Articles • 29 March 2021
We explore five sectors on the radar of venture capitalists — and why they matter to family offices.
Global venture funding in 2020 reached a blistering USD300 billion, signalling a strong close to an extraordinarily turbulent year. Several sectors saw unprecedented growth in light of the pandemic, with companies and institutions in healthcare, education, finance and shopping shifting in droves to provide their services online. This dramatic boom has led to a surge of venture funding in tech-enabled solutions in these sectors, which are on track to shape the way we work and live.
Between January and November 2020, 40 million Southeast Asians joined the Internet, accelerating the adoption of online services; more than 1 in every 3 digital service consumers started using the service as a result of COVID-19. In Southeast Asia— which has a population of 673 million and an average Internet penetration rate of 60%—startups that address social issues and innovate new ways to meet basic modern needs, such as healthcare and education, are well-positioned to make an impact in the region.
Though startup financing has traditionally been led by institutional investors, the opportunity for more companies to access capital from alternative sources has seen exponential growth. In a 2019 report by Private Equity International on European family office investment strategies, 57% of investors intended to start allocating capital into venture, and 46% looked to increase allocations into direct investments in 2020. Closer to home, we have seen an exponential growth in the number of family offices in Asia Pacific, alongside a 116% increase in UHNWI (with assets exceeding USD100m) between 2003 and 2013. With a dearth of dry powder available and burgeoning opportunities to invest in startups within ASEAN, venture investing has witnessed an era of sweeping participation by family offices.
The massive growth potential in areas uncovered in the past year, coupled with the importance of providing access to underserved markets, and the increasing interest of family offices in direct investments, has led to five key areas that family office investors can consider capitalising on as the region eases out of the global pandemic.
With COVID-19 exposing flaws in the global healthcare system, institutions and individuals around the world have turned to healthtech in response to accessing traditional healthcare. Amidst lockdowns and movement control orders, healthtech usage surged by 4x, boosting the rapid growth of the industry. Fuelled by the spike in demand, investments in healthtech have climbed steadily, giving rise to two key trends — telemedicine and digital wellness.
The rising demand for telemedicine has been driven by patients who are unable to seek consultations from doctors during the pandemic, as restriction orders and the risk of exposure to COVID-19 have limited opportunities for in-person consultations. Telemedicine seeks to address such needs with the provision of remote consultations supported by digital technology, which has enabled healthcare players to provide cheaper services that are more convenient, and equally as effective. Good Doctor Technology, based in Indonesia, is one of the numerous telemedicine startups working to reduce barriers to quality healthcare by providing virtual consultations to patients in rural areas at low costs.
At the same time, reduced social interactions and increased financial uncertainties have exacerbated the onset of mental health issues for many individuals. Digital wellness platforms and applications, such as Headspace and Mobio Interactive, have emerged to address such issues. From safe spaces for virtual therapy to guided meditation, these companies provide individuals with an outlet to take care of their mental wellness. Such safe spaces are especially popular in the Asian community, where there has traditionally been a strong social stigma towards mental health.
The rise of telemedicine and digital wellness will likely continue in a post-COVID-19 climate, with healthcare players and businesses making moves to adapt to the changing landscape. In APAC, telemedicine startups and ride-hailing companies are collaborating to facilitate COVID-19 screening; insurance companies and telemedicine startups are forming partnerships to provide more comprehensive healthcare coverage; healthcare providers and telemedicine companies are working together to offer more accessible healthcare options. Accelerated by the pandemic, healthtech will continue to revolutionise the healthcare industry as it improves patient outcomes through new forms of care delivery, and will continue to do so for years to come.
Fintech has disrupted and transformed the financial services industry, providing alternative solutions to circumvent challenges that have long plagued consumers. Within this rapidly maturing sector in APAC, three key solutions are garnering exponential interest, with vast growth opportunities ahead: (1) financial inclusion; (2) digital banks and e-wallets; and (3) Buy-Now, Pay-Later (“BNPL”).
