There is ongoing concern that the Series B & C funding gap in ASEAN is posing issues for start-ups targeting growth opportunities beyond initial-stage financing. As seen in the chart below, the proportion of aggregate venture capital deal value in ASEAN accounted for by Series B & C deals has declined from 43% in 2014 to 13% in 2017.
This also aligns with the fundraising landscape in the region: ASEAN-focused early-stage start-up funds* have seen annual declines in aggregate capital raised each year from $112mn in 2015 to $38mn in 2017. Some fund managers told Preqin it felt risky to raise larger-sized vehicles due to insufficient track records in completing such mid-stage investments in the ASEAN region. The decreasing fundraising activity makes it challenging for portfolio companies to raise capital for their next round of funding.
Various governments have established initiatives to overcome the Series B & C financing gap. Monetary Authority of Singapore (MAS), for example, has actively encouraged investments in technology start-ups through several Early Stage Venture Fund schemes. MAS also provides a simplified regulatory framework for fund managers, in hopes of establishing a diverse pool of early-stage vehicles to support portfolio companies as well as developing them into unicorns in the future.
Indonesia also recently launched a new government initiative, NextICorn (Next Indonesian Unicorns), which seeks to encourage and increase collaborative meetings between digital start-ups and investors. Indonesia aims to become the largest digital economy in Asia by 2020, with the possible creation of new unicorns within the country. Existing unicorns in Indonesia participating in NextICorn are Go-Jek Indonesia, PT Bukalapak.com, PT Tokopedia and Traveloka Group of Companies.
According to Preqin’s online platform, there are seven ASEAN-focused early-stage start-up funds currently in market, seeking $670mn in investor commitments. Compared to 2017, this represents a 104% rise in capital targeted by such vehicles, indicating an attempt by fund managers to narrow the existing Series B & C financing gap in ASEAN.
*Preqin defines early-stage start-up funds as series B & C funds. These funds support a non-commercial company’s product development and marketing.