The rise of Southeast Asian unicorn companies

Alex Chen, Taipei; Eifeh Strom, DIGITIMES Asia 0


Unicorn companies in Southeast Asia have been growing rapidly. Not only have their valuations substantially grown, but unicorn companies in the region continue to emerge.

The explosion of unicorns is a result of excess funds from global bailouts being invested into startups, causing valuations to continue rising, as previously reported by The Economist. Additionally, competition among venture capitalists has also spurred the valuation of unicorns to rise. In fact, the total global market value of unicorns has already exceeded US$2.4 trillion.

Future prospects for startups in Southeast Asia are great due to a variety of factors, including the large population, which is larger than that of the EU and the US, and a rapidly growing economy. Additionally, Singapore is a global financial center and Indonesia is one of the world's fastest-growing consumer markets.

Singapore-based Sea, which was listed in New York in 2017, has seen its market value increase five times in the past year reaching US$125 billion. Other Southeast Asian unicorn companies such as Singapore-based Carro, Indonesia-based GoTo, and Thailand-based Flash are preparing to list. Malaysia-based Carsome may also join the unicorn lineup in the near future.

Since 2021, Indonesia-based Traveloka and Vietnam's first unicorn company VNG have also sought to list in the U.S. through special purpose acquisition companies (SPACs).

Although there is currently only one unicorn each in the Philippines, Vietnam and Thailand – three of the region's largest countries by population, overall development in Southeast Asia along with the injection of capital into the region are expected to elevate more local startups to the ranks of Southeast Asian unicorns.

Currently, the list of Southeast Asian unicorns includes Singapore-based companies Sea Limited, Razer, Trax, Grab, Lazada, Patsnap and Carro; Indonesia-based GoTo (the result of a merger between startups Gojek and Tokopedia), Traveloka, Bukalapak and Ovo; Philippines-based Revolution Precrafted, Vietnam-based VNG and Thailand-based Flash Group.

Based on this current list, it can be seen that the majority are located in Singapore and Indonesia and have e-commerce as the core business. It is also clear that there is great potential for the e-commerce market in Southeast Asia. The growth of e-commerce is also promoting the development of logistics, mobile payment and e-finance.

However, being a unicorn does not guarantee profit. Up to now, Southeast Asian unicorns have yet to turn a profit. For example, although Grab's total operating loss shrunk in 2020, it still stands at around US$800 million. The company estimates it will be profitable in 2023.

After receiving several hundreds of millions of dollars in venture capital investment, startups usually reach high valuations, which often encourages the cash burn strategies of these companies in order to acquire customers and compete with corporate rivals.

Investors support companies with a high valuation in hopes of receiving large returns. Investing in a unicorn is more likely to result in higher returns compared to a startup with a smaller investment scale.

There are currently over 700 unicorn companies globally and the majority of them have yet to become profitable. However, due to their excessively high valuations, they have been able to raise a generous amount of funds, which has created unfair competition with potential rival companies. Companies that have not kept up with this trend may face more difficult times in the future.

Still, the unicorn label is very attractive to Southeast Asian countries. Several governments, especially those in emerging economies, are supporting the establishment of technology startups that could possibly be valued at $1 billion. For example, the government of Vietnam has set a target of having 10 technology unicorns by 2030, while the government of Indonesia hopes to see three to five new unicorns. The Indonesian government believes that the country's economy should be based on innovation, not just natural resources, and plans to reach this goal through the breeding of technology companies.

After startups have matured, gained considerable market share, and become unicorns, these companies develop plans to list in order to seek the next stage of growth. Several established Southeast Asian unicorns such as VNG, Traveloka, Grab, Gojek and Tokopedia, have all stated that they will issue IPOs to explore new growth opportunities. Furthermore, since investors have injected billions of dollars into each of these companies, there is increasing pressure to exit.

Most fast-growing startups in Asia are keen to explore a quick exit strategy by merging with SPACs, since SPACs provide a faster and easier way to go public. Not only is the transaction risk lower, but the time, effort, and cost required for listing SPACs are also much lower than that of a traditional IPO.

However, due to the fact that some unicorn companies have encountered setbacks with IPOs in the past few years, some experts believe that becoming a unicorn should not be the ultimate goal of any startup. Instead, startups should focus on sustainability and growth.