Funders Shun China Markets For Southeast Asian Startups

Lagging growth and unpredictable regulation is causing venture and buyout funds to turn away from China in favour of Southeast Asian startups.

Investors are flocking to the Southeast Asian digital sector, with billions raised by the likes of Insignia Ventures Partners and SoftBank-backed East Ventures over the past year.

“Some of the world’s largest institutions are coming up with strategies now to invest and deploy capital into regions like Southeast Asia, which six to seven years ago may not have even had the ability to absorb cheques of a large enough size,” venture fund 500 Global managing partner Vishal Harnal said.

Southeast Asia is benefitting from Beijing’s tough lockdowns and other measures to rein in Covid-19 in China and Hong Kong.

But although funds were diversifying, investors said the region’s vastly different markets meant a uniform investing strategy was not ideal.

“It’s not that they don’t believe in China, just that they are reducing that exposure,” Tang Kok-Yew, founding chairman of Affinity Equity Partners, said.

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Booming Internet Economy

“Today, there’s much stronger appetite for (investment in) India and Southeast Asia,” Joel Thickins, co-managing partner at TPG Capital Asia, said.

Led by Indonesia, Southeast Asia’s internet economy is forecast to double to $363 billion by 2025 from an end-2021 estimate of $174 billion in gross merchandise volume, a report has cited Google, Temasek and Bain & Company as saying.

Ride-hailing and food delivery firm Grab Holdings listed on Nasdaq in December after a $40-billion merger, while Indonesian rival GoTo, raised $1.1 billion in a domestic listing this year.

This month, digital financial services group Fazz raised $100 million and Indonesia’s Xendit, which bills itself as Southeast Asia’s alternative to payments processor Stripe, announced fund-raising of $300 million in May.