SOUTH-EAST Asia's booming venture capital and private equity market is poised to see deal value soar to US$70 billion over the next five years, doubling that of the previous five years, according to consultancy Bain & Co's report released on Monday.
The region will also produce at least 10 new unicorns - new companies that rapidly achieve market valuations of US$1 billion or more - by 2024, going by the report.
Scores of new investors - from local venture capital funds and private equity funds, to sovereign wealth funds and global funds - have been pouring into the region, lured by strong macroeconomic fundamentals, the chance to invest in emerging regional champions and a deepening secondary market for deals of all sizes. South-east Asia-dedicated funds' dry powder - committed but unspent capital - has more than doubled since 2012.
Startups maturing, strong exit momentum and healthy returns have also been catalysts for investment activity.
Technology companies have attracted the bulk of new capital, rising to 40 per cent of deal count in 2017 from 20 per cent in 2014. Since 2012, 10 unicorns including Grab, Go-Jek and Traveloka have created a combined market value of US$34 billion, ranking South-east Asia No 3 in the Asia-Pacific region, behind only China and India.
Strong investor interest in the region's developing technology sector and other consumption-based industries is likely to help sustain higher levels of investment. Singapore-based Bain senior adviser Suvir Varma and principal Alex Boulton, authors of the report, expect the technology sector to contribute 20 to 40 per cent of deal value over the next five years, particularly the financial technology sector.
They added that investor interest in healthcare and education, "sectors with significant long-term growth potential, but traditionally fragmented", will also redouble.
Geographically, Singapore remains South-east Asia's investment hub but risks being overtaken by fast-growing startup ecosystems. Another Bain & Co survey showed nearly 90 per cent of investors said the hottest South-east Asian market outside of Singapore in 2018-19 will be Indonesia and Vietnam. Together, Indonesia and Vietnam generated 20 per cent of the region's private equity deal value over the past five years, and that percentage is likely to grow, said Bain.
For now, "investing in South-east Asia is taking off, but new challenges - notably intensifying competition and rising valuations, which are at their highest level in a decade - will require investors to tread carefully", said Mr Boulton.
Concluded Mr Varma: "Skilled investors must raise their game to continue producing strong returns in what is still an evolving market."