More late stage funding needed to help region's 'aspiring unicorns': Temasek-Google-Bain report

More late stage funding needed to help region's 'aspiring unicorns': Temasek-Google-Bain report

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4 -min read
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SOUTH-EAST Asia might have a crop of startups waiting to break into the coveted world of unicorns, but more financing is needed to bridge the path there.

Nearly 70 companies are valued between US$100 million and US$1 billion, according to the e-Conomy 2019 report by Temasek, Google and Bain released on Thursday.

These “aspiring unicorns”, as dubbed by the report, took home about US$1.1 billion in funding in the first half of 2019, surpassing the US$900 million raised in the same period a year ago. Since 2016, they have raised US$5 billion.

These startups include sports media firm ONE Championship, fashion e-commerce firm Zilingo, and automotive marketplace Carro.

But unicorns, or companies valued at more than US$1 billion, continued to steal the show. Since 2016, heavyweight tech firms such as Grab and Tokopedia drew US$23.7 billion of the total US$35.8 billion raised by startups in the region.

“All of this is largely the result of investors doubling down on their bets on this group of successful companies with proven track records,” said the report.

E-commerce and ride hailing dominated the funding scene – for every dollar raised since 2016, 67 cents went to the two sectors, with the bulk of the capital likely going to the 800-pound gorillas in the room. The report categorised food delivery as a subset of ride hailing.

For aspiring unicorns to break out of their existing bracket, more capital needs to be deployed at the Series C and D stages, which tend to involve ticket sizes ranging from US$25 million to US$100 million and above.

Late stage deals rose in the first half of 2019 to make up 19 rounds, inching up from 16 a year ago. But the total amount raised has plateaued at US$600 million, down from US$700 million the year before.

The good news is that venture capital investors are now raising ever-larger war chests to back their star portfolio companies over a longer period of time. Firms including Golden Gate Ventures, Vertex Growth Fund and EV Growth have recently set up growth stage funds with at least US$200 million to invest in the space.

Private equity players such as Northstar, KKR and Warburg Pincus remain active, while institutional investors are more willing to dip their toes in the earlier stages.

"I wouldn’t be surprised if at least three of (the aspiring unicorns) become unicorns by next year," said Rohit Sipahimalani, joint head of Temasek's investment group, at a press briefing.

But first, the aspiring unicorns will have to prove their worth. “In all cases, they have to demonstrate an ability to monetise their services and to operate with sustainable unit economics,” said the report, amid growing public scrutiny of loss-making tech firms in more mature markets such as the US. “For those that can hit these targets, a cadre of investors will be lining up to fill their coffers.”

As a whole, South-east Asia remained a bright spot even as global tech funding took a hit due to the slowing economy. Against a backdrop of global venture funding falling 17.7 per cent year on year during the second quarter, South-east Asia's Internet firms drew US$7.6 billion in the first half of 2019, about 7 per cent more than a year ago.

In the first e-Conomy report released by Temasek and Google in 2016, it was estimated that to grow a US$200 billion Internet economy, the region will need between US$40 billion and US$50 billion in funding by 2025. Six years ahead of that estimate, South-east Asia is already close to meeting that mark.

The region’s Internet economy is now projected to hit US$300 billion by 2025, according to the latest report.