Southeast Asia’s golden age: Resilience and recovery

In 2019, we saw a presentation that, in my words, “blew us away.”

Created by growth equity firm Asia Partners, the 2019 Internet Report made a bold prediction that Southeast Asia is entering a golden age, with the rise of internet companies having a big part to play in that.

That day felt like ages ago. Since then, Covid-19 has ravaged the globe. Although the situation is improving in some countries, infections are still surging in many parts of Southeast Asia.

It’s in this context that Asia Partners has released the latest update to its report, which takes stock of the impact of COVID and ultimately affirms the thesis that Southeast Asia is entering a golden age.

It’s worth making time to sit down, grab a cuppa, and study the full report, which you can download here. Watch Asia Partners founder Nick Nash give a quick summary of the report below.

To learn more about this Asia Partners’ 2021 report, watch the full video here.

In the meantime, here’s a quick primer on the report’s main points.

Southeast Asia is still in the goldilocks zone for IPOs

Asia Partners contends that countries like China, Japan, and Korea saw a similar trend: Most of their tech market value came from public listings that arose out of a time period where their per capita GDP hit a certain zone.

Even though the pandemic has led to negative GDP growth in 2020, Southeast Asia still lies within the zone and will for some years to come.

Local network effects reign supreme

Most of the region’s winners are turning out to be firms that have strong network effects in local markets – think Sea, Grab, and Gojek. Sea, in particular, has seen its value surge five-fold to over US$100 billion within a year.

Sea’s soaring numbers contribute to a historical first: the total market value of tech firms is now on par with or has even exceeded the telcos, which was a milestone China first hit in 2009.

With such optimism in tech, the IPO drum beat has indeed grown louder for many of the region’s unicorns.

See: “Rule of 25” is the key to startup IPOs, says Asia Partners’ Nick Nash

There’s a good reason why these listings are anticipated. They would create the liquidity and returns to spur on the next wave of ventures and investments in the ecosystem, which still suffers from a series C and D funding gap.

An operational blueprint for SEA giants

Covid or not, it seems that remote working is bound to play an indispensable role in how the region’s tech giants operate.

Singapore typically houses the C-suite, regional headquarters, and engineering centers.

The CTO, sitting in Singapore, often manages staff sitting in other engineering hubs like China and India.

Even Indonesia-focused companies are running regional setups, taking advantage of the talent and infrastructure found abroad.

Rising to the occasion

Covid-19 has been a global tragedy that has disrupted countless lives.

It’s also causing permanent behavioral changes, and some startups in Asia Partners’ portfolio are seeing that first-hand.

Edtech firm Snapask has seen its revenue grow 45% between April and November 2020.

Online car marketplace Carsome, meanwhile, has doubled its transactions post-Covid.

While international travel has been the hardest hit sector, domestic travel has been rather resilient. RedDoorz saw its net revenue hit a record-high in the fourth quarter of last year.

A word of caution

This optimism should be tempered by caution. For one, the US stock market is showing an unusual exuberance, with the ratio of market cap to GDP (or the Buffet Indicator) at an even higher reading than 2007, just before the global financial crisis.

This indicates that the public markets may be overvalued and are due for a correction.

A possible cause for this is the US Federal Reserve’s unprecedented intervention in the economy, which is driving up the size of its balance sheet.

With so much uncertainty all around, Asia Partners is making the case that resiliency is the name of the game.

“Almost 70% of the world’s most successful tech companies spent – and raised less than $100M – to get to cash flow breakeven,” it says in the report.

Which is why rhinos – startups that use capital efficiently to breakeven – is a good bet to weather the storm.

For Asia Partners, the best part is this: As opposed to unicorns, rhinos are real.