Investors 29 March 2021

5 VC Sectoral Trends That are Catching Family Offices’ Attention

 

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 family office 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 a surge 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:

1. HealthTech

2. FinTech

3. E-Commerce

4. EdTech

5. ESG

1. HealthTech

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 key investment and therapeutic foci — telemedicine and mental health.

Top 5 Funded HealthTech Startups in SEA in 2020

Company Headquarters Lead Investor(s) Funding Amount
Alodokter Indonesia MDI Ventures, Sequis Life USD33m
Doctor Anywhere Singapore EDBI, IHH Healthcare, Square Peg Capital USD27m
ImmunoScape Singapore - USD11m
Endofotonics Singapore - USD8.46m
Mednefits Singapore BLoyalty USD5.9m

Source: PitchBook

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. Alodokter and Doctor Anywhere — based in Indonesia and Singapore respectively — are just two of the top funded HealthTech startups in Southeast Asia working to reduce barriers to quality healthcare by providing virtual consultations to patients in rural and urban 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 globally-persistent concerns around mental health. From safe spaces for virtual therapy to guided meditation, these companies provide individuals with an outlet to take care of their mental wellness.

Research from Galen Growth Asia showed that in Asia Pacific, "total funding in mental health-focused ventures in 2020 increased by approximately 20% to (USD)$82M". And as communities in Southeast Asia shift out of the height of the pandemic, taking care of one's mental health will become more important than ever in order to manage a more uncertain economic environment.

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.

2. FinTech

FinTech has drastically 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”).

Top 5 Funded FinTech Startups in SEA in 2020

Company Headquarters Lead Investor(s) Funding Amount
Grab Singapore STIC Investments USD200m
Gojek Indonesia Telekomsel USD150m
LinkAja Indonesia Grab USD100m
Momo Vietnam Goldman Sachs Merchant Banking Division, Warburg Pincus USD100m
Ajaib Indonesia Alpha JWC Ventures, Horizons Ventures, Ribbit Capital USD90m

Source: PitchBook

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.

Investors have likewise identified financial inclusion as the next potential challenge to solve, mobilising over USD100m of capital into companies like Indonesia's LinkAja and Vietnam's Momo to bring financial services access to communities in Southeast Asia.

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 the underserved 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, most recently awarding digital banking licenses to some of the biggest tech startups. This is a clear signal that the next wave of “digibanks” is soon to arrive.

Singapore's Digital Banking License Awardees

Awardees License Type
Singtel & Grab Digital full bank
Sea Limited Digital full bank
Ant Financial Digital wholesale bank
Greenland Financial Holdings, Linklogis Hong Kong & Beijing Co-operative Equity Investment Fund Management Digital wholesale bank

Source: Monetary Authority of Singapore

In the same vein of consumer access, BNPL has helped reshape shoppers’ buying behaviours and how they approach traditional methods of credit. By offering greater flexibility and budgetary control, shoppers can now 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 merchants; revenue for BNPL firms has increased by nearly 7x since 2016.

As the demand for e-commerce continues to grow, Southeast Asia is expected to become the world’s fastest-growing BNPL market. Players like Singapore's hoolah — which secured an undisclosed eight-figure Series A investment in March 2020 led by Allectus Capital — and Indonesia's FinAccel are leading the pack in their respective markets with active plans for expansion into neighbouring SEA markets. Surely enough, investors in the region are keeping a close eye on the wider growth of retail credit in 2021.

3. E-Commerce

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.

Top 5 Funded E-Commerce Startups in SEA in 2020

Company Headquarters Lead Investor(s) Funding Amount
Flash Express Thailand PTT Oil and Retail Business USD200m
Livspace Singapore Kharis Capital USD90m
Carousell Singapore - USD80m
Shopback Singapore EV Growth, Rakuten Capital, Temasek Holdings USD75m

Source: PitchBook

2020 further catalysed e-commerce’s growth, as the lack of access to retail outlets drove over 40 million Southeast Asians into becoming online shoppers for the first time. This resulted in more than one-third of e-commerce activity being created by new shoppers in 2020, pushing the total number of internet users in the region to 400 million — nearly 70% of the population.

