e-commerce brands, raised $40 million in an equity and debt round that closed in May 2021. In Genesis’ portfolio, Matterport had chosen to go with venture debt to grow its business in Southeast Asia instead of taking equity dollars that would have meant further dilution for existing shareholders. Apart from the fundamentals and the fit, it certainly helped that Matterport’s Chief Financial Officer, J.D. Fay, was a seasoned executive who has leaned on venture debt throughout his career.

Expanding The Spectrum of Debt Financing: Early Startups to Growth Stage

In the US, three key private debt providers, Silicon Valley Bank, Hercules Capital and Triplepoint Capital have provided more than 30,000 [4] startups with debt at seed stage (debt size of $25K to $5m) to early stage ($1m to $25m) and later-stage companies ($1 to $50m). To give the reader a sense of the size of the market, Hercules Capital originated a record $1.5 billion worth of deals year-to-date (as at September 2021) annual total gross debt (including equity commitments). This sets a clear path for the “venture to growth debt” journey that a private debt provider like Hercules Capital has undertaken since it started venture lending in 2003.

Turning to Southeast Asia, the venture equity landscape only took off in 2015 with the early cohort of funds investing largely in Seed and Series A companies. Today some of these funds including Vertex [5] and Openspace [6] are already managing both early and later-stage investment vehicles, a natural investment progression given that their own portfolio companies and the rest of Southeast Asia startups continue to move up the development curve.

We believe this phenomenon will continue to play out in the private debt space in Southeast Asia. With SME loans and venture debt covering the early growth debt requirements of startups in the region, we are beginning to see growth debt players moving to cover the gap in the later growth stage. New entrants such as EvolutionX announced a $500 million fund that will write debt cheques of between $20 to $30 million per investment. As more startups graduate from early growth and prepare for pre-IPO funding, there will be more opportunities to inject growth debt into these companies.

The beginnings of this ecosystem maturation bodes well for lenders. Whether at the venture or growth end of the spectrum, an increased rate of lending opportunities (and with additional lenders) will lead to a more sophisticated marketplace of borrowers that better understand the merits of debt (venture and growth). Genesis will be well-placed to continue building on its strong position in the regional venture debt space while selectively looking at growth debt opportunities together with aligned co-lenders.

References

Grab upsizes debut term loan to $2 billion on strong investor demand [link]
Grab secures $500m syndicated facility for vehicle fleet financing [link]
Kredivo Lands $100 Million For BNPL In Indonesia [link]
Bloomberg: Meet Venture Capital’s Baby Cousin, Venture Debt [link]
Vertex Growth to hit $330 million 2nd fund close [link]
Openspace Ventures Closes Third Fund at Hard Cap of US$200M [link]
Temasek, DBS launch $677m debt financing platform for tech firms in Asia [link]

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]

What is a SPAC?

A Special Purpose Acquisition Company (SPAC) makes no products and does not sell anything. In fact, the SPAC’s only assets are typically the money raised in its own IPO. Generally, a SPAC is formed by an experienced management team or a sponsor with nominal invested capital, typically translating into a ~20% interest in the SPAC (commonly known as founder shares). The remaining ~80% interest of the SPAC’s shares is held by public shareholders through “units” offered in an IPO.

Some well-known names in the SPAC industry include buyout specialist Alec Gores, venture capitalist Chamath Palihapitiya, and former Citigroup Inc. banker Michael Klein, while in Malaysia, internet entrepreneur Patrick Grove also filed for a $250 million SPAC.

A shareholder that prefers to exit prior to the initial business combination can sell its units in the market or choose to have its shares redeemed for its pro rata portion of cash from the IPO that is being held in the trust. At this stage, the SPAC typically does not have a target company to merge with.

In its IPO, a SPAC typically offers units, consisting of a share of common stock and a fraction of a warrant, at $10 per share.

The money raised then goes into an interest-bearing trust account until the SPAC’s founders or management team identifies a private company looking to go public through an acquisition.

