With a combined population of almost two billion people, Southeast Asia and India are well-established destinations for global venture investors. Now, the near-term liquidity events from the domestic and global IPOs of local market leaders could push the market to new heights

With a combined population of almost two billion people, Southeast Asia and India are well-established destinations for global venture investors. Now, the near-term liquidity events from the domestic and global IPOs of local market leaders could push the market to new heights 

 

 

As one of the world’s most promising venture capital markets, South Asia (referring to India and Southeast Asia’s tech ecosystems) has moved past an important inflection point to emerge as a hub for innovation. The region’s tech titans have grabbed headlines this year as they prepare to debut on the public markets, either through a traditional IPO or via a special purpose acquisition company (SPAC).  

The past 12 months have been 10 years in the making. We are seeing the entrepreneurship, innovation, and investment of the last decade come to fruition through these deals:

  • Consumer internet company SEA Ltd (NASDAQ: SE, parent of Garena & Shopee) increased its market capitalization from $50bn to $150bn.
  • Food delivery app Zomato (NSE: ZOMATO) listed on India’s stock exchange in an IPO oversubscribed more than 30 times and is now valued at $10bn.
  • E-commerce company Bukalapak (IDX: BUKA) listed on Indonesia’s IDX exchange raising $1.5bn in its IPO (Indonesia’s largest-ever IPO raise) with a market capitalization of $8bn.
  • Super app Grab plans to list on NASDAQ via a SPAC sponsored by Altimeter, which will be the largest SPAC deal ever at a planned $40bn valuation, and is expected to close by end-2021.
  • Indonesia’s consumer internet leaders Gojek and Tokopedia agreed to a merger to form the GoTo Group with a combined valuation of $18bn, which plans for a dual listing on the Indonesia and US stock exchanges by early 2022 with an intended valuation of $35bn.
  • Fintech company Kredivo, the market leader in the Buy Now Pay Later sector in Indonesia and a Jungle portfolio company, will become the fastest seed-to-IPO company across the entire region as it announced its $2.5bn SPAC with Victory Park Capital to list on NASDAQ in 2021, merely five years after its seed round.

Supportive Market Conditions and Dynamics
While the South Asia venture capital market has been slower to generate exits and value realizations compared to the US and China historically, domestic, dual listing, and global IPOs support and improve market dynamics in the long term.

  • The successful acquisitions of Flipkart by Walmart, Lazada by Alibaba, Uber’s SE Asia units by Grab, and Uber’s India food business by Zomato have shown global tech leaders that these markets are significant and attractive, and local nuances make M&A the ideal way to enter the market.
  • SPACs as a mechanism for listing, especially with reputed sponsors who exhibit clear long-term alignment, are a great way for companies in South Asia to access the global capital market while they continue to grow and be gradually better understood by global and US investors.
  • Local regulators, especially in larger VC investment destinations such as India and Indonesia, are rapidly working on and rolling out progressive policies and standards for the listing of tech start-ups, as well as enabling dual listing in local and global markets.
  • As technology crossover investors and global asset managers see the value creation in late-stage private markets, since early 2020 they have been aggressively participating to invest in the growth and pre-IPO stages of quality companies, smoothening their path to an IPO.
  • Despite the tremendous growth we have already seen, South Asia’s digital economy remains in the early stages of development. As of 2019, the digital economy’s share of total GDP stood at 3.7% in Southeast Asia and 8% in India, compared with 34.8% in China. This implies that South Asia has a huge runway for potential growth across many technology sectors.

Market Capitalization Is Promising
Sea Ltd, Zomato, and Bukalapak already have an aggregate market capitalization of more than $170bn; and there is a pipeline of another 10 listings in process over the next nine months. In addition to those listed above, PayTM, Nykaa, PolicyBazaar, CarTrade, and Mobikwik are also now in advanced preparations to list. Upon the successful execution of these listings at the intended valuations, the South Asia region will add another $125bn+ in market capitalization.

In view of the above market dynamics, the South Asia technology sector is likely to result in $300bn in market capitalization by December 2022 and reach more than $1tn by 2025. Aside from deals that are currently in their advanced stages, we at Jungle Ventures are most excited about the deep pipeline. Today, there are nearly 50 unicorns in South Asia, with large companies such as Flipkart (majority owned by Walmart, last valued at $37bn), PayTM (valued at $16bn), and Byju’s (valued at $16.5bn) leading the pack.

These unicorns are currently valued at an aggregate $300bn and will continue to grow at 75-200% CAGR. Many plan to IPO in the next 2-3 years. Assuming conservative estimates for valuation multiples over the next three years, these companies will have valuable IPOs based on the pace at which they are growing. Even if only 70% of them successfully IPO, we estimate that the aggregate market capitalization will easily cross the $600bn mark as listed companies.

In addition, there are also another 100 companies that are estimated at between $250mn and $1bn each and will soon be unicorns themselves. We believe that a significant majority of these will be IPO candidates themselves by 2025 and generate an aggregate market capitalization of over $200bn as they list. This will bring the total market capitalization close to $1tn by 2025.  

As we look forward to the next five years, it is clear to us that this $1tn of value realization will clearly establish South Asia as the third-largest tech hub globally after the US and China. The resulting windfall and capital availability for VCs and founders in the ecosystem will further drive value creation for decades to come.

 

About Jungle Ventures
Jungle Ventures is one of South Asia’s largest independent venture capital firms. Jungle invests in early- to growth-stage companies in Southeast Asia and India and aims to build category-defining businesses that stand the test of time.

 

This article originally appeared in the Preqin Alternative Assets in Southeast Asia report. The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin and Jungle Ventures providing the information in this content accept no liability for any decisions taken in relation to the above.