Digital migration has also forced offline retailers to adapt, resulting in a rise in merchant onboarding and bringing market expansion plans forward for some e-commerce companies.

Coupled with the growth of digital payment services, consumer adoption of mobile and digital e-commerce platforms grew significantly during the pandemic. Investors are making greater commitments  to the sector through investments in ShopBack, Sendo and Sociolla to further develop 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.

4. EdTech

2020 was undoubtedly the year of EdTech, as students were confined to home-based e-learning for most of the year. To prevent disruptions in learning, governments and educational institutions integrated blended or digital learning solutions into school curriculums as an alternative to face-to-face learning. Within Southeast Asia alone, widespread adoption has led to a 3x increase in the downloads of educational apps.

Top 5 Funded EdTech Startups in SEA in 2020

Company Headquarters Lead Investor(s) Funding Amount
LingoAce Singapore Sequoia Capital, Shunwei Capital USD13m
Adventus.io Singapore 333 Capital, Our Innovation Fund USD8.28m
Manabie Singapore Genesia Ventures USD4.8m
Cakap Indonesia Heritas Capital USD3m
Edukasyon.ph Philippines EduLab Capital Partners, Lorinet Foundation, Alternate Ventures USD2.6m

Source: PitchBook

These factors drove the surge in usage of EdTech, and stakeholders were quick to recognise its benefits. Greater accessibility and lowered costs of quality education are just some of the reasons EdTech companies have been able to convert new students and teachers, resulting in an expanding pool of super-users.

A positive growth outlook is expected in 2021 as venture funding into the industry is expected to triple. As the region eases out of the pandemic, EdTech will remain a key pillar in the education industry. Schools will continue to harness technology to deliver better quality education, and students will integrate EdTech applications into their daily learning practices.

5. ESG

The pandemic has thrust sustainability issues into the spotlight, with everything from carbon emissions, climate change and food security coming under increasing scrutiny. A growing focus on sustainable consumption has also created mounting pressure on businesses to adopt more sustainable practices.

Top 5 Funded ESG Startups in SEA in 2020

Company Headquarters Lead Investor(s) Funding Amount
Sunseap Singapore Temasek Holdings, Banpu Public Company, ABC World Asia USD148m
RWDC Industries Singapore Vickers Venture Partners, Flint Hills Resources, International, CPV/CAP Pensionskasse Coop USD133m
Neuron Mobility Singapore GSR Ventures, Square Peg Capital USD30m
Holmusk Singapore Optum Ventures, Health Catalyst Capital Management USD21.5m
Shiok Meats Singapore Aqua-Spark USD12.6m

Source: PitchBook

Alongside global discourse, companies putting long-term sustainable social, environmental and governance practices at the forefront of their businesses have attracted capital from strategic and socially responsible investors in 2020, triggering much-needed disruption in traditional sectors such as energy and manufacturing.

Macroeconomic effects have also shifted investors' focus to consider the growth potential of ESG-related solutions, as investors are increasingly recognising the value of impact; investments in companies with impact-driven missions are no longer seen as mutually exclusive of 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.

Opportunities aren't just confined to more mature industries or well-funded growth-stage companies.

Early-stage companies in the FoodTech, AgriTech, and clean energy space have likewise grabbed headlines and capital from angel and family office investors keen to leverage the nascency of ESG as an investment framework to reap future returns.

At a roundtable hosted by Fundnel at the height of the pandemic, leaders from Shiok Meats, Mycotech, Agfunder Asia and SGInnovate shared how sustainability investing and innovation will survive past the hype cycle — read more here.

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.

This article is intended for general informational purposes only. It is not, and should not be construed as, any form of financial, investment, tax, or other professional advice provided by Fundnel Pte. Ltd. ("Fundnel") to any person who is directed to or otherwise accesses this article, including yourself. You are responsible for seeking professional advice before making any investment decision. Fundnel is not responsible for any loss you may sustain in relying on this article.