From a SPAC to De-SPAC

The SPAC is required by its charter to complete that initial business combination — or “de-SPAC” transaction — typically within 24 months, or liquidate and return the gross proceeds raised in the IPO to the public shareholders.

Once an appropriate target company has been identified, the SPAC and the target undertake a merger, acquisition, or other transaction that results, in most cases, in the operating business becoming a publicly traded company that effectively “takes over” the public company status of the SPAC. As a result of this process, the SPAC is “De-SPAC” and continues its life as a public company.

The De-SPAC process is similar to a public company merger, except that the buyer (the SPAC) is typically required to obtain shareholder approval, which must be obtained in accordance with SEC proxy rules, while the target business (usually a private company) does not require an SEC-compliant proxy process.

Source: Harvard Law School Forum on Corporate Governance

Complementary PIPE Financings

A SPAC can seek a PIPE (private investment in public equity) deal if it needs to raise additional capital to close a merger transaction with a target company. A PIPE arrangement may become necessary where the cost of acquiring a target company exceeds the funds that a SPAC has in its trust account. For example, Singapore’s sovereign wealth investor GIC announced a $200 million PIPE into SPAC-backed View Inc. Tiger Global, along with others, will inject $295 million via a PIPE into the Matterport-Gores SPAC.

Besides providing capital, PIPE investors can also validate the valuation of the target company. Raising a PIPE is quite similar to a normal fundraising round where the PIPE investors will value the target. PIPEs prove that there is investor demand for the company at a certain price. Once the PIPE is closed and the SPAC merger announced, and if the PIPE is oversubscribed, investors who could not gain access during the PIPE would be able to purchase in the public markets instead. There are short-term arbitrage SPACs with investors who have no interest in actually owning the company being taken public.

SPACs in Asia

Asia’s representation in the global pie has been small so far – about 11 out of 2021’s 304 SPAC IPOs, and just US$4.7 billion in SPAC mergers. Given the region’s large pool of new-economy companies, bankers are now plugging it as a hot spot for merger targets.

It was reported that SoftBank-backed Grab will go public through a merger with a SPAC that could value the ride-hailing giant at nearly US$40 billion (S$53.6 billion). This would make the Grab SPAC the largest-ever, blank-cheque deal.

Singapore’s SGX is the first major Asian bourse to consider the listing of SPACs. The Exchange is proposing regulations to allow SPACs with a minimum market value of S$300 million (US$223 million). Hong Kong, Indonesia, and other markets are stepping up efforts for SPAC listings.

The Co-Working Story Pre-COVID

Looking at pre-COVID statistics of the co-working sector is important in understanding its growth potential post-COVID. In a research report published in September 2019, Colliers International shared that flexible workspaces, comprising co-working spaces and serviced offices, had risen in prominence in recent years to become a mainstream real estate asset class globally. The number of co-working spaces globally had grown by a staggering compound annual growth rate of 121% between 2005 and 2018.

In Asia, as of Q1 2020, flexible workspaces had already accounted for more than 3% of net lettable area (NLA) in most markets compared to less than 2% in 2017.

Source: Colliers International Flexible Workspace 2020 APAC

Singapore represented the most mature co-working market in SE Asia. Singapore’s flexible workspaces accounted for 3.7 million sq ft of NLA of commercial space island-wide in 2018 – more than treble the 1.2 million sq ft available in 2015.

The Lockdown Begins

COVID-driven lockdowns started the world’s biggest work-from-home (WFH) experiment in early 2020. Armed with WiFi and a computer, the majority of office workers took to WFH with ease. It was clear that WFH offered a credible option – no time wasted commuting, increased productivity, no need to secure the large office long-term lease with high rental component. At the time, it was fair to also question the continued relevance of co-working spaces given WFH arrangements and social distancing.

