Final verdict: MW 2020 Southeast Asia predictions

It is the time to review our predictions again. What a year! We made our 2020 predictions in Dec 2019, certainly not aware of the pandemic that would ravage the whole world. 

Maybe we should have noticed something would not be right, as 2020 is a Gengzi Year (in the Chinese Sexagenary Cycle), and Gengzi has not been auspicious for the last few iterations. We talked about this being potentially a year of Black Swans on Feb 4, that was bad luck. 

Anyway, as we did last time, we highlight those we predicted accurately in green, those we got wrong in red, and those which are not clear cut in blue.

1. Two or more late stage (Series C to pre-IPO) companies collapse

When we made these predictions in December 2019, WeWork and two Southeast Asian companies had recently failed its IPO, and the sentiment was quite negative on venture funded growth or late stage companies that did not have a clear path to profitability. Prior to that, many companies focused exclusively on growth and had little attention for profitability, or anything else. 

The prediction was some of these companies will fail. We certainly did not predict the pandemic.  

This year, the region’s streaming startups became the most notable casualties. Former star iFlix had a distressed asset sale to Tencent, and SingTel-backed Hooq simply shut down. Both companies raised a significant amount of money and iFlix tried to IPO in ASX last year. Expensive cost structure and challenges to monetise are the biggest problems that caused their demise. 

Another significantly-sized company that had to shut was Indonesia-based fashion ecommerce Sorabel (formerly called Salestock). Zilingo, which almost became a unicorn last year, too has shown signs of struggle with a series of job cuts happening throughout the year.  

Many other companies did layoffs when the pandemic hit. Some of them did it as a prudent move while facing market uncertainty, while others had their fundamental problems exposed as a result of the pandemic. One example of the latter is ONE Championship, which went through a significant layoff – 20% of their staff back in June. And while the pandemic was quoted to be the reason for it happening – we can’t completely dismiss the report citing financial losses of up to $126m way before coronavirus happened.

There are a few other companies built on shaky backgrounds. But we can’t simply put the blame on founders or investors, pandemic is not something that many had experienced before (and thus knew how to deal with). 

And regardless, the funding that went into building these companies also contributed to investments into the whole tech ecosystem in the region, benefiting many stakeholders. 

2. Ecommerce & mobile wallet/payment sectors in Indonesia consolidate;

The reason why we predicted this would happen is because the way these sectors were acquiring customers and competing in the country had reached a plateau and became no longer sustainable – with Mochtar Riady claiming that OVO was burning too much money and the typical cash-burn nature of educating customers for major platforms; and thus, consolidation seemed to be a natural move. 

There has been lots of chatter on juicy mergers happening in both sectors this year just as we predicted. The OVO and DANA proposed merger seems to be on the brink of conclusion and Grab’s strategic investment into LinkAja shows strong consolidation efforts in the scene. Talks of the mega Grab-Gojek merger also further points in this direction, and a rumoured Alibaba-investment into Grab would further strengthen Grab’s bargaining power in the talks. 

We also feel that it makes sense for Bukalapak to be acquired by Tokopedia, which will strengthen the local players’ competitive stance against the almighty Shopee. The deeper incursion of Shopee into payment space would also become an impetus for other players to consolidate.

3. Grab Financial becomes bigger than Grab Ride-hailing;

We anticipated that the digital payment scene would grow maybe not faster but certainly in a more solid way this year, due to the rise of ecommerce and food delivery in the region. Grab, which had built a large user base and significant market share in Southeast Asia, had planned to go big in payment and digital financial services. 

However, again we didn’t expect (well nobody did) the pandemic – ride hailing took a big hit but food delivery grew significantly. According to our own estimates, food delivery players’ total GMV in the region grew by more than 120% this year (we will release a report in early January). 

Over the past year, Grab has raised $865 million to push Grab Financial’s expansion and have expanded the consumer ecosystem by launching new financial products and services, showing further focus in their financial arm. 

Their recent award of Singapore’s digital bank licence is just a nice conclusion of the year for GFG.

4. Social ecommerce continues to grow and be funded 

Social ecommerce in the Southeast Asian context can be divided into 2 main types: the first is simply the use of social media to sell goods and services and the second is the use of a community or social network to sell, such as group-buying platforms like Pinduoduo and Shihuituan in China. 

