Bain's Chin said that private funding in the digital economy within the region remains subdued.
KUALA LUMPUR: A more robust “exit” environment is needed to boost private equity and venture capital funding in the South-East Asian digital economy space.
Bain & Company partner Amanda Chin said dependable exit pathways was one of the four key enablers identified last year as critical to overcoming the funding winter. The other three were entry valuations, monetisation model and path to profitability.
Chin added while significant strides have been made in three out of the four key enablers, exit pathways still remain as a gap that needs to be further addressed.
“Investor confidence in exit strategies within the region remains tempered particularly due to prevailing capital market conditions. The region needs to demonstrate more robust exit pathways, and it needs that optionality across both the private and the public markets,” she said during the media briefing on the e-Conomy South-East Asia 2024 report by Google, Temasek and Bain & Company.
Nevertheless, Chin also noted that it is a work in progress and that regulators, industry participants, and investors are working hand-in-hand to address it.
“In the private markets, companies with sustainable operating and financial models will be better positioned.
“In the public markets, we are beginning to see some cooperation between exchanges, such as the Singapore Stock Exchange and The Stock Exchange of Thailand, to drive improved liquidity. We also see regulators working to improve the listing process in Malaysia, with the Securities Commission reducing the initial public offering review time to three months,” she said.
Aside from a regulatory standpoint, Chin highlighted that another hurdle in the past has been the gap in valuation expectations between investors and sellers.
“Differences in valuation expectations between investors and companies still exist. However, we see that the gap is starting to close with people becoming more realistic around what valuations should be.
“We noticed that the bid-ask spreads have improved, and discounts in the secondary markets have narrowed significantly over the past year.
“As a result, we are now seeing signs of stabilisation in the overall funding levels in the region, with a run rate at about US$6bil to US$8bil annually,” she said.
Overall, Chin stated that private funding in the digital economy within the region remains subdued, driven by a global slowdown since the funding peak in 2021.
Late-stage funding has remained challenging and continues to see a sequential decline, particularly so for companies in Series D and above, which are likely expected to be self-sustaining at that point.
“On the other hand, early-stage activities are starting to see recovery. For instance, in the first half of the year (1H24) seed to Series C deal values was up versus 2H24, and average deal size increased by over 20% year-on-year.
“This slight improvement reflects the ongoing innovation and entrepreneurship across the region and a keener focus on business fundamentals from an early stage,” she said.
All in all, Chin said while the aggregate funding data remains subdued, there are a lot of green shoots emerging.
She added two trends are very apparent with regards to investors’ medium-term focus areas. Firstly, top-of-mind markets for investors continue to be Vietnam, Indonesia and Singapore, with Malaysia following closely behind.
“Secondly, from a sector perspective, investors continue to prioritise innovation in new verticals like software and services, fintech, health tech and artificial intelligence,” Chin said.
