When it comes to launching a startup, most founders think they should reside in the United States, Silicon Valley, in particular, to have a successful business. While being in Silicon Valley provides excellent access to key people and companies, its fierce competition and fast-paced environment can soon kill the dreams of having a startup.
But there are other regions in the world that might not be as fancy as Silicon Valley but have a remarkable potential for growth. Southeast Asia is one of them.
The region consists of 11 countries. It is home to over 680 million people and over 400 million internet users- nearly 70% of the population.
As per a report by Google, Temasek Holdings, and Bain & Company, as many as 40 million people in six countries across the region — Singapore, Malaysia, Indonesia, the Philippines, Vietnam, and Thailand — came online for the first time in 2020. The report predicts that the region’s internet economy can cross $300 billion by 2025.
As the region was preparing for a new economic boom phase, the Covid-19 pandemic arrived. Southeast Asia was walloped by Covid-19. Hundreds of thousands of people died, and millions were affected. According to Asian Development Bank, Covid-19 pushed 4.7 million people into extreme poverty across Southeast Asia and removed 9.3 million jobs in the region.
The region’s economy is recovering and adjusting to the new normal. If you leave aside the devastating impacts of Covid-19 on the economy and people, this pandemic was able to change the prospects of startups in Southeast Asia.
Even before the pandemic began, Southeast Asia startups were thriving and could collect large checks from investors. According to Jungle Ventures, Southeast Asia’s technology startups had a combined valuation of $340 billion in 2020. This amount can triple by 2025. Also, Southeast Asia’s startups raised a record $6 billion in the first quarter of 2021.
Venture capital (VC) investment is the primary funding source for regional startups. In 2010, the VC investment in Southeast Asia startups was just $100 million. However, this amount could reach $9.6 billion in 2018. The number is growing year by year.
The pandemic has significantly increased the demand for access to digital services.
The Pandemic expansion and lockdowns led to skyrocketing usage of digital services and the creation of new startups. For example, Yahoo reports that Vietnam has added 8 million new digital consumers, with 55% of them coming from non-metro areas between the start of the pandemic and the first half of 2021.
Also, between the start of the pandemic and up till the first half of 2021, Indonesia could add 21 million new digital consumers, of which 72% are from non-metro areas.
Now the pandemic has settled, startups in the region should meet the demands of millions of new customers. 94% of people in Google, Temasek Holdings, and Bain & Company survey said they plan