Think of startups and entrepreneurs working together in one place, and chances are high the first thing you’ll think of is Silicon Valley. The global hub of tech giants and unicorn startups alike, Silicon Valley is what every country and region hopes to replicate. Over the past decade or so, Southeast Asian countries have been leading the chart in growth indicators used to adjudge the startup ecosystem. As investor interest grows in the region, and the general population is fast catching up with utilities – such as smartphones, high-speed internet, etc. – this belt is more than just a market space; it has become the melting pot for tech disruptions and ideations.
According to a report by CB Insights, the tech companies in Southeast Asia were able to raise $6.5B in disclosed equity funding by September of this year. An astounding figure, it pretty much sums up the accelerated path of innovation and success that the Southeast Asian startup ecosystem is on.
Southeast Asia's startup ecosystem has been powered mainly by developments in Singapore, the seemingly plateaued ecosystem in Malaysia, and the thriving, fastest-growing markets in Indonesia and Thailand. Together, they are a force to contend with across the Asian market. Of course, the lion’s share of investments goes to Singapore and Indonesia, thanks to the transparency and access to syndications in the former and the sheer scale of the latter. But the rest of the markets in Southeast Asia, especially Malaysia and Thailand, are not lagging behind; the ideas and names that have emerged from these markets have gone on to prove the mettle of these countries.
Teruhide Sato, the founder of Singapore-based venture capital firm Beenext, sums up the region’s state of affairs in conversation with Nikkei Asian Review, “Asia has an abundance of issues like underdeveloped infrastructure and logistics, and they present great opportunities for startups to come in and solve real problems on the ground.”
A far more complex market compared to other Southeast Asian countries, Malaysia’s growth on the startup scene has been mostly in spurts. Looking at the finer details of the country's push for businesses, it was overall ranked 24 among 190 countries according to the World Bank’s most recent DoingBusiness report. The government, in an attempt to streamline the growth and nurture more local startups, launched programmes like MaGIC (Malaysian Global Innovative and Creativity centre) and MAVCAP (Malaysia Venture Capital Management Berhad (MAVCAP). Together, these initiatives offer great opportunities for inculcating business education and leadership skill in founders through incubation and acceleration programmes.
Some of SEA’s greatest innovations and popular app-based consumer services come from Malaysia. Video streaming service iFlix is an example of a Malaysian startup which has come into its own and even stared down big international players. With over five million subscribers, the application has a user base beyond Malaysia and has entered the market in 20+ countries, including the Philippines, Thailand, and Indonesia, to name some.
Another startup to come out of the island nation is Grab, a taxi hailing app which has more than 45 million downloads across the region as of 2016. Founded in 2012 by Anthony Tan and Tan Hooi Ling, Grab has become a powerful force in the SEA region, with operations in Singapore, Malaysia, Indonesia, Philippines, Vietnam, Thailand, and Myanmar.
With its reasonably young population and a high number of digital natives (median age 28), a rapidly growing middle class, mobile penetration at 110 percent, and the scale that VCs are known to love, it is no surprise that Indonesia is among the countries leading the charge in technology innovations in Asia. As of September 2017, Indonesian startups recorded $3 billion in investment according to a report by Google and management consulting firm AT Kearney.
Despite a perceived talent crunch, Indonesia has a bunch of hyperlocal startups who have achieved remarkable success. Take this for example – Indonesian marketplace Tokopedia raised $248 million from investors, including names like SoftBank, Alibaba brought in another USD 1 billion to Lazada, and Intudo Ventures committed USD 10 million to the Indonesian startup ecosystem.
Indonesia has a lot working for it at the moment, and if you go by the numbers, we haven’t even scratched the surface of the potential this market presents as far as innovation and startup growth are concerned. Take the example of Go Jek. A unicorn in its own right, it is a hyperlocal transport, logistics, and payments startup founded in 2010. Recently, the company completed 40 million-odd app downloads, powering everything from taxi aggregators to digital wallet startups!
In 2012, Thailand had three funded startups. By 2016, this number had grown 25 times to 75! With an overall rank of 26 on the World Bank's DoingBusiness Report, Thailand has revamped its startup ecosystem with a concentrated effort to ensure ease of doing business. With about $175 million raised by startups this year, Thailand is on its way to becoming a new startup ecosystem hub.
With over $27 million in deals, fintech made up the bulk of deals in 2016. As the middle class continues to grow in the Southeast Asian region, Thailand’s fintech sector is expected to only grow stronger in time. Riding on this wave has been Piggipo, a popular finance management app that enables users to manage budget and credit cards in one unified platform. Launched in 2014, the app has over 50,000 downloads on the Google Play Store.
Tapping into Thailand’s booming tourism sector, you have startups such as Agoda.com, which acts as a hotel booking engine. Founded in 2005, the site was acquired by Priceline Group in 2011.
The crown jewel in the Southeast Asian startup ecosystem, Singapore crops up in many lists of top business destinations. Thanks to the ease of doing business, a global talent pool, and an extremely supportive government, Singapore is truly the leader of the SEA startup ecosystem. The Singaporean government even launched a $13.2 billion R&D initiative to further accelerate the development of about 1,600-2,400 tech startups.
With such a flourishing environment, startups aren’t just focussing on aping western counterparts, but breaking the mould and providing solutions to region-specific problems. Take Ryde for example, a carpooling app founded by Harvard graduate Terence Zhou way before the heyday of services like UberPOOL. Today, Ryde offers its services in Malaysia and Hong Kong in addition to its home country Singapore.
Lazada, which practically helmed the e-commerce space in the SEA region, also capitalized on the opportunity provided by the late entry of global names like Amazon in the region. Backed by Rocket Internet, Lazada has a funding of more than $600 million and has spread its operations to Malaysia, Indonesia, Vietnam, and Thailand.
With a potential annual GDP growth rate of 5.1 percent, Vietnam is one of the fastest-growing economies not just in the region but the world. Though it arrived late on the startup scene, Vietnam’s startup ecosystem has made progress in giant leaps and bounds, with startups raising $205 million in 2016, a 46 percent increase from 2015. The star of the pack has been the fintech sector, which raised close to $129 million in 2016.
As the Vietnamese government looked to expedite its economic standing, stringent trade practices were revoked and a more liberal approach allowed ease of business. This environment allowed early-stage startups to bloom and gaming company VGN emerged one of the standouts. Founded in 2004, the company has emerged as a tech giant in the country, with a presence in social media to entertainment to mobile games to its flagship chat app called Zalo.
Of the country’s upcoming startups, Designbold has generated quite the buzz in the ecosystem. Launched in October 2016, the application has been coined as the “Photoshop” for amateur designers. It recorded $130,000 in revenue within only two weeks after its launch and has had some 40,000 cumulative users with 52 percent returning visitors.
Growing VC interest, combined with the innovative new ideas and unicorns emerging from the Southeast Asia region, leaves no doubt that it is going to continue to be a startup hotspot in the years to come. However, will the immense scale that the emerging markets of the region allow be enough to make it a global rival to Silicon Valley? We wait and see how things will unfold.