In terms of social media selling, platforms seem to be placing more focus into their native commerce functions like Facebook Marketplace and Instagram Business. Facebook-owned Instagram ) recently took a pretty straight up move by adding a new ‘shop’ tab on its application’s main menu bar. Says alot about the direction they’re taking. Facebook’s other weapon, Whatsapp pay, finally received approval in India, and we are sure that some countries in Southeast Asia was under its radar. 

On top of that, we also see community group-buy companies like Chilibeli, Webuy, KitaBeli and Super getting funded in the past year and continuing to grow. Other players, such as Chinese-run Fingo and CosyFans, Indonesia-focused Shox, as well as India’s Meesho, have also become active in the region. 

Seeing the success of the two starters of live streaming – KuaiShou and Tiktok, ecommerce platforms like Shopee and Tokopedia have started to wet their toes in the social scene by livestreaming on their platform. Although a relatively new trend and many companies are still in the early stage of experimenting, we see potential for growth in this area as live streaming has gotten popular in the past few months in light of COVID, and even garnered attention in the US. Facebook is a beneficiary of this, and it is probably trying to move fast before TikTok matures into ecommerce.

5. Philippines finally takes off 

According to a report we did with Cento, capital invested in the Philippines was $58 million as of H1 of 2020. This was the highest it has ever reached in the past 3 years, and more than 360% the level of H1 2019. Most of these capital were channeled to earlier stage startups (Pre-A to Series B), and a large part being targeted at startups in the fintech industry. 

The overly-high weightage on fintech actually presents a structural problem while the investment numbers are going up. GoJek’s acquisition of coins.ph, and Voyager Innovations’ $120 million investments from investors including Tencent, and Alibaba’s investment in Mynt in the past years already paved the way for customer education. This year, digital only bank Tonik, payment company PayMongo raised big rounds, while others such as on-demand salary platform Advance.ph also stood out. 

A bright spot is Inteluck, a logistic platform that raised pre-series B from Hong Kong-based MindWorks. On-demand logistics unicorn Lalamove, which counts MindWorks as an early backer, also invested.  

The Philippines have good entrepreneurs and good talent, traditionally what was lacking was investment (and the attention that would drive investment). Investors from China and US, as well as those who are Singapore-based, do deals in the Philippines in ad-hoc basic but very few seem to have a consistent thesis or commitment to the market. 

While there are indicators that take-off is happening, to reach cruise altitude, the country still needs more resident investors than tourists.

6. Korean investors continue to overvalue Vietnameses startups

No this has not happened. Most investors in Vietnamese startups do not have a permanent base there – as we all know, you can’t travel this year. 

7. Growth funds become more available, competition for LP attention/funding becomes even more fierce. 

Asia Partners, a regionally-focused growth fund, did a report last year highlighting the need for more growth funds in the region. Historically, growth funding in the region largely came from growth investors from outside the region. 

Over the past two years, efforts to increase the availability of growth funds in the region have been made, from Golden Gate Ventures (GGV)’s $200 million growth fund to East Venture’s EV Growth (a collaboration with Sinar Mas and Yahoo Japan) announced on 30 Dec 2019. This year,  Gobi Partners closed their US$200 million Meranti growth fund.

Also this year, Sequoia India announced a $1.35 billion fund for India and Southeast Asia, while B Capital, which maintains a large presence in Singapore, also closed a new fund of $820 million. 

China’s GGV and Lightspeed Venture Partners India have both set up presence in Singapore, where they systematically scan the early but also growth stage opportunities in the region. 

These findings were in line with the insights we did with Cento Ventures – we see the increasing trend of funding with ticket sizes between $10m and $50m.

Ok, that was an easy prediction, we admit. The momentum was already there. 

8. More countries start digital bank licenses, and finally, a fintech unicorn emerges

Singapore’s creation of digital bank licences last year, not surprisingly, led a trend. Malaysia announced similar schemes by the end of last year. 

Although the pandemic delayed most of the digital bank licensing efforts; we saw Singapore  announcing the results of their 4 successful applicants in December, with Grab, SEA, Ant Group and Greenland Financial on the list.  

