Highlights

• Southeast Asia will be positively impacted as a “tech proxy war” destination for Chinese and US tech companies and investors amidst China-US tensions.
• The IPO performance of the 2010s generation of unicorns will dictate the competitive landscape in the region, influence the way local tech companies approach capital raising, and bring more retail investors into the public markets.
• Southeast Asia’s main competitive landscape has shifted from ride-hailing and ecommerce to fintech. 
• 2021 will be a year of reckoning for edtechs.
• Tackling communication challenges over video and audio will be critical this year.

The first quarter of 2021 is almost over, and it’s shaping up to be an exciting year for Southeast Asia’s startup ecosystem for multiple reasons — from potential blockbuster IPOs on the horizon (and critical proving moment for SPACs), the battle for fintech domination, and greater competition for capital and talent as more global players place their bets in Southeast Asia. In this piece we follow up on how these trends in ASEANnovation — or Southeast Asia’s startup ecosystem — have progressed over the past quarter and how they’re shaping up for the rest of 2021. 

Reaping the fruits of a “tech proxy war”

Southeast Asia will be positively impacted as a “tech proxy war” destination for Chinese and US tech companies and investors amidst China-US tensions. 

What’s happened in Q1: Sea raises a billion-dollar investment fund, Sergey Brin, Ray Dalio open family offices in Singapore, tech talent wars in Singapore

One headline example is TikTok (Bytedance) doubling down on the region after the app had been shut out of India and forced to split up in the US. But Southeast Asia’s role in all of this goes beyond competing over market expansion — there’s the competition for unicorn investments and subsequent exits, as well as the competition for the screens and wallets of Southeast Asia’s increasing internet population. 

Bottom line is that the increasing interest in Southeast Asia over the past five years will only increase, and unlike the proxy wars that happened over the region’s history, the impact of this “tech proxy war” on Southeast Asia will be largely positive. This is a critical moment for local players (both startups and investors) to either fall under the pressure of competition or establish themselves as ASEAN champions and leverage on localization to their advantage.

This is a critical moment for local players (both startups and investors) to either fall under the pressure of competition or establish themselves as ASEAN champions and leverage on localization to their advantage.

Bracing for IPO impact

The IPO performance of the 2010s generation of unicorns will dictate the competitive landscape in the region, influence the way local tech companies approach capital raising, and bring more retail investors into the public markets.

What’s happened in Q1: IDX allows SPACs to raise funds for startups, Traveloka also considering SPACs, B Capital and Captcha’s Patrick Grove launch SPACs, Gojek and Tokopedia finalizing terms for merger ahead of IPO, Grab on the IPO road

The craze around SPACs and tech IPOs amidst COVID in the US has spilled over into Southeast Asia as investors direct their eyes to emerging markets. Then in Southeast Asia, local champions that have been raising private round after private round are now being pressured to raise capital on the public markets.

That said, the importance of these IPOs extend beyond investor expectations and creating liquidity events. In the same way that Sea’s IPO enabled access to structurally cheaper capital to fuel its ecommerce expansion and open up opportunities in fintech, we can expect that the first few quarters of Southeast Asia’s unicorns on their chosen exchanges (Grab, Tokopedia, Gojek, PropertyGuru, Bukalapak, Traveloka) will have a significant impact on the competitive landscape in the region. 

Then apart from the impact on the competitive landscape, the results of these exits by local champions will influence the exit prospects of startups in earlier stages — will SPACs be preferred over direct listing? Will startups go public faster and earlier? 

From a public investor perspective, it will also be interesting to see how Indonesia’s public markets for example will react to these tech companies going public given how ubiquitous these apps are in Indonesian’s lives. This could also be a tipping point for a critical mass of individuals, especially millennials and Gen-Z, to join the public markets in Indonesia just as Alibaba’s IPO did for China. 

Read more about exit trends in 2021

Painting the town fintech

Southeast Asia’s main competitive landscape has shifted from ride-hailing and ecommerce to fintech. 

What’s happened in Q1: Payfazz announces investment into Xfers and formation of Fazz Financial Group, tonik launches Philippines’ first digital bank, Sea invests in Bank BKE

From Sea Group and Grab securing banking licenses, to the importance of OVO in a potential Gojek-Toko merger, to US tech giants investing heavily into the payment arms of local unicorns, the signs all point towards fintech being key leverage for regional unicorns to win, and even for smaller startups to scale and reach unicorn-hood. For example, we’re seeing how vertical platforms like Pinhome in property or Carro for used cars can leverage financing to strengthen retention on their platforms. 

Read more about fintech trends in 2021

Year of Reckoning

2021 will be a year of reckoning for edtechs.

What happened in Q1: Prakerja continues into 2021 for Indonesia as well as the cancellation of national exams, lockdowns continue in most parts of Southeast Asia

This will be especially the case for those that were able to massively grow their users by offering their services for free or with a subsidy from the government. Monetization and expanding into adjacencies to increase margins and user stickiness will be the main theme of growth for edtechs this year, and those that succeed will likely convert VC interest into monies in the bank. The same can be said as well for other sectors that got an adoption boost over 2020, but edtechs in particular have more on the line given just how much they’ve grown over the past year. 

Read more about edtech trends in 2021

Facing the challenges of online real-time communication

Tackling communication challenges over video and audio will be critical this year.

What’s happened in Q1: Carro launches an AI-talkbot with WIZ.AI for customer service, Clubhouse becomes more widely adopted in Southeast Asia 

Even as vaccine programs are on the horizon, it is unlikely that travel will return to pre-COVID levels within this year, or that companies will want to spend as much time or money travelling for events or meetings. While face-to-face interaction will never be completely replaced, it is clear that live video (e.g. Zoom) and audio communication (e.g. Clubhouse) platforms are becoming more dominant in our post-pandemic lives, and this extends beyond business operations — healthcare, education, and ecommerce are also being impacted by this shift. For example, retail sales teams are reskilling to be more proficient with live streaming than in-person or in-store sales. That said, this puts long-standing issues of internet connectivity back into light especially for rural areas in the region. Video content will not just be a marketing tool but a potential key acquisition strategy for more tech platforms in the region moving forward. 

the struggles of digital communication

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Over 2020 there was a lot of discussion about what the post-pandemic world will look like, and now in 2021 we are seeing this world come into shape. The good news is that it is a world that is shaping up to reap great returns for investors and founders in Southeast Asia, with the trends we’ve just listed above, from more interests in the region to the impact of IPOs to new opportunities for fintechs. The question now is how founders can lead the way in this post-pandemic world, and this is something we sought to answer in the book Navigating ASEANnovation.