Genesis’ portfolio company GoWork, Indonesia’s premier co-working space operator, had just turned EBITDA positive in December 2019. Expansion plans had to be frozen and the company acted swiftly to refine its operating SOP in order to cope with the new normal. Go-Rework (the parent company of GoWork) adapted quickly to mandated occupancy reduction, customers’ calls for split operations, social distancing, health checks etc. Taking a long-term view of the market, Go-Rework doubled efforts to sign-up enterprise clients that now required decentralized office spaces, and further leveraged their multilocation footprint in Jakarta allowing enterprises to split their teams across various GoWork locations for business continuity planning (BCP) purposes.

Key Observations Of Co-Working Spaces Globally During Covid

Demand from corporates is the biggest expansion driver – co-working is now a business solution, not just a real estate alternative.
Property developers are making co-working spaces a staple: for real estate owners, the presence of a co-working space in an office building or retail mall with 200-300 members has plenty of positive knock-on effects for retail and F&B in the same location.
Corporates increasingly use co-working spaces to house innovation teams. A deliberate strategy to locate innovation teams in a startup-like environment to promote independence and decentralised thinking.
Southeast Asia is a key battleground for dominance amongst operators with consolidation gaining momentum
Scale is important. Go-Rework itself, is the product of a merger between GoWork and ReWork in 2018. It is now the lead premium co-working space operator in Indonesia.

Looking ahead to 2021

Surveys have shown that extended WFH is not sustainable. A majority of employees (and employers) prefer a conducive office environment as it allows for greater focus and productivity, team collaboration, and human connection. In fact, Go-Rework has already reported a rebound to pre-COVID demand and revenues. Thus, while COVID has slowed the growth of co-working in the early phases of the pandemic, it has since proven to be a silver lining. It is expected that co-working spaces will play a key role as the traditional office model continues to get disrupted.

For the foreseeable future, corporates are expected to operate on a hybrid WFH /WFO model and co-working spaces are expected to be central to this evolution.

Source: JLL Human Performance Survey, May 2020

2020 has been a bear market for human folk. But on the other side of the fence, 2020 has also accelerated years of change in the way companies in all sectors and regions do business. Digital adoption has taken a quantum leap at both the organisational and industry levels.

When Sequoia Capital sent out the feared Black Swan warning in March 2020, the entire venture community took serious notice of what may lie ahead. Venture funds paused new investments in April and May 2020, and refocused on their portfolio companies. Companies of all sizes were impacted, and across the board, cost reductions were implemented in anticipation of a prolonged winter.

Billions of government stimulus dollars temporarily replaced venture dollars to ensure that all companies, including VC-backed ones, will survive the harsh(est) winter.

As the pandemic unfolded and the world became more isolated, turbulent times would seem to benefit technology companies, especially companies focused on the digital world. Adoption of cloud technology was ubiquitous. Zoom became a verb. It was no longer taboo to meet online versus having a coffee offline.

On the back of this, venture capital funds achieved record fundraising levels in 2020 amidst challenging new-normal conditions. Venture capital funds in the U.S. raised a record $69 billion in 2020, edging past a 2018 record and defying the odds amid a pandemic-rattled economy.

Southeast Asia VCs also kept a brisk pace: Sequoia India announced in July 2020 a fresh commitment of $1.35 billion in two new India/Southeast Asia funds – one is a $525 million venture fund and the other a $825 million growth fund. Vertex Ventures completed the final close of its Southeast Asia and India fund at $305 million. B Capital also sealed its $820 million second global fund targeted for B2B growth stage investments. Openspace Ventures completed a first close of its $200m Fund III. East Ventures announced the first close of its $88 million Fund VIII specifically designed for digital companies emerging in the post-lockdown aftermath of the Covid-19 pandemic. These funds will be hunting for exciting deals across Southeast Asia over the next 24 to 36 months, which will clearly pave the way for venture debt providers.

