S-E Asia's Internet economy deals set to hit record this year

Investments in South-east Asia's Internet economy are set to hit an all-time high this year despite the pandemic.

An Internet economy research report by Google, Temasek and Bain & Company found that this year is shaping up to be the region'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 just slightly below 2020's full-year value of US$11.6 billion.

This has been 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, said the report that was released yesterday.

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 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 South-east Asia.

"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 (South-east Asia), 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.

The region's tech champions are also helping to strengthen global investor confidence, according to the report. It also remarked that there has been strong acceleration in early-stage deals, boosting confidence in the region'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 was six times larger this year than in 2017, while Series B funding was up by four times over the same period.

Series C funding also saw an increase despite fluctuations.

However, Series D-E+ mega-rounds of funding have plateaued while firms are waiting to undergo initial public offerings (IPOs), 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 fund raising 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.