VC funding in Southeast Asia sets to see record year in 2021

KUALA LUMPUR, May 6 -- The venture capital (VC) funding in Southeast Asia is set to have a record year in 2021, with startups in the region having raised US$6 billion (US$1=RM4.117) of VC funding in the first quarter alone.

PwC Singapore and Singapore-based venture debt firm Genesis Alternative Ventures (Genesis) said VC funding in the region had been growing steadily since 2014, hitting a peak of US$12.6 billion in 2018.

“Whether 2021 breaks the 2018 investment record, this strong funding momentum will likely be followed closely by increased venture debt demands from startups and founders in Southeast Asia, as growth stage startups require additional working capital to fuel their business growth,” they said.

Both companies said this in a joint publication titled “Venture Debt: The New Growth Mantra for Startups in Southeast Asia” released today.

In terms of venture debt, the report said the COVID-19 crisis fuelled the venture debt market globally in 2020, and this phenomenon is expected to continue in the short to mid term as startups saw cash buffers dried up amid unprecedented challenges.

Citing internal data from PwC Singapore and Genesis, the report said the data suggested that demand for venture debt by high-growth technology startups in Southeast Asia continued to gain traction, as qualified deal flow grew 31 per cent quarter on quarter (q-o-q) between January 2020 and March 2021.

“Smaller-sized and regular investments are a harbinger of a healthy ecosystem compared to lumpy larger investments that can warp the overall picture.

“This potentially indicate a strong venture debt pipeline of investible companies building up in the region,” it said.

Based on publicly available sources, the report said there were about 80 to 100 Southeast Asian companies that had already benefited from venture debt.

“We believe there is significant headroom for venture debt to continue to grow strongly in Southeast Asia. 

“Further, the amount of venture debt that each startup could potentially raise could increase as these young companies scale up and raise larger funding rounds,” it said.

According to the report, in Southeast Asia, venture debt is fast emerging as an alternative and complementary source of financing for high-growth technology companies that traditionally only raised equity as a source of capital.

However, the risk profile of a venture debt instrument is significantly higher than that of a traditional bank loan, it added.

-- BERNAMA