How Southeast Asia’s start-up exit environment is maturing with tech in the vanguard

In the venture capital game, most fund managers in the West envision an exit scenario in the form of a start-up chief executive ringing the opening bell on the day of their IPO at the NYSE.

While going public has long been the holy grail for start-ups in developed markets such as China and Silicon Valley, the prospect of an IPO is still a somewhat new concept for tech companies in Southeast Asia.

After the region’s collective tech and venture capital ecosystem really started to take off in recent decades, the vast majority of exits came in the form of M&A by large local incumbents and old-money conglomerates.

In markets like Indonesia, the exit dream for most founders was to build an online company from scratch and have it get bought out by the likes of a state-owned enterprise or a big family office. In Indonesia, for example, one would think of Djarum Group, Emtek, Kompas, Telkom, Salim, or some of the other usual suspects.

In many cases, these exits were what we might call “acquihires”, in which the buyer simply absorbs the talent and winds down the start-up (often as a defensive play). In 2019 though, the dream is already different.

Not only has the number of successful start-up exits been steadily on the rise year-on-year since 2014, but we’re also starting to see exits come in different forms.

With tech giants from China and the US taking a keen interest in the region, and with local stock exchanges becoming more trusted places to do business, tech companies are now starting to change the question from – can we exit? – to – how would we like to exit?

In 2014, there were 72 recorded exits recorded across Indonesia, Vietnam, Thailand, Singapore, Malaysia, and the Philippines. In 2015, that number rose ever so slightly to 74. In 2016, it surged to 144 exits in total. It jumped again in 2017 to 264 exits.

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By mid-2018, Asean’s ‘big six’ markets were poised to reach 200 exits. The number of total start-up exits in the region is projected to go higher by the end of 2019.

In the past, if a start-up from Southeast Asia wanted to go public, it would likely find itself looking at the Singapore Exchange or the Australian Securities Exchange. Many founders still consider these exchanges as the best way to go, but it’s worth noting that the Indonesian Stock Exchange (IDX) is finally shaping up to be an exit route to consider seriously.

A few tech companies are now seeing it as a viable option. In 2017, Indonesian O2O e-commerce start-up Kioson was the first to go public on the IDX, successfully raising US$3.3 million. Not long after, a company called MCASH followed suit, as did a tech firm called NFC in a July 2018 IPO that pulled in more than US$20 million.

Even though IPOs are starting to become more of a trend, exit-via-acquisition in Southeast Asia will continue to remain king for the foreseeable future. The difference between now and 2014, however, is that acquisitions of local start-ups can come from a more diverse set of buyers.

Perhaps the biggest and most visible catalyst is the collective activity of the region’s newly minted unicorns (start-ups that have reached a US$1 billion valuation or greater). Tech giants like Grab, Traveloka, GoJek, Tokopedia, and Lazada Group are now showing an appetite and penchant for acquiring start-ups.

There are some relatively high-profile examples of this, such as Grab’s April 2017 acquisition of O2O e-commerce start-up Kudo in a deal reportedly worth more than US$100 million. In August 2017, GoJek acquired one of Indonesia's leading events and ticketing companies, Loket, in a bid to power up its in-app Go-Tix feature.

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So far, GoJek has made more than 10 start-up acquisitions. Meanwhile, Traveloka acquired Indonesia-based PegiPegi and two other regional online travel agency rivals in December 2018 in a collective play worth US$66.8 million.

Indonesian e-commerce unicorn Bukalapak acquired Prelo, a peer-to-peer e-marketplace for second-hand goods, towards the end of 2018. Meanwhile, its direct competitor and Indonesia’s largest C2C e-marketplace Tokopedia acquired Jakarta-based online global wedding directory Bridestory in June 2019.

For more than two years, not many industry stakeholders knew that Lazada Group had acquired Singapore-based grocery e-commerce platform RedMart. The acquisition took place in November 2016, but the news only came out in January 2019.

In terms of rationale, unicorns acquiring competitor start-ups makes sense because it allows for easy access to new markets and creates stronger positions in home markets via simple consolidation (eg consumers no longer have as many choices).

These kinds of exits – in which the region’s unicorns gobble up local start-ups – used to not be possible. They seemingly only came about as a result of Chinese and American behemoths such as Google, Expedia, Tencent, and Alibaba pumping billions into the unicorns we see in Southeast Asia today. Both Grab and GoJek have even launched their own venture capital arms.

The bottom line when it comes to Southeast Asia’s exit environment for start-ups is that the ecosystem is simply more built out today as a result of now having the right ingredients.

Big family offices are still acquiring start-ups but local stock exchanges are now more hospitable to start-ups. Simultaneously, billion-dollar tech companies and overseas digital giants are also buying out companies at an unprecedented rate.

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With more possible exit scenarios via M&A and IPO, larger and more frequent funding rounds will continue to propel and snowball the entire tech-investment ecosystem in Southeast Asia.

If the lack of visible exit scenarios in the region was your concern as an investor five years ago, it’s likely a good idea to circle back around on your prospects in emerging Southeast Asia.

Joshua Agusta is the Chief Investment Officer at MDI Ventures, a US$140+ million corporate venture capital initiative backed by Telkom Indonesia.