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Investors are doubling down on Southeast Asia’s digital economy
Southeast Asian tech companies are drawing the attention of investors around the world. In 2020, startups in the region raised over $8.2 billion, about four times more than they did in 2015. This trend continued in 2021, with regional M&A hitting a record high of $124.8 billion in the first half of 2021, up 83% from a year earlier.
This begs the question: Who exactly is investing in Southeast Asia?
Let’s explore the three key types of investors pouring money into and driving the growth of Southeast Asia’s tech ecosystem.
Over 229 family offices have been registered in Singapore since 2020, with total assets under management of an estimated $20 billion.
Big tech
Southeast Asia has become an attractive market for U.S. and Chinese tech firms. Internet penetration here stands at 70%, higher than the global average, and digital adoption in the region remains nascent — it wasn’t until the pandemic that adoption of digital services such as e-wallets and online shopping took off.
China’s tech giants Tencent and Alibaba were among the first to support early e-commerce growth in Southeast Asia with investments in Sea Limited and Lazada, and have since expanded their footprint into other internet verticals. Alibaba has backed Akulaku, M-Pay (eMonkey), DANA, Wave Money and Mynt (GCash), while Tencent has invested in Voyager Innovations (PayMaya), SHAREit, iflix, Ookbee and Sanook.
U.S. tech firms have also recently entered the scene. In June 2020, Gojek closed a $3 billion Series F round from Google, Facebook, Tencent and Visa. Google, together with Singapore’s Temasek Holdings, invested some $350 million in Tokopedia in October. Meanwhile, Microsoft invested an undisclosed amount in Grab in 2018 and has invested $100 million in Indonesian e-commerce firm Bukalapak.
Venture capitalists
In Q1 2021, Southeast Asian startups raised $6 billion, according to DealStreetAsia, positioning 2021 as another record year for VC investment in the region.
The region is also rising in prominence as a destination for investment capital relative to the rest of Asia. Regional VC investment grew 5.2 times to $8.2 billion in 2020 from $1.6 billion in 2015, as we can see in the table below.
Image Credits: Jungle VC
Southeast Asia also has many opportunities for VC investment relative to its market size. From 2015 to 2020, China saw VC investment of nearly $300 per person; for Southeast Asia — despite a recent investment boom — this metric sits at just $47.50 per person, or just a sixth of that in China. This implies a substantial opportunity for investments to develop the region’s digital economy.
The region’s rising population and growth prospects are higher due to China’s population growth challenges, alongside the latter’s higher digital economy market saturation and maturity.
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India’s Razorpay becomes unicorn after new $100 million funding round
Bangalore-headquartered Razorpay, one of a handful of Indian fintech startups that has demonstrated accelerated growth in recent years, has joined the coveted unicorn club after raising $100 million in a new financing round, the payments processing startup said on Monday.
The new financing round, a Series D, was co-led by Singapore’s sovereign wealth fund GIC and Sequoia India, the six-year-old Indian startup said. The new round valued the startup at “a little more than $1 billion,” co-founder and chief executive Harshil Mathur told TechCrunch in an interview.
Existing investors Ribbit Capital, Tiger Global, Y Combinator and Matrix Partners also participated in the round, which brings Razorpay’s total to-date raise to $206.5 million.
Razorpay accepts, processes and disburses money online for small businesses and enterprises. In recent years, the startup has expanded its offerings to provide loans to businesses and also launched a neo-banking platform to issue corporate credit cards, among other products.
Mathur and Shashank Kumar (pictured above), who met each other at IIT Roorkee, started Razorpay in 2014. They began to explore opportunities around a payments processing business after realizing just how difficult it was for small businesses such as young startups to accept money online less than a decade ago. There were very few payment processing firms in India then, and startups needed to produce a long list of documents.
The early team of about 11 people at Razorpay shared a single apartment as the co-founders rushed to meet with over 100 bankers to convince banks to work with them. The conversations were slow and remained in a deadlock for so long that the co-founders felt helpless explaining the same challenge to investors numerous times, they recalled in an interview last year.
To say things have changed for Razorpay would be an understatement. It’s become the largest payments provider for business in India, said Mathur. Razorpay, which competes with Prosus Ventures’ PayU, accepts a wide-range of payment options, including credit cards, debit cards, mobile wallets and UPI.
“Razorpay has established itself as a clear leader, with its strong focus on customer experience and product innovation,” said Choo Yong Cheen, chief investment officer for Private Equity at GIC, in a statement. “GIC has a long track record of partnering with leading fintech companies globally and is delighted to partner with Razorpay in its journey to transform payments and banking.”
India’s Razorpay launches corporate credit cards, current accounts support in major neo banking push
Some of Razorpay’s clients include budget lodging decacorn Oyo, fintech firm Cred, social giant Facebook, e-commerce Flipkart, top food delivery startups Zomato and Swiggy, online learning platform Byju’s, supply chain platform Zilingo, travel ticketing firms Yatra and Goibibo, and telecom giant Airtel .
The startup expects to process about $25 billion in transactions — up five times from last year — for nearly 10 million of its customers this year, said Mathur.
He attributed some of the growth to the coronavirus pandemic, which he said has accelerated the digital adoption among many businesses.
On the neo-banking and capital side, Mathur said, Razorpay expects RazorpayX and Razorpay Capital to account for about 35% of the startup’s revenue by the end of March next year.
Mathur said the startup’s payment processing service continues to be its fastest-growing business and does not need much capital to grow, so the startup will be deploying the fresh funds to expand its neo-banking offerings to include vendor payment, and expense and tax management and other features.
The startup, which aims to work with more than 50 million businesses by 2025, may also acquire a few firms as it explores opportunities around inorganic expansion in the neo-banking category, said Mathur.
“We will continue to make an impactful contribution to the growth of the industry, aid adoption in the under-served markets and drive new practices and a new thinking for the industry to follow. And this investment fits perfectly with our growth strategy,” he said.
While the coronavirus pandemic has slowed down deal-makings in India, about half a dozen startups in the country, including online learning platform Unacademy, and Pine Labs, have secured the unicorn status.
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