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Private equity and venture capital investors in Southeast Asia and India capture 170 technology transactions worth US$2.6 billion in Q1 2018

April 24, 2018

Digital transformation and disruptive technologies will continue to reshape growth, presenting new investment opportunities for PE and VC funds

India/Hong Kong, 26 April 2018 – Southeast Asia and India continue to capture heightened attention from investors in 2018 looking to capitalize on budding technology (tech) opportunities and emerging market plays outside of China, with private equity (PE) and venture capital (VC) investors capturing 170 tech transactions worth US$2.6bn in Q1 2018. This reflects sustained momentum from 2017, which saw the value of tech[1] PE/VC deals in Southeast Asia and India nearly tripling over the prior year: US$18bn versus US$6.5bn in 2016.

Since 2015, India has seen the majority of total PE and VC tech activity in the Indian and

Southeast Asian markets, accounting for 56% of deal value and 71% of volume. As the next biggest market, Singapore accounted for 33% of deal value and 10% of volume, while Indonesia (7% of deal value and 7% volume) was also on investors’ radar screens.

Kroll, the global leader in risk mitigation and response solutions, and Mergermarket, the leading independent M&A intelligence service, today released Staying ahead of change: Investing in disruptive tech in India and Southeast Asia, the 14th issue in Kroll’s Spotlight Asia series, tracing the activity of PE and VC investors in the regions’ swiftly evolving tech investment landscape.

The report aims to help PE and VC funds understand how industries pursue digital transformation and grapple with tech disruption, how they reshape the core growth sectors in Southeast Asia and India, and the new investment opportunities that these emerging trends present. In particular, the ecommerce, fintech, healthcare (medtech/pharmatech), and artificial intelligence (AI) sub-sectors stand out for their potential to disrupt and fundamentally change the business landscape across industry sectors.

Adding commentary to the data analysis, an in-depth interview with Reshmi Khurana and Cem Ozturk, Managing Directors at Kroll, reveals on-the-ground insights on the ways private investors can spot and minimize risk while maximizing returns as they pursue high-potential tech opportunities in the region.

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 India and Southeast Asia can be attributed to the dynamic interplay of several factors.

Outlining these developments, Khurana says, “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 digitization 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.”

Evolving regulatory landscape an inherently critical challenge for PE/VC investors in new technology

Although new tech advances come hand-in-hand with a number of risks for PE and VC investors, Khurana says, “The number one risk is regulatory risk, aside from shared market and financial risks, especially when tech crosses into highly regulated sectors like financial services, insurance, and even media.”

Anticipating regulatory reaction to new technology is a complex challenge for investors as Khurana notes, “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.”

To stay ahead of competitors and protect their investments in light of regulatory uncertainty, Khurana comments, “Investors come to Kroll to help them understand how regulators, customers, competitors, and other stakeholders are likely to think about a certain sector, company, or business model as it evolves.”

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 says, “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.”

Moreover, Ozturk comments, “Policy change can still be ad hoc in some of these countries, leading to political uncertainty and risk surrounding changes that may affect tech companies. India, for instance, is on the path of tech liberalization, but may be prone to sudden policy shifts, as with its currency ban or alcohol prohibition. Overall, governments are committed to liberalization and job creation, but each government can still make policy decisions that disrupt certain sectors.”

New technology landscape often challenging terrain for risk assessments

To navigate safely in an investment landscape replete with hidden risks, investors are well advised to conduct thorough investigative due diligence prior to committing to an investment.

Khurana comments, “Many may have great business ideas and built innovative companies, but they don’t have a vast track record that can be easily assessed. We help investors understand the background of such founders and analyze how they might be expected to behave post-investment, providing insight into fundamental considerations such as whether the investee has the ability and commitment to scale up and manage the business and to maintain the governance standards that the investor expects.”

Khurana adds, “To mitigate their risk exposures, foreign investors come to Kroll for our expertise in conducting investigative research to help them understand the financial health and business practices of a potential investment and their target markets which, however challenging, are too large to ignore. To factor in these risks and maximize an investment opportunity and its returns, investors have to make both qualitative and quantitative assessments, identifying influencers and uncovering their relationships with regulators and governments.”

Trends and highlights in Staying ahead of change:

  • Hot tech sub-sectors: Ecommerce, fintech, healthcare (medtech/pharmatech), and AI stand out for their advances in applications that cross and connect diverse industry sectors.
  • Top target countries: India saw the majority of total tech PE/VC activity in the Indian and Southeast Asian markets from 2015-Q1 2018, accounting for 56% of deal value and 71% of volume. Coming in second, Singapore contributed to 33% of value and 10% of volume, followed by Indonesia with 7% of both value and volume.
  • Foreign funds: 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% of tech investment occurrences from 2015-Q1 2018, followed by Japanese (5%) and European (4%) funds.

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Download the graphs referenced in this press release and report 

[1] In this newsletter, technology deals or transactions refer to PE or VC transactions with either “computer related” or “information technology” as their investee primary industry, based on data generated from the Asian Venture Capital Journal (AVCJ).

About Kroll

Kroll is the leading global provider of risk solutions. For more than 40 years, Kroll has helped clients make confident risk management decisions about people, assets, operations and security through a wide range of investigations, cyber security, due diligence and compliance, physical and operational security and data and information management services. Headquartered in New York with more than 35 offices in 20 countries, Kroll has a multidisciplinary team of nearly 1,000 employees and serves a global clientele of law firms, financial institutions, corporations, non-profit institutions, government agencies and individuals.

About Mergermarket and Acuris Studios

Mergermarket is an independent Mergers and Acquisitions (M&A) intelligence service with an unrivalled network of dedicated M&A journalists based in 62 locations across the Americas, Europe, Asia-Pacific, the Middle-East and Africa. Unlike any other service of its kind, Mergermarket specializes in providing forward-looking origination and deal flow opportunities integrated with a comprehensive deals database – resulting in real revenues for clients. Visit www.mergermarket.com.

 

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Experts Spotlight

Reshmi Khurana

Managing Director and Head of South Asia, Investigations and Disputes

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Cem Ozturk

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