Evaluating technology investments: Looking beyond sky-high valuations of startups in South East Asia

June 2020
By Yennie Tan, Partner and Deals Strategy Leader, PwC Malaysia

South East Asia has become an attractive market for startups powered by a growing digital economy. These startups have introduced disruptive innovations that have revolutionised industries and created new business models and delivery channels. 

What defines a successful Tech startup from an investor’s perspective? 

Not all Tech startups are created equally, however there are certain characteristics common to successful Tech startups: 

• Proprietary technology that addresses key customer pain points 

• Strong understanding and focus on customer needs, leveraging big data and predictive analytics 

• Scale and diversity across industry verticals or service offerings 

• Strategic partnerships and alliances 

Unlocking the pathway to profitability 

However, these characteristics don’t necessarily translate into long-term profitability. Recent headlines around failing Unicorns have prompted investors to take a closer look at their tech startup investments. A startup's pathway to profitability should be a key consideration when evaluating investment potential. 

What should startups be able to demonstrate? 

• Compelling value proposition

• Established sources of recurring revenues, supported by strong customer retention

• Ability to achieve positive unit economics

• Optimised business operations using technology

What do investors value in a Tech business?

The valuation of a Unicorn is neither a science nor an art, but rather a craft. While there are many considerations when valuing a tech startup, investors always consider the following:

• Uniqueness and appeal of the platform and its ability to disrupt 

• Attractiveness of the industry and sector outlook

• Viability of product or service value proposition

• Sustainability of competitive advantage and growth prospects

• Depth of management talent when evaluating the investment’s future potential

For more insights, read our thought leadership publication “Have Unicorns reached their tipping point?”

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