The Asia-Pacific region has been picking up some of the slack we’ve been encountering lately within the technology merger and acquisition (M&A) landscape. While US capital markets are tightening, tech M&A activity in the Asia-Pacific region reached a three-year high during this first quarter.
A growing number of early stage tech companies are setting sights on funding in the Asia-Pacific region. In 2015, investors poured 4.5 billion U.S. dollars into financial technology in the region, four times the amount invested in mobile in 2014. Clean energy also came out on top for Asia-Pacific, with this past year being one of the busiest, totaling $11.9 billion in investment.
Growth in the Asia-Pacific market is allowing global companies to make their mark on the industry in that region. Just recently Dyson, a UK based corporation, reported its best earnings from the region, citing the growing desire for high-end vacuums and air purifiers. The Australian government is also seeking to become a financial technology hub in the Asia-Pacific region by amending and removing regulatory barriers that have hindered its growth.
Indeed, we’re seeing a growing number of tech startups from around the world seeking funding via the Australian Securities Exchange (ASX), which historically focused on the mining industry.
Over the past year, the number of tech equity funding rounds concluded on the ASX has kept pace with the exchange’s U.S. and Canadian counterparts, at a rate of roughly one per week. With a median deal value of about $4 million, the ASX is providing a viable middle ground between the United States ($20 million) and Canadian (less than $1 million) exchanges and represents the only fertile listing ground for pre-revenue tech ventures in the Asia-Pacific region.
While it is common for pre-revenue businesses to make up half of the constituency on major Western stock exchanges, these listings rarely make up a fraction of the share on Asia-Pacific exchanges. The ASX represents a novel source of regional liquidity in that regard, with nearly half of its listings yet to generate revenue. Its secondary trading activity is also comparable to that of the northern hemisphere capital markets.
Amongst the tech fundraisings that have taken place on the ASX over the past 12 months, approximately 40 percent had no revenue history, including the largest deal – a $35 million institutional placement by San Francisco based 1-Page Limited (1PG.ASX). In comparison, only a quarter of North American public equity tech deals were pre-revenue.
Recent ASX deals that have been facilitated with founding shareholders have resulted in the surrender of a little over half of the company stock to new shareholders. On face value, this retained control is greater than similar North American deals, which have seen public shareholders account for two thirds of stock. However, the size of a typical ASX tech raise remains a fraction of those witnessed in North America. The good news is that the Australian market’s smaller ticket size is a better fit for companies that are less advanced along the development curve.
Exits on the ASX have set all-time records in value and volume, soaring to $14 billion in 2015. Although a couple of mega-sized deals set the pace, exit activity overall was extremely robust. Additionally, IPOs and secondary exits really flourished with many pre-revenue startups benefiting from this trend.
Australia’s capital market isn’t alone in rewarding technology speculation over the last year. The UK public market has supported tech fund raisings exceeding $4.5 billion, from which the median return stands in the double digit territory. However, with the London market dominated by revenue-generating businesses, Australia retains its niche for early-stage startups.
So will this trend continue, and will it start to draw in more investors and startups from outside the region? It’s probably safe to assume so. The Asia-Pacific region’s diverse set of economies stretching from China to Myanmar is still outperforming the global average. Powered by rapid development, modernization, and the emerging middle class, the Asia-Pacific region is poised to propel early stage pre-revenue startups, and US investors should take note.
Matthew Dibb is founder of Incipient IT, a Southeast Asia-based venture development firm specializing in funding, developing, and commercializing innovative tech startups. He is also co-founder and CEO of ChildsPass, an early stage startup with a scheduled listing on the Australian Securities Exchange (ASX) in 2016.
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