Foreign investors have been making sizeable investments in technology-related companies in Southeast Asia and India through private equity (PE) and venture capital (VC) vehicles since 2015.
A recent study by Kroll and Mergermarket estimated that in the first quarter of 2018 alone, 170 tech transactions worth $2.6 billion involving local and foreign investors were conducted in the region.
Throughout 2017, India and Southeast Asia received $18 billion in technology deals, nearly three times the $6.5 billion seen in 2016.
The increase was primarily due to a growing number of local start-ups demonstrating sustained performance and market reach.
While local funds have dominated the markets, US investors accounted for the 25% of investment instances, or investors per transaction, since 2015, with Japanese and European funds accounting for 5% and 4%, respectively.
Foreign investors seeking an early mover advantage and emerging plays outside of China are choosing to partner with other overseas or local investors in India and Southeast Asia for their expertise.
Since 2015, less than a fourth of the transactions involving overseas funds had only a single foreign investor.
Foreign strategic corporate buyers are also making their presence felt in India and Southeast Asia to stay ahead of their competitors in terms of growth and diversification.
Companies like Softbank, Google, Alibaba and Cisco have established their own VC arms to tap opportunities in the sub-regions.
They are also choosing to partner with financial investors to share risk exposure and gain access to more capital. For example, in 2017, Alibaba partnered with SAIF Partners in a $200 million funding round for Indian mobile wallet firm PayTM.
‘In the next 12-24 months, both regions may see steadier international interest and buyouts as more investable targets start to reach the size and growth stage that render them ripe for the picking,’ predicted the report.
Across the local and foreign investor base, e-commerce, fintech, healthcare – including medtech and pharmatech, and artificial intelligence were the hottest sub-sectors.
E-commerce received the largest chunk of interest, posting 88 transactions worth $3.7 billion in 2017 and accounting for 16% of PE and VC tech investment volume, with most interest in opportunities in India and Indonesia.
Surprisingly, artificial intelligence contributed only 4% to PE and VC technology transactions in India and Southeast Asia since 2015. The sub-sector could face headwinds due to legal and ethical questions around data privacy and security, the report warned.
In terms of regions, India has been the largest market for tech PE and VC activity since 2015, accounting for 82% of the transaction value and 58% of transaction volume since 2015.
Singapore was the second most popular with 8% of value and 17% of volume. Singapore-based robo advisor Kristal.AI, for example, raised $1.85 million in seed funding in a round led by Indian venture capital firm IDG Ventures earlier this month.
Supportive government policies and traditional banks riddled with non-performing loans in India, and increasingly in Southeast Asia, are leading tech companies to seek capital from private investors, Kroll managing director, Reshmi Khurana, stated in the report.
‘As a result, globally, traditional tech investors, e.g. Tiger Capital or Softbank, have almost doubled down on investments in the region, catalyzing the rise of locally grown tech unicorns,’ said Khurana.