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Sovereign funds from Saudi Arabia, the United Arab Emirates and Qatar have driven a significant increase in Gulf investment in south-east Asia’s start-ups, marking a rare bright spot as fundraising in the region tumbles to its lowest in six years.
There have been 59 deals in the region involving a Gulf-based investor in 2022-23, according to data from Refinitiv, up from seven deals in 2018-19.
The surge comes as venture capital funding has plunged globally and Chinese investors have reined in their investments in the region. The activity of technology giants including Alibaba and Tencent, which had been pumping billions of dollars into south-east Asian tech and ecommerce groups, has slowed.
The Qatar Investment Authority, which has $475bn of assets under management, is stepping up dealmaking in the fast-growing region home to 750mn people. In 2022 the Qatari fund invested in Carsome, a Malaysia-based online used car platform, in a $300mn financing round.
That year the Mohammed bin Rashid Innovation Fund, launched by the United Arab Emirates’ finance ministry, backed Indonesian software company Avani and Abu Dhabi state fund Mubadala Investment Company acquired a strategic stake in Singapore carbon exchange AirCarbon.
Meanwhile Aramco Ventures, a subsidiary of Saudi Arabia’s oil company Saudi Aramco, in October led a $10mn fundraising round in Redex, a Singapore-based provider of services to manage renewable energy certificates.
Gulf investors see “cross-pollination” opportunities that can help boost their own technology sectors, said Yinglan Tan, founding managing partner of south-east Asia-focused Insignia Ventures Partners.
“[They] hope to see potential investments grow into global companies that impact their economies, create jobs and even present models . . . for local start-ups in the Middle East to learn from,” Tan said.
However, he added that after years of heavy investment it was “hard to imagine China being upstaged” over the long-term by the Middle East.
Overall private fundraising in south-east Asia has plunged this year compared with the record dealmaking during the Covid-19 crisis. There were 564 deals in the first half of 2023, down 54 per cent from a year earlier, while deal value fell 70 per cent to $4bn, according to a November report from Google, Singapore state investor Temasek and US consultancy Bain & Co.
More venture funds from the region are going to the Gulf for financing, said a partner at a Singapore-based venture capital firm investing in south-east Asia.
“We have been to the Middle East three times in the past 18 months, mainly to Qatar and the United Arab Emirates to raise money — and it was successful,” said the partner, who asked to remain anonymous because they were still fundraising. “We never did that sort of visit before the pandemic.”
The QIA set up a Singapore office in 2021 as part of an effort to increase exposure to Asian markets. Sheikh Faisal bin Thani Al-Thani, QIA’s chief investment officer of Africa and Asia-Pacific, said the region’s growth made it an appealing investment opportunity. “QIA’s investment strategy . . . is to identify and support innovative companies as they grow,” he said.
South-east Asian start-ups and funds are under pressure to produce more returns. The Google, Temasek and Bain report showed regional funds that started investing in the last seven years reported a median return of 4 per cent, compared with 10 per cent in India and 50 per cent in China.
“Exits are a problem. South-east Asia lags other countries such as China or even India when it comes to returns for investors,” said one Asia-based executive for a Gulf sovereign fund.
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