Cracking the Code to Tech Investment Value in Southeast Asia

CTO Labs Investment South East Asia

Tom Xu

Thu Mar 07 20246 min read

With the ASEAN-Australia summit underway in Melbourne this week, Tom Xu reflects on investment opportunity in Southeast Asia and the challenges of understanding tech investment value in this context.

As the ASEAN-Australia summit takes place in Melbourne this week, it is clear, if not more than ever, that Southeast Asia and Australia are closely linked in economic prosperity.

At CTO Labs, as specialist technology due diligence providers, we closely monitor developments in the Southeast Asia region as a promising area for technology investment. Having worked with private equity and venture capital firms within this region on a few deals, we have observed:

  • A dynamic pool of young, talented developers eager to innovate and drive progress

  • Forward-thinking management teams, unafraid to challenge conventions

  • Fast deal approval processes, facilitating swift investment decisions

  • A more diverse investor ecosystem, consisting of a mix of local and international investors including private equity and venture capital firms, but also, angel investors, family offices, and multinational corporations

There are challenges in ascertaining the investment value of any modern technology business which leverages custom technology, however, overlaid with Southeast Asia’s diverse landscape containing varying regulatory, fiscal, cultural, and geographical contexts, the considerations become much more complex. By analysing two recent deal announcements in the region, we aim to shed light on pertinent technical considerations that may only be revealed through deep, technology due diligence. While we were not directly involved in these deals, our expertise in similar domains within the region equips us to offer valuable insights.

Deal #1 - E-commerce platform in Indonesia

Tokopedia is one of Indonesia’s unicorn companies. In December 2023, TikTok (operating under ByteDance) officially announced the acquisition of 75% of Tokopedia's shares. This investment is valued at USD 1.5 billion. Before the acquisition, Tokopedia claimed to have more than 350 million product listings, 42 digital products, and serves over 100 million monthly active users and over 9.7 million merchants on its platform.

Technical considerations through technology due diligence

Our “armchair observation” is that ensuring the resilience of Tokopedia’s underlying technology platform could be paramount for investor confidence, as we anticipate that it may drive most if not all core revenue-generating operations. Tokopedia’s technology platform is likely to include a high level of customisation built upon dated architecture, and, so, a comprehensive examination of the entire technical ecosystem could be crucial to provide commercial confidence. This includes an “under the covers” look behind architectural models, code quality, team composition, and skill sets. Furthermore, the effectiveness and efficiency of Tokopedia’s product development through to technology may be material in a custom platform scenario. These interconnected elements collectively form a large risk surface for evaluation, and are often overlooked by a traditional IT due diligence, yet provide invaluable technical insights that inform investor value.

Deal #2 - Cross-border payment provider in Singapore

Thunes recently raised USD 72 million from a variety of investors, including Singapore’s own EDBI, as well as San Francisco-headquartered Visa and UK hedge fund Marshall Wace. Thunes’ payments infrastructure allows businesses to move money across 132 countries, covering four billion bank accounts and three billion mobile wallets. The startup is well embedded in large emerging markets with sizable unbanked populations, and the recent investment will enable Thunes to expand its presence in China.

Technical considerations through technology due diligence

One of the biggest challenges for cross-border payment providers pertains to regulatory compliance with a myriad of government regulators and its varying degrees of regulation depth and complexity. Non-compliance for Thunes could have significant consequences for its ability to continue business operations and thereby would constitute a material risk.

While many organisations excel at grasping their compliance obligations, translating regulatory requirements into technical specifications for platform architecture remains a challenge for many. At CTO Labs, we understand compliance not as a one-time checkbox task, but as an ongoing commitment. With this perspective, it becomes imperative to assess whether Thunes' technology stack could effectively enable compliance features such as real-time monitoring, automated compliance checks, alerts and notifications, integrations with regulatory databases, and compliance reporting and analytics. A comprehensive “under the covers” technology due diligence of the platform and its backend components is, again, necessary to gain insight into this aspect.

Lastly, a possible consideration in assessing investment in both the aforementioned targets, and start-ups or scale-ups in general, is technical operation management. Given the dynamic and high-velocity nature of many start-up and scale-up organisations, their technical team’s 1) approach and confidence in scaling; and 2) maturity in identifying bottlenecks (e.g., network congestion) before they become a material business risk (e.g., outage) may be critical in ascertaining investment value.

Got a deal in flight and keen to understand this further? Let's talk.

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