Market Perspectives by January Capital — Q4 CY2021 Southeast Asia Review
January Capital is a venture capital firm that leverages proprietary data to partner with the most promising founders at the earliest stage. We focus on companies in the Asia-Pacific region who are building technologies that will power the digitization of commerce and the future of work.
Market Perspectives is a series where we summarize the past quarter of venture capital activity in Southeast Asia and offer our perspectives on the trends emerging from this data. We publish this content quarterly, leveraging both internally sourced data as well as information from our affiliated company, Venture Cap Insights.
Southeast Asia Deal Tracker — Q4 CY2021
Each quarter, we provide a “tear sheet” that includes a number of key metrics for the Southeast Asian technology company ecosystem by stage. We provide this via our monthly newsletter (interested readers can sign up here). The metrics include:
- Number of rounds: The total number of equity financing rounds verified via regulatory filings in the quarter;
- Deal value: The total dollar value of equity financing rounds that formally closed during the quarter;
- Average deal size: The average total size of equity financing rounds that formally closed during the quarter; and
- Average pre-money valuation: The actual share price paid by each investor in equity financing rounds that closed in the quarter.
Some interesting takeaways can be observed in the data:
- Southeast Asia recorded US$2.7 billion in venture financing for Q4 CY2021. The overall pace of investing remained consistent as the previous quarter, evidenced by the minimal growth in total number of financing rounds (+1%).
- Continued growth at the Series B investment stage in Q4 CY2021 (+45%), which was driven in particular by larger growth rounds in “hot” sectors of blockchain and fintech. Familiar names include Sky Mavis, Ula, AscendEX, Spenmo, and Nansen. The increase in average pre-money valuations (+147%) was particularly interesting, given average deal sizes (+26%) did not increase materially. This implies that founders have been able to raise capital with significantly less dilution than in prior periods.
- Seed investments remained steady in Q4 CY21 reflecting the smallest increase (+11%) compared to other funding stages, with a minimal increase in average deal size (+7%) while pre-money valuation observed a slight decline (-12%). It should be noted that alternative financing instruments (i.e. SAFE, KISS type instruments) are used particularly at this stage of a company’s lifecycle and are not represented in our data set.
Observed market trends
The Rise of Founder-turned-Angel Investors in Southeast Asia
Southeast Asia has recently witnessed a surge in angel investments from startup founders, with many veterans of the region now actively investing in peers’ companies. For us, this is a positive sign that the entrepreneurial ecosystem is maturing, as it gives new founders more capital options and confers them with the right to choose investors that offer truly strategic help.
Founder-turned-angels have a unique appeal: these individuals are generally successful in their own right, and have “been there, done that”. They relate closely to the challenges faced and can bring strategic value as well as field expertise to the table. Moreover, these angels are also able to offer introductions to their networks and explore possible synergies with their own business in many cases.
An interesting phenomenon observed in the past two quarters has also been the increase in “mid-stage” founders (i.e. those leading Series A/B companies) increasing their angel investing cadence in Seed stage companies. Often, these founder-turned-angels’ own companies may only be 12–18 months ahead of the companies they are investing into, allowing them to impart tangible and real-time advice to their investee companies.
In Southeast Asia, prolific angel investing groups have emerged over time from employee/alumni networks formed from large technology firms in this region such as Google and Grab. However, we are now increasingly seeing angels “strike out on their own” and invest personally at a faster cadence than ever. Several veteran founders in our own portfolio companies have led this trend, with some having already amassed an angel portfolio of 30+ deals.
While it is still early days, we are generally supportive of this trend and believe this is a natural progression of the ecosystem — for years, founders have been helping and mentoring other founders. By investing from their own balance sheet, they can now share in the upside generated by that advice and support. With the impending IPOs of regional unicorns such as GoTo, aCommerce, and Traveloka, we would expect this trend to only accelerate as further pools of capital emerge and additional angel networks form.
Top Sectors Funded in Q4 2021
Digging deeper into the deal data, it became apparent there were four key sectors that saw particularly high levels of funding in Q4 CY2021:
- E-Commerce — in particular, the continued trend towards digitizing small and micro sellers’ operations and supply chain, including social commerce.
- Enterprise SaaS — with a particular focus on companies in data enablement, cybersecurity, and productivity workflow tools
- Fintech — verticalized (i.e., farmers, students) and embedded lending tools that streamline SME/startup operations such as incorporation and cap table management.
