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SPACs will set the benchmark for investor appetite in Southeast Asia, says Golden Gate Ventures’ Michael Lints

Written by Stephanie Pearl Li Published on     5 mins read

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Southeast Asian startups raised a total of USD 8.2 billion in 2020, down 7% from USD 8.79 billion in 2019, with 80% of the exits being mergers or acquisitions.

With special purpose acquisition companies (SPACs) becoming the talk of the town in Southeast Asia and on Wall Street, institutional investors have registered a total of USD 3.55 billion in capital raised via Southeast Asia-focused SPACs in the first four months of 2021, up more than 130% from the USD 1.52 billion in 2020, according to a report published by Golden Gate Ventures and INSEAD on June 3.

SPACs are cheaper and more efficient than conventional listings, giving tech companies a way to sidestep the complicated listing requirements. Grab made headlines in April by announcing what was billed as the largest SPAC merger ever, but has since postponed its merger with Altimeter Growth Corporation until the fourth quarter of this year, according to a filing sent to the SEC on June 9. 

With Singapore and Hong Kong’s stock exchanges planning to tap into the popularity of SPACs, or blank check companies, Golden Gate Ventures partner Michael Lints believes that SPACs will be “a catalyst” for smaller tech companies in Southeast Asia that are looking to raise funds from public markets. He expects to see more exits in the region.

KrASIA recently spoke with Lints on Southeast Asia’s landscape for exits. He shared his thoughts on the region’s maturing startup ecosystem and how Southeast Asia’s tech scene will evolve differently than those of China and India.

The following interview was edited for brevity and clarity.

Michael Lints, partner of Golden Gate Ventures. Photo courtesy of Golden Gate Ventures.

KrASIA (Kr): What are the impacts of the pandemic on Southeast Asia’s exit landscape?

Michael Lints (ML): We saw a drop in raised capital from 2019 to 2020. But it was more like a global phenomenon instead of a regional one. At the beginning of last year, people were not traveling, while investors had to scramble to figure out the impact on their portfolios. Many fund managers initially looked inwards and focused on their existing portfolio, and they started to pick up new deals towards the end of the year. While it was extremely slow in terms of new deals done at the beginning, there was a huge pickup in the first quarter of 2021.

Kr: There has been a sharp drop in the number of deals among early-stage startups. Were early-stage startups hit hardest by the pandemic? Is this a healthy dynamic?

ML: I do feel that the pandemic had an impact on the deal flow. One reason was that many fund managers are located either in Singapore or Indonesia, which means that if a deal takes place in Vietnam, the Philippines, or Thailand, it is difficult to do due diligence. If it’s an early-stage deal, it means that the investors are new to the founder, the team, and even the business model. It becomes even more difficult when you cannot conduct physical initial meetings. Late-stage companies have a longer track record, and the likelihood that they know the investors is pretty high. But for early-stage companies, it became more difficult to get visibility in 2020 because of the pandemic.

Kr: What are the challenges that Series B and Series C startups face when it comes to exits?

ML: There’s a [fundraising] vacuum for Series B and C startups, as a lot of capital flows into Series A startups. But there aren’t that many funds that focus on this sort of relevant field, so Series B and C are stuck in the middle, as they’re too small for private equity funds and too large for an early-stage VC fund. But the gap is thinning fast. My guess is that over the next 12 to 18 months, we’ll see the gap filled pretty fast.

Kr: Will exits via acquisitions or mergers continue to dominate the landscape for deals?

ML: When comparing Southeast Asia to other markets like Japan and Korea, those markets have extremely active stock exchanges where, even for smaller tech companies, they’re able to list, and there’s a lot of liquidity in those markets. In Southeast Asia, we don’t have a singular stock exchange for the companies, so they’re bound to list on a local stock exchange. But there’s not enough liquidity, and those markets don’t tend to be deep enough.

Companies looking to go public tend to focus more on the US market or even the Hong Kong bourse. While the US is on a longer trajectory when it comes to listing, public investors in the US might not know companies from Southeast Asia. We’ll definitely have some IPOs happening in the US and some happening locally, but predominantly, mergers and acquisitions are still the driving force for exits.

Read this: All eyes on Grab | From a Harvard University project to a USD 40 billion business

Kr: What are the signs of a maturing ecosystem? How is the Southeast Asian ecosystem going to evolve differently than the ones in China and the US?

ML: We [the Southeast Asian ecosystem] are definitely not as mature as China or the US. I would say we are a little bit closer to the Indian market in terms of maturity. The important measurement for our ecosystem is the fact that we have serial entrepreneurs who had earlier exits and are now coming back to the market. We’re seeing people that have worked at unicorns and then decide to branch out on their own. To me, this is the second wave of entrepreneurs coming to the market. The third measurement is the latest-stage capital coming to the market. We’re still behind China and India, but it only takes five years for us to reach our current level. The good fortune is that we can take a lot of lessons from China and India. When investors look at the Chinese market, they will now look at Southeast Asia as well. The benefit we have here is that we can leapfrog and learn from other ecosystems.

Kr: What do SPACs mean for Southeast Asian startups? With SGX planning to give SPACs the green light later this year, would that make a difference for lackluster listing activity in the region?

ML: We saw an enormous rise in SPACs in 2020 and early 2021. It is important to note the effects of this rising number in the last few months. They help Southeast Asia get the attention of public markets, which is important, as investors from public markets are watching and want to better understand what is happening. Instead of knowing only a few unicorns, they are now understanding the next up-and-coming companies. It educates public investors that the Asian market is huge.

We are going to see more exits. The Singapore stock exchange is now working to ensure that companies can list locally, which will be a catalyst for smaller tech companies looking to raise capital from the public markets.

Although we haven’t yet seen a Southeast Asian SPAC go public in the US, I do feel that in the next 12 months, we’ll see one or two. I think those will be a benchmark for appetite in the region. So if those first few SPACs in the US are successful, they will shine more light on what is happening in Southeast Asia.

Kr: Which sector is poised to have the highest growth potential in the region? 

ML: There is a lot of room for growth in healthcare. We haven’t yet seen the influx of growth in healthcare companies as in e-commerce, logistics, or fintech startups. However, healthcare is an area where we can add value for a large demographic and fix some infrastructure issues in Southeast Asia.

Read this: Didi, Grab, and the future of Asia’s ride-hailing giants

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