After a quiet March to May, resilience in venture investments was seen in the second half 2020 with $76.4 billion in venture funding worldwide. This represented an increase of 1% quarter over quarter and 9% year over year. The bulk of this funding went to growth-stage companies where rounds above $100 million accounted for 61% of funding. Angel and early investments were down as VCs sought to accelerate the growth of their existing portfolio companies and those nearer an IPO event.

In Southeast Asia, start-ups raised $5.6 billion in the first half of 2020, with most of these funds going to Series B and C rounds. While statistics for the final two quarters are not out yet, we expect numbers to be on par with previous years (if not better).

One of the contributory factors seems to be a flurry of exits via IPO. The red-hot technology IPO market saw big-name companies like Palantir, Asana and Snowflake, Airbnb and Doordash all making it to the gong. Airbnb garnered an enviable $86.5 billion valuation surpassing that of Marriot and Hilton combined. Zoom went from a $1 billion valuation to $116 billion in less than two years. Indonesia’s unicorn Tokopedia has announced its dual listing plan – domestic and US – to raise funding of $1 billion. This will certainly excite the entrepreneur community in Southeast Asia where the typical exit for a young company has traditionally been via the M&A route.

Heading into 2021, there is an even greater air of optimism that seems to be shaping the industry. We expect to see more healthcare companies funded, with Biotech and Pharma deals leading the charge. Digital transformation will continue to play a huge role in corporate development but also at the country level in moving the general population paper-less.

Fintechs in their respective silos, be it payment, remittance, advisory, will start to take shape and may see consolidation as digital banks emerge. We haven’t even talked about SPACs (Special Purpose Acquisition Vehicles) which may have an important part to play in the maturing ecosystem.

Most critically, from a purely venture debt perspective, PitchBook’s 2021 Venture Capital Outlook forecasts that venture debt in the US will continue a string of record years, surpassing 2,600 deals and $25 billion originated for the 4th consecutive year. This is a strong indication for Southeast Asia.

Given these meaningful developments, headwinds notwithstanding, Genesis believes that the broader tech ecosystem is certainly maturing in Southeast Asia, albeit more clearly in Singapore and Indonesia, the region’s current incumbents. In fact, we have observed that the result of the (unfortunate) pandemic, coupled with concerns regarding sustainability from the WeWork collapse, has reorientated entrepreneurs in Southeast Asia towards prudence and sustainable growth.

Genesis is in a strong position to continue its market leadership in the venture lending space in Southeast Asia and will look to capitalise on the strong funding wave that we expect in 2021/22.

Investor confidence is on the rise in Southeast Asia. Statistics indicate that VCs are again allocating additional resources and hunting for deals. According to a South China Morning Post (SCMP) report published recently, COVID-19 is unlikely to be a damper for Southeast Asian PE and VC firms which are flush with US$8.7 billion in unspent cash. However, the shift will come in the form of investing in later rounds where investors are expected to double down on their winning bets. This bodes well for venture debt and growth capital funding although this might be impacted by the recurrence of Covid infection waves around the world. Similarly, we observe various companies within the Genesis portfolio looking to raise additional capital to accelerate growth brought about by COVID-19 while putting in place bigger cash buffers. We expect to announce successful follow-on fund-raises of several of our portfolio companies in the next quarter.

Good companies get funded

COVID-19 has exposed how tenuous and fragile some business models are. In the first half of 2020, several notable start-ups such as iFlix (Malaysia), Sorabel (Indonesia), and Stoqo (Indonesia) ceased operations after struggling to raise additional capital. The demise of these companies may not be entirely attributed to the pandemic given that the business models and unit economics of such companies always pushed the boundaries of sustainability.

For example, some companies have consistently been struggling with managing a cash runway. Sorabel publicly declared that it has never had more than 6 months of cash since 2016; while others have seen a sharp decline in income as the pandemic barrelled across Asia.

Conversely, companies that are able to deliver growth continue to attract strong funding. NinjaVan added US$279 million new funding to scale E-commerce delivery logistics and boost B2B service. Waresix says it has closed its series B funding round, raising about US$100 million over the last year.