- Healthtech — a mix of biotechnology companies as well as tackling the inefficiencies of providing quality care beyond clinics and hospitals (e.g. home care, pharmacies, insurers).
GameFi: a rising financial opportunity for Southeast Asia
In Q3 2021’s Market Perspectives, we posited that “Web3” and “cryptocurrency” investing was generally becoming more mainstream in Southeast Asia, given the rise and capital infusion into digital asset exchanges such as Pintu, Zipmex, and Bitkub. In the last quarter, the next tide in mass market crypto, play-to-earn (P2E) gaming has taken the region by storm, catalyzed by the success of Axie Infinity, a top blockchain gaming platform based in Vietnam.
Although the P2E model was pioneered by Sky Mavis (developer of Axie Infinity) 3–4 years ago, the sector’s true potential only took off in the past 18 months as the COVID-19 pandemic hit. With tens of millions of jobs lost in markets such as Southeast Asia, individuals have increasingly turned to less conventional livelihoods as they have become more receptive to new economic models.
With Southeast Asia having one of the world’s youngest markets (with limited to no access to conventional financial instruments), P2E gaming has risen rapidly in markets such as the Philippines, bringing financial liquidity to in-game assets and offering real-world value. As they perform in the games, P2E participants are rewarded with digital tokens and/or assets (i.e., NFTs) that can be traded for cryptocurrencies such as Ether. As of January 2022, Axie Infinity has approximately 3 million daily active users (DAUs), with majority of them hailing from Philippines.
In the last three months, proven adoption and market fit in Southeast Asia has garnered a wave of venture interest and funding in SEA-based P2E startups in two broad key categories:
- P2E game developers: Affyn, Sipher
- P2E Decentralized Autonomous Organizations (DAOs): GuildFi, Yield Guild Games, and Good Games Guild
Emerging Era of Enterprise and B2B SaaS in Southeast Asia
At the same time in Q4 CY21, enterprise and B2B SaaS companies in this region continued to witness increasing investor interest, with deals being completed across a number of B2B sub-sectors:
- Data/AI: QoreNext, Airboxr, Next Billion AI, Dataxet, AI Palette
- Cybersecurity: Torus Labs
- Enterprise workflow tools: Betafi (ResearchOps), Accredify (KYC)
While the enterprise and B2B SaaS ecosystem in Southeast Asia remains nascent compared to more mature markets such as North America, there has been growing investment (i.e., the emergence of SEA unicorns such as Trax) and acquisition activity by global companies. Recent exit examples in Q4 CY2021 include Eyeota by Dun and Bradstreet and Jumper.ai by Vonage. At January Capital, we are long-term believers in the enterprise and B2B opportunity in Southeast Asia and believe that the ecosystem is poised to grow and scale significantly in the next two to three years, driven by the following factors:
- Availability of high-quality tech talent at a fraction of the cost in Western markets, with MNCs and tech startups as “training grounds”,
- Increase in willingness to adopt SaaS by digital-native startups and mid-to-large enterprises that were traditionally less receptive pre-COVID-19 on digitization,
- Growing consumerization of enterprise SaaS, where bottom-up growth strategies thrive by focusing on highly-targeted marketing and delighting end-users with the product experience. Compared to top-down enterprise sales that require deep relationships within the C-suite, bottom-up growth strategies have less adoption friction and require shorter cash runways due to tighter sales cycles — which helps upstart SaaS tools compete with bigger players.
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DISCLAIMER
January Capital is a licensed fund manager in both Singapore (through Jan Cap Pte. Ltd.) and Australia (through January Capital Pty Ltd) (together, the “Managers”) licensed under the purview of the Monetary Authority of Singapore and the Australian Securities and Investments Commission respectively.
The information contained in this article is being provided to you for informational purposes only and does not constitute in any circumstance an offer to sell, or a solicitation of an offer to buy any interest in the funds managed by the Managers or any other companies mentioned herein. Additionally, the information in this article and any and all forward-looking statements are based upon assumptions that may not prove to be correct or accurate and the actual financial results/performance and opportunities (amongst others) may differ materially from these statements. As such, nothing contained in this article should be construed as or relied upon as financial, legal or taxation advice, or an encouragement to invest in our funds or any companies mentioned in this article. Past performance is not indicative of future results.
