SINGAPORE - Investments in South-east Asia's (SEA) Internet economy hit an all-time high this year amid the Covid-19 pandemic.

An Internet economy research report by Google, Temasek and Bain & Co found that 2021 is shaping up to be SEA's busiest deal year in recent times, with the US$11.5 billion (S$15.5 billion) deal value for the first half of the year on track to surpass 2020's full-year value of US$11.6 billion.

This is largely driven by big-ticket deals such as courier start-up J&T Express' US$2 billion deal and one worth US$360 million by artificial intelligence-driven car marketplace Carro, the report that was released on Wednesday (Nov 10) said.

The number of transactions also increased by 65 per cent year on year.

Sectors such as e-commerce and digital financial services continue to attract the majority of investments, or more than 60 per cent of deal value.

Temasek's chief investment strategist Rohit Sipahimalani said 75 per cent to 80 per cent of the region's total deal value is being split between Indonesia and Singapore.

He noted that "what comes into Singapore is typically in businesses that are really regional rather than Singapore-focused - but we count them as Singapore because that's where the companies are incorporated".

There were 23 unicorns in the region this year - compared with last year's 12 - with the bulk also split between Singapore and Indonesia.

"Unicorn" is a term used in the venture capital industry to describe a privately held start-up company with a value of more than US$1 billion.

Funding, however, has been fairly broad-based, added Mr Sipahimalani, who is also Temasek's head of SEA.

"Overall, I would say it's been a fairly healthy development of funding and availability across different stages of companies and different markets," he said.

The report added that global capital is also filtering into the region "in a meaningful manner".

"Global capital may have a longstanding on-off relationship with SEA, but industry participants are confident that the dynamics are different this time, with much more commitment and long-term interest from potential investors," said the report.

SEA's tech champions are also helping to further strengthen global investor confidence, according to the report

It also remarked that there has been strong acceleration in early-stage deals, boosting confidence in SEA's ecosystem.

Seed and Series A-B-C rounds of funding all hit an all-time high in the first half of this year.

Deal sizes across seed to Series C rounds have also been increasing across the board.

Average seed and Series A funding were six times larger this year than in 2017, while Series B was up by four times over the same period. Series C also saw an increase despite fluctuations.

However, Series D-E+ megarounds of funding have plateaued while firms are waiting to undergo initial public offering (IPO), and are now worth a fraction of the 2018 to 2019 peaks of more than US$4 billion both in value and average deal size.

Pre-IPO fundraising by regional unicorns may soon bring back billion-dollar deals, the report noted.

It also said that in Singapore, the Internet economy is expected to grow by 35 per cent from US$11 billion last year to US$15 billion this year, with the potential to reach US$27 billion in 2025.

Two-thirds of gross merchandise value growth - a measure of the growth of businesses or sites that sell merchandise owned by others - is led by e-commerce, which grew 106 per cent year-on-year.

Overall, the Republic has the highest proportion of digital consumers out of all Internet users at 97 per cent, as compared with the region's average of 80 per cent.

Google SEA vice-president Stephanie Davis said the continued growth of the Internet economy has given rise to a new set of opportunities in SEA.

"Singapore is well-positioned to be a role model for SEA countries in preparing its talent, small and medium-sized enterprises, and start-ups for the digital decade," she added.

Mr Florian Hoppe, Bain & Co's Asia-Pacific head of digital practice, noted that Singapore's Internet economy "demonstrates long-term resilience and has emerged stronger after a contraction in 2020".

"While we predict tremendous headroom for growth in the digital decade ahead, Singapore must lead and map the growth pathways as a leader in digital innovation for the region," he added.