Despite being recognised as a driver of socio-economic development, financial inclusion remains a concern for many countries in Southeast Asia — 70% of adults in the region are either underbanked or unbanked. Their needs have been further aggravated as the pandemic drove individuals and businesses into economic hardship. Fintech companies may hold the key to tackling these challenges, as they leverage digital technology and innovation to provide consumers and businesses with greater access to financial services. Especially popular are P2P lending platforms that have emerged across the region, providing small and medium businesses with access to capital through loan restructuring plans — particularly crucial as many of these enterprises bear the brunt of the economic impact from the pandemic.
COVID-19 has also accelerated the growth of e-wallets and digital banks. With more industries embarking on digital transformation, and more consumers seeking alternative ways to manage their personal finances, the opportunity for fintech companies to meet the banking needs of many via digital channels is vast. The growth of the industry has captured the attention and support of governments, with the Monetary Authority of Singapore taking the lead in the region, recently awarding digital banking licenses to some of the biggest tech startups, signalling the next wave of “digibanks” are soon to arrive.
In the same vein of consumer access, BNPL has helped reshape shoppers’ buying behaviour and how they approach traditional methods of credit. By offering greater flexibility and budgetary control, shoppers can customise their finances and payments to suit their preferences. BNPL’s unique offering in consumer credit has appealed greatly to shoppers and bolstered growth for BNPL providers; revenue for BNPL firms has increased by nearly 7x since 2016. As the demand for e-commerce continues to grow, the popularity of BNPL is likely to follow suit.
Prior to COVID-19, Asia was already the leading region in terms of popularity and growth for e-commerce, driven by the rise in mobile phone ownership amongst consumers. Pandemic-induced lockdowns and quarantines further catalysed e-commerce’s rise to prominence, as the lack of access to retail outlets drove many into becoming online shoppers for the first time, leading to more than one-third of e-commerce activity being created by new shoppers in 2020. In Southeast Asia, as many as 40 million people came online for the first time last year, pushing the total number of internet users in the region to 400 million — nearly 70% of the population. This digital migration has also forced offline retailers to adapt, resulting in a rise in merchant onboarding. Coupled with the growth of digital payment services, consumer adoption of mobile and digital e-commerce platforms grew significantly during the pandemic, further developing e-commerce’s foothold in the digital ecosystem. Moving forward, e-commerce will continue to be the cornerstone of the digital ecosystem in SEA; the expansion of digital payments and delivery services will only further drive the expansion of this behemoth industry.
2020 was undoubtedly the year of EdTech, with apps witnessing a 3x increase in downloads, and a positive growth outlook as venture funding into the industry is expected to triple. Pandemic-induced lockdowns had created a pressing need for students and teachers to seek out alternatives for face-to-face learning, greatly accelerating the adoption of virtual education tools. To prevent disruptions in learning, governments and educational institutions integrated digital learning solutions into school curriculums as well. These factors drove the surge in usage of EdTech, and stakeholders were quick to recognise its benefits. Greater accessibility and lowered costs to quality education are just some of the reasons EdTech companies have been able to convert new students and teachers into regular ones, resulting in an expanding pool of super-users. As the region eases out of the pandemic, EdTech will remain a key pillar in the education industry, as schools will seek to harness technology to deliver better quality education, and students integrate EdTech applications into their daily learning practices.
The pandemic has thrust sustainability issues into the spotlight, with everything from carbon emissions to food security coming under increasing scrutiny. The growing importance of sustainable consumption has created a wave of mounting pressure on businesses to adopt sustainable practices. Financial executives have begun to direct more attention to ESG risks and opportunities, and aligning them with long-term strategic goals of their respective companies. On the other side of the coin, investors are increasingly recognising the value of impact; investments in companies with ESG-driven missions are no longer seen as mutually exclusive from financial returns. This sentiment is reflected in the steady rise of investors deploying their capital into ESG funds, with a record USD12.2bn worth of investments in the first four months of 2020 reported, and 70% of the funds outperforming non-ESG competitors. The rapid integration of ESG factors in businesses and finance signifies the growing belief that value creation and ESG priorities are deeply intertwined. Companies that strive for long-term growth and sustainability will continue to seek out new ESG opportunities, while investors are likely to direct more capital into these areas as they look to make an impact with their investments.
For a closer look into what family office investors can consider when building a strategic and complementary private investments portfolio, watch a recap of our recent conversation with leaders from EY Singapore, Altara Ventures and Azimut Investment Management on private market opportunities for family offices in a post-pandemic world.
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