While fintech won the battle for mindshare in 2016, our internal data shows that young companies are entering the e-commerce space

When we look back at Southeast Asia’s startup economy in ten years, 2016 may very well be marked as a year of transition.

The reason is because, prior to last year, startups and investors played in pool of Seed and Series A investments. News of any startup that successfully raised single-digit USD was considered a big deal.

One reason is because a few years ago most investors — particularly VCs — were on their first fund. These firms were placing their Seed investments in startups and travelling around Asia looking for companies with the highest potential for growth over the coming years.

Naturally, it is a few years later and those firms, companies and investors have matured.

Fast forward to 2016/2017 and two clear trends have emerged.

Consolidation

First, successful startups (the ones that have either raised, or have an eye towards, Series B funding) are consolidating business assets.

Singapore’s m-commerce startup Carousell might be the most famous example of this trend. After raising a US$35 million Series B in August, the company acqui-hired three companies (Watch Over Me, Caarly, Duriana) to bolster its engineering and business talent.

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In cities like Singapore, there is high-quality talent, but it is spread across the multitude of startups in the ecosystem — making acquisition one of the best ways to bring the top talent under one roof.

Winter did arrive

The other trend is a tightening of capital funds, especially on the Seed and pre-Series A rounds. Here at e27, we have seen a very clear downward trend in the amount of deals that were closed in 2016 as compared to 2015.

Our internal data counted 400 deals in 2015 as compared with 216 last year.

Less deals in 2016 were predictably accompanied by a drop in overall funding. If we take away the outliers of major rounds by Grab and Go-jek — Grab raised US$750 million and Go-jek nabbed over US$550 million — startups raised US$2.2 billion less than they did in 2015.

It is important to recognise that many companies choose not to disclose how much funding they have raised, which we have filtered out of our data analysis.

E-commerce is king among Seed stage companies

An interesting statistic from 2016 is, despite the explosion of fintech as an industry talking point, e-commerce is still the most important sector for very young companies.

According to our internal data, Seed-stage startups in the e-commerce space were fundraising US$39 million as compared to US$10 million in the ‘finance’ space. The mobile-industry (which, admittedly can include both e-commerce and finance) were seeking US$23 million in 2016.

This suggests that while it gave up ‘mind-share’ in 2016, e-commerce is still the most important sector for Southeast Asia’s newest companies.

For awhile now, e-commerce has been a clear driver in basic innovation and has been the business-model most consistently fuelled by external investment.

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Additionally, the sector has a unique ability to include traditional SMEs into the ecosystem by pushing old-school shops to integrate tech products. The learning curve for a conventional retail store to blend technology into its business model is not as steep as with other industries.

Government policies — like Indonesia’s e-commerce roadmap — are also in place to support the industry, and community stakeholders should continue to push for progressive policies.

With regards to the broader spectrum of seed stage startups, companies are still actively seeking funding — the total reported ‘funds requested’ increased by 63 per cent between 2015 and 2016 — but the average amount companies sought remained stagnant.

Overall, there were less deals inked between 2015 and 2016, a trend which we believe will continue into 2017. However, the amount of money raised remained relatively stagnant; meaning getting money may be harder, but the cheque size should be larger.

To get access to more charts and statistics to for these reports, you can either create and/or claim your investor profile on e27.co or email us if you already have an active account on e27.co.

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Photo courtesy of Gratisography.

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