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5 takeaways on startup exits from Golden Gate Ventures’ latest report

Written by Georg Ackermann Published on     4 mins read

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The amount of raised capital and deals dropped slightly in 2020, but there are more than one reason to be optimistic for Southeast Asia’s startup ecosystem.

Startups across Southeast Asia managed to raise USD 8.2 billion in 2020, according to the “Exit Landscape 2.0 Report” that Golden Gate Ventures released on Thursday together with business school INSEAD. “Unexpected events in 2020 initially slowed down fundraising, M&A, and exit activities,” said Michael Lints, a partner with the firm. “However, the latter part of 2020 and the start of 2021 showed a resilient tech industry and increased investor appetite.” The study predicts exits to rise to 172 this year and further to 223 by 2024.

Here are five main takeaways from the report.

#1: Total funding and deals were down in 2020, but we are in for a stellar 2021

The total amount of raised capital dipped from USD 8.76 billion in 2019 to USD 8.2 billion last year. The number of exits was also lower, with 107 in 2020 after 115 a year earlier. An overwhelming majority of exits—80%—have been acquisitions or mergers. There were also secondary sales (15%) and IPOs (5%).

The report said that it’s important to point out that 50% of funding went to unicorns such as Grab, Gojek, and Traveloka. This certainly cushioned the overall drop for Southeast Asia, which was the least affected region globally.

The prospects for 2021 look bright. The start of the year has been the best ever for the regional ecosystem, with USD 6 billion invested in the tech sector in the first quarter alone.

#2: There’s a strong pipeline for exits, but startups are staying private for longer periods

The report noted a 26% increase in 2020 for deals between USD 50 million and USD 100 million, which are typically Series B and C rounds. This would provide a strong pipeline for potential exits three or four years down the road, it said.

Various forms of growth capital coming from corporate investors, venture capital, or private equity funds have also helped startups to raise larger rounds faster, shortening the time to raise Series B and C rounds to under 21 months on average.

The report predicted that the increase in later-stage capital will prompt startups to stay private longer, as is often the case in the US. That would not necessarily be a drawback, as companies at that stage have a higher probability of seeking exits.

Grab raised USD 4.5 billion in a SPAC merger that values the company at around USD 40 billion. Photo courtesy of Grab.

#3: The rise of the SPACs

Time will tell whether SPACs live up to the hype. For now, they have turned institutional investors’ attention to the region’s tech startups. The amount of capital raised by Southeast Asia-focused SPACs climbed to USD 1.52 billion in 2020 and USD 3.55 billion in the first four months of 2021, the report said. But this instrument comes with risks. An unsuccessful deal could affect sentiment and negatively impact interest or momentum.

For companies in the region, SPACs present a unique opportunity to go public abroad while avoiding the complexity of listing in regional markets, the report said. Most Asian exchanges have stringent listing requirements, and startups need to spend money and time to make the relevant preparations. Some exchanges are making efforts to adapt to this new set of clientele, enabling dual listings and bringing down standards for disclosure and reporting. Singapore’s SGX plans to allow SPAC listings later this year.

Sea Group’s successful NYSE IPO and stock performance has increased investor appetite for Southeast Asian tech firms. The report sees a “significant pipeline” of companies that are interested in going public over the next three years.

#4: Listed decacorns will be on the prowl for acquisitions 

One important trend the market isn’t paying attention to, according to the report, is the fact that the listed tech giants will use their fresh cash to acquire startups. Although Grab, Gojek, and Trax have so far made 22 acquisitions, Golden Gate Ventures expects this number to rise further.

In 2020, there have been 45 M&A deals with an average size of USD 74.7 million. Gojek continues to be the most active acquirer, having added 13 companies to its group so far. WePay and Moka were brought into the fold in the past year.

#5: The first cohort of funds is about to close and will drive exits

Southeast Asia’s first institutional venture funds, launched between 2010 and 2012, are reaching the end of their terms and the general partners will drive exits before closing, the report noted. This will increase M&A activity and secondary sales. Given a recent secondary transaction by LGT Capital in one of its older vehicles, the report sees interest and potential for exits from these vintage funds. Portfolios with a significant percentage of late-stage companies will increasingly become targets for secondary buyers and increase the number of exits.

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