It’s no longer novel to say that start-up ecosystem in Southeast Asia (SEA) is poised to explode in a momentous way, and here’s why everyone’s been saying the same thing:
Firstly, the 10 SEA nations have a population of over 600 million combined. It is the third largest market in the world, after China and India, and ahead of Europe and North America. Also, about 70% of SEA population is under the age of 35, so we may deduce that the region is young and vibrant, and holds exponential potential for growth.
Secondly, a great number of people in SEA are going online for the first time. The region currently has roughly 260 million internet users and this number is expected to grow to 480 million by 2020. Singapore sovereign fund Temasek and Google said in a joint report that SEA’s internet economy could surge six-fold to about US$200 (S$274.08) billion in the next 10 years.
Thirdly, investors have been flocking to SEA like never before over the past five years. Facebook’s co-founder moved to Singapore with his firm belief for the funding ecosystem in Southeast Asia.
“We love Silicon Valley. But we also think that tech is becoming increasingly global. You’re starting to see great entrepreneurs not just in New York, Los Angeles, but in Singapore, Jakarta, Bangalore,” he said in a Wall Street Journal interview.
Alibaba’s expansion to SEA by acquiring a US$1 billion stake in Lazada, the region’s largest online departmental store, and the recent launch of a second US$50 million (S$68.52 million)“500 Durians” fund by 500 Startups’ in SEA are some pretty solid evidence that the region is moving towards a start-up boom.
Khailee Ng, managing partner of 500 Startups said the VC firm is looking into deepening their presence in the region as it has a ready pipeline for explosive growth companies. He claims the region has started to mature with the making of a complete start-up ecosystem.
From the above, we can conclude that the SEA population are young, hungry and increasingly tech savvy. Also notably, their movement into middle class have enabled them with more access to disposable income than ever before.
So who’s taking the lead?
In recent years, the Singapore government has invested some S$100 million to fund local technological innovation for early-stage start-ups. While it has yet to produce anything like Facebook or Google, it has seen some success in its start-up scene.
RedMart, an online grocery-delivery service is just one of the many start-up ventures that has gaining traction locally. The Singaporean tech firm was founded in 2011 and has raised over US$10 million (S$13.73 million) from investors, including Saverin.
But while the start-up ecosystem continues to thrive, some are concerned that the lack of entrepreneurial spirit among Singaporeans, coupled with easily-obtainable government funding could inadvertently enable some start-ups to limp along state funds.
Though it still has some way to go to becoming a mature start-up ecosystem, the start-up scene in Malaysia is incredibly exciting. It was reported that funding in tech start-ups saw an increase of 96% between 2011 and 2014 to US$1.5 billion (S$2.06 billion). American lead incubators and accelerators are also joining with the Malaysian government’s MaGIC programme to provide a more stable launch-pad for growth, innovation and forage into new markets.
The Philippines is following suit. In 2015, the republic’s start-ups raised US$40 million (S$54.9 million) that was spread across 100 start-ups. The same year, Global Telecom also announced its US$50 million (S$68.64 million) fund for the country. A growing number of VC firms from the U.S. and Japan are also setting their sights on Philippine tech sphere with the aim to use the youthful, tech-savvy and English-speaking nation as a gateway into other emerging markets like India and Indonesia.
Elsewhere, Indonesia is fast becoming a force to reckon with as colossal amounts of investments and start-up formations flourish in the region. Indeed, many of SEA’s fastest growing start-ups today hail from Indonesia: Traveloka, Go-Jek and Tokopedia, to name a few. Factors that have spurred that meteoric growth include a growing middle class, exponential rise in mobile and internet penetration, and overall economic growth across the region.
Governments have been making big moves as well. In Thailand, the government announced that it would launch a US$570 million (S$782.54 million) VC fund to help establish a start-up ecosystem. The fund will finance some 2,500 existing start-ups in Thailand, with the aim of raising the number of start-ups in the country to 10,000 in two years.
As start-ups across the region flourish, it is important to take note that developing start-up ecosystems are often fragile and have the tendency to deteriorate once momentum slows. Both government and community of investors and entrepreneurs must therefore play their respective roles to keep the momentum going.
Eyes on Singapore
While the VC market is increasingly global, investors prefer a safe place to invest their money. So, from an investment point of view, Singapore is one of the best places to be domiciled.
Also, when starting a new business in Southeast Asia, one of the primary things to consider is where to incorporate. The World Bank ranks the city-state number one for the ease of doing business.
Further, to its advantage, Singapore does already have a generally strong infrastructure for entrepreneurs, including an emerging number of platforms that connect investors an entrepreneurs.
But to truly step up the game and lead the pack of the SEA start-up ecosystem, it will need to work on strengthening its entrepreneurial capacity and promote innovation. This is especially true as the country shifts from an economy characterised by heavy reliance on multi-national companies to a more robust economic model that comprises a mix of both large and small enterprises.