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Daiwa Capital Markets and Golden Gate Ventures release industry insider report: “How ASEAN is propagating China’s growth”

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Daiwa Capital Markets and Golden Gate Ventures published a co-authored report identifying four key ASEAN sectors to watch. Two themes emerge – first the growth in Chinese tech-titans expanding investment, innovation, and acquisition to Southeast Asia, and second, the shift of startups addressing “To C“(onsumer) to “To B”(usiness) models. This report coins the term “2G2T” referring to ASEAN’s tech behemoths: Grab, GoJek, Traveloka, and Tokopedia. 

Why now?: In spite of the turbulent macroeconomic environment, ASEAN is primed for growth at more reasonable valuations. Golden Gate Ventures has invested in  ASEAN startups mirroring successful Chinese business models, institutional capital continues to flow into the region, and just last month, ASEAN overtook the EU to become China’s top trading partner.

Q1 saw a number of Chinese tech start-ups go bust under a 2019 ‘capital winter’, but not as a result of COVID-19. Although COVID-19 has caused short-term turbulence in some verticals globally, ASEAN remains one of the most attractive regions on a long-term investment horizon. Under economic uncertainty, this report provides forward-looking guidance on a 3-year horizon, to make sure investors keep a steady hand at the steering wheel.

“Holding a long-term view, we at Golden Gate Ventures see a clear opportunity after the storm. The present economic uncertainty is a cycle we face nearly every decade. Having personally experienced two downturns since working at my first dot-com start-up in 1997, it is evident to me that having the rigor to navigate the current climate will be paramount to a start-up’s success.” 

Vinnie Lauria, Founding Partner, Golden Gate Ventures

 

Download “How ASEAN is propagating China’s growth”

 

While existing ASEAN tech behemoths which we have named “2G2T” — namely Grab, GoJek, Traveloka, and Tokopedia — are a likely source of capital and exit opportunities given their acquisition activities, we have spotted a growth capital gap (Series B to Series D) that is critical to nurturing successful Southeast Asian companies to their full potential. While the present COVID-19 economic climate may present a short-term challenge for some 2G2T business models (e.g. ride-hailing and travel), we are confident that these models have long-term value that will flourish post-COVID-19 and in the years thereafter.

To identify the most valuable start-ups, we studied previous trends and transformations in China, a market that is around 10-15 years ahead in maturity compared with Southeast Asia. This allowed us to project what will come next for Southeast Asia, and consolidate our insights on the nuances, risks and potential challenges that lie ahead of Southeast Asian startups tackling the same industries.

This collaboration and exchange with Daiwa Capital Markets have provided additional insights from capital-market activities and late-stage developments of the technology giants in China. Combined with Golden Gate Venture’s understanding of local ASEAN markets, the report charts paths and identifies fractures in business models that are likely unsustainable in the long term.

What’s the impact:

Two highlights are: 1) Lower liquidity and exit risk helped by a maturing exit landscape and increasing funding from Chinese internet companies, and 2) our view that the next investment opportunities lie in adjacent verticals such as logistics, social e-commerce, Insurtech, and co-living. While we see a favorable macro backdrop, with Indonesia and Vietnam considered to have the greatest investing potential, investors should be selective among the aforementioned verticals.

ASEAN sectors to watch:

Several innovations from China — e-commerce, ride-hailing, Fintech, and entertainment/media — can be readily applied to ASEAN and have attracted significant funding. As such, we believe the next areas of capital inflow will be in these adjacent verticals: logistics, social e-commerce, insurtech, co-living. Additionally, there have been two relevant verticals to see a strong rise globally due to COVID-19 that will be sustained after, heatlhtech and edtech.

This is one of the first reports to provide in-depth research on both the Southeast Asia tech ecosystem and the parallel analysis of China. The combined findings of Golden Gate Ventures and Daiwa Capital Markets will paint a more complete picture of technology trends in Asia and highlight the opportunities unfolding within ASEAN as the region breaks new ground.

Download the report