Shortly before that, the Philippines approved the creation and licensing of digital banks. Malaysia’s efforts were delayed due to the pandemic; but on track to be introduced in 2021. We are expecting to see the rest of the countries to follow this same trend. 

Thailand seems to have expressed interest in issuing digital bank licences but are still in early stages. Although according to Momentum Works’s Industry Enablers Report for Southeast Asia, Thailand’s investment into banking infrastructure over the years have created somehow a situation of saturation, which creates doubts about the additional benefits a digital only bank might bring. Regardless, banks in Thailand have begun to cooperate with e-wallets to promote digitalization.

Across the region, incumbent banks have accelerated their digital journey, not only because of the emergence of digital banks but also thanks to the pandemic. In Indonesia, Bank Jago accepted Gojek’s investment, after Shopee and Akulakau had already invested into banks in the country. 

Earlier, BCA bank also acquired Royal Bank and renamed it BCA digital bank. DBS bank and BTPN have both launched digital only banks in Indonesia. In Singapore, DBS reminded the public that it had been offering digital banking services for years, when the new licences were announced. 

As for unicorns, Gopay, Grab Financial Group and OVO have all exceeded $1 billion valuation. Advance.ai and FinAccel (Kredivo), which exceeded $400 million last year, did not raise fresh rounds this year, partially because of the pandemic. Both are still growing. 

9. Continuous expansion of mobility and (E or non E) vehicle-life cycle-related tech startups

The pandemic has led to a change in consumer behavior, which stimulated the growth of the used car market to some extent as people become more price-conscious. The automotive tech startup scene has seen some pretty big funding this year with Carsome’s recent $30m Series D (led by Asia partners mentioned above),  one of the largest all-equity financing in Southeast Asia’s online automotive industry and Carro’s $110m funding in debt financing and equity. 

We’ve always been optimistic about this space and we even did a deeper dive into the used car platforms in the region – check out our report here.

We predicted shared scooters would not work in SEA, but it blossomed in Australia. Leading player Beam raised $26 million during series A in June 2020 as it looks to expand its footprint in Korea, Australia, Malaysia, New Zealand. Neuron mobility seems to be making a comeback as they just announced they’ve secured another $12m to their Series A, bringing it to a total of $30.5m.

There are also electric mobility startups like ION mobility appearing in Southeast Asia and receiving investment from Monk’s Hill Ventures. Scorpio Electric similarly has announced a US$6.3 million in fresh funding in November 2020. 

Tesla, the company with stellar stock performance this year, is landing in Southeast Asia. Besides hiring actively in Singapore, it is also in the talks with Indonesia for battery production. The country’s massive nickel reserves is a big plus. 

10. More Indian companies expand to Southeast Asia

Analysis by friends at Inc42 shows that over 35 big-ticket Indian startups have expanded or have vigorous plans to expand their operations to high growth Southeast Asian markets such as Singapore, Indonesia, Philippines, Thailand, and Vietnam.

Despite being trapped by the pandemic, many companies will continue to expand to Southeast Asia in 2020. The CEO of OYO recently stated in his internal meeting that they will continue to increase their expansion in Southeast Asia. Other companies such as HungerBox, Saas Industry, Feedo and Hevo etc. 

There are a lot of Indian startups moving into Southeast Asia that are backed by Sequoia Capital India (or similar) venture funds. For example, Meesho, Pinelabs, and CarDekho are backed by Sequoia Capital India, and Livspace is backed by Jungle Ventures

Indian payment leader Pinelabs launched their pay later solution with Mastercard in Malaysia early 2020 and has plans to expand further in 2021 especially after their recent funding. Meesho, a social commerce platform recently expanded to Indonesia to jump on the social commerce train that has been gaining traction. 

Southeast Asia provides a lot of entrepreneurial opportunities for talented Indian founders and more. Such as Kredivo’s Co-founder and CEO-Akshay Garg, Ula-Nipun Mehra etc.

FT reported that Chinese inventors are turning from India to Indonesia. A little known fact is that some Chinese tech companies, which were banned in India this year,  have redirected their Indian employees to work on the Southeast Asia market. “Creating wonders,” one executive told us.