Payfazz is one of several tech start-ups focused on solving that problem by finding innovative ways to give more Indonesians access to financial services. The company announced that it raised a $53 million Series B led by B Capital and Insignia Ventures Partners. Taiger, a Singapore-backed artificial intelligence (AI) start-up whose clients include Bank of America, AIA Group and Banco Santander, has raised US$25 million of funding for its expansion.

Acquisition of start-ups by corporates accelerate

In the first 9 months of 2020, Southeast Asia has witnessed a flurry of acquisitions. TradeGecko was acquired by Intuit for US$80m, Synagie for US$62m by Gobi and Alibaba and Chilido for US$18m by Thailand’s CP Group. Mature start-ups like Grab and GoJek are also using consolidation as a strategy to expand into new services by acquiring smaller players. Rather than developing internally, they choose to leapfrog the cycle by buying existing companies that have been operating in the same or adjacent sectors. Gojek has acquired 13 start-ups thus far according to Crunchbase, including Vietnamese payments startup WePay and Indonesian point-of-sale platform Moka earlier this year. Grab and Traveloka have also been busy buying and integrating smaller players.

A harbinger of things to come? We certainly think so as private exits like these fuel the serial entrepreneurship cycle as well as offer an alternate exit channel apart from IPOs.

Genesis continues to believe strongly in the impact of technology and innovation across Southeast Asia. We believe entrepreneurs and the ecosystem at large will weather its first “stress test” brought about by COVID-19. And here are some of the structural reasons why we believe so:

Ample Venture Dry Powder in SEA. The Southeast Asia VC market is flush with fresh capital. In addition to the $20 billion deployed across Southeast Asia tech companies in 2018 & 2019, a further $4.2 billion of capital will be made available by 35 VC funds for deployment from the likes of Eduardo Saverin’s B Capital ($406m), Vertex Venture 4th SEA/India fund ($402m), Monk’s Hill Ventures Fund II ($100m), Vickers Venture Fund VI ($500m), Jungle Ventures Fund III ($240m), Golden Gate Ventures Fund III ($100m), Insignia Ventures Partners Fund II ($200m).

As China VC investment slows down, US VCs have increased their SE Asia exposure with funds like Paul Allen-backed Vulcan Capital Fund I $100m, Mass Mutual Ventures Fund II $100m and this month saw Lightspeed Ventures establish a Singapore office. These funds will deploy into deserving SE Asia companies in the next few years across Series A-D companies, boding well for the ecosystem.

Turn Profitable. An influx of venture capital dollars in recent years has encouraged many equity-sponsored companies to grow at all costs with an implicit promise of subsequent funding without having to demonstrate positive unit economics. Market consensus is that this has begun to moderate which is undoubtedly a positive development for the venture capital market at large, heralding more defensible business model economics. This will open up a new segment of companies that are primed for venture debt; a key part of Genesis’ investment approach is to seek out solid equity-sponsored companies with strong positive unit economics and without heavy leakage into buying “topline” growth.

In times of crisis, there are always opportunities. Chinese e-commerce pioneers Alibaba and JD.com emerged during the SARS crisis. Alibaba’s B2B e-commerce business thrived after foreign business professionals cancelled trips to China and began registering on its platform. The experience partly led to the birth of Taobao, which quickly surpassed eBay to become the largest C2C marketplace in China. Genesis continues to look out for emerging winners who cater to changing business needs and new-normal consumer patterns.

Newer Posts

A Peek into Some of 2022’s Hottest Technology Trends

Debt Financing For Southeast Asia Tech Companies

Rise of Southeast Asia’s Very Own Big Tech

Public Listing via SPACs

Co-Working Post Covid-19

Resilience in a Socially-Distanced Venture Capital Industry

Venture Industry Seeing A V-Shape Recovery

Weathering the COVID-19 Stress Test