Private equity (PE) and venture capital (VC) investors made 170 tech transactions worth US$2.6 billion in Q1 2018, says a study.
This reflects sustained momentum from 2017, which saw the value of tech PE/VC deals in Southeast Asia and India nearly tripling over the prior year to US$18 billion from US$6.5 billion.
The study, called ‘Staying ahead of change: Investing in disruptive tech in India and Southeast Asia’, was jointly conducted by Kroll, a risk mitigation and response solutions firm, and Mergermarket, an independent M&A intelligence service.
Since 2015, Singapore has been the second largest market after India for tech PE and VC activity in the region, accounting for 33 per cent of deal value and 10 per cent of volume. Total deal value for the 218 transactions recorded in the city-state between 2015 and Q1 2018 stood at US$11.5 billion.
In fintech in Southeast Asia and India, 82 per cent of PE and VC transaction value and 58 per cent of transaction volume since 2015 have been channelled into India, followed by Singapore with eight per cent of value and 17 per cent of volume.
Total deal value for the 201 fintech transactions recorded between 2015 and Q1 2018 stood at US$1.1 billion.
India saw the majority of total tech PE/VC activity in the Indian and Southeast Asian markets from 2015 to Q1 2018, accounting for 56 per cent of deal value and 71 per cent of volume. Coming in second, Singapore contributed to 33 per cent of value and 10 per cent of volume, followed by Indonesia with seven per cent of both value and volume.
While local or regional funds have been the dominant players in these markets, foreign investors have been making inroads. US investors took part in 25 per cent of tech investment occurrences from 2015 to Q1 2018, followed by Japanese (five per cent) and European (four per cent ) funds.
In India and Southeast Asia, e-commerce, fintech, healthcare-tech (medtech/pharmatech) and Artificial Intelligence stand out for their advances in applications that cross and connect diverse industry sectors.
According to Reshmi Khurana, Kroll’s Managing Director and Head of South Asia, the key recent developments in PE and VC tech investment activity in Southeast Asia and India can be attributed to the dynamic interplay of several factors.
“As traditional banks continue to face pressure from nonperforming loans in India, and increasingly in Southeast Asia, technology companies seeking capital have been turning to private investors. Meanwhile, governments in these geographies have been providing fertile ground for digitisation and tech investment through policy initiatives, by incubating tech funds with traditional banks or by initiating e-governance projects to digitize government services, attracting investment in ancillary industries like enterprise solutions,” added Khurana.
Although new tech advances come hand-in-hand with a number of risks for PE and VC investors, regulatory risk is more critical, aside from shared market and financial risks, especially when tech crosses into highly regulated sectors like financial services, insurance, and even media.
“Businesses cannot predict regulation because regulators cannot predict how businesses will evolve. To some degree, all new technology is inherently disruptive to established business models or processes. Out of necessity, this often translates into regulatory action that is more reactive than proactive as the effects and consequences of a particular technology become known over time. We often see regulators later imposing controls around licensing or pricing to protect consumers and local businesses,” she went on.
Regulatory risk is also closely associated with political exposures. Given the possibility of a regime change in some governments, Cem Ozturk, Managing Director in Kroll’s Investigations & Disputes practice said: “A key factor to watch is whether aspiring political forces are running on platforms of economic nationalism, and then whether certain disruptive technologies are being framed as emblems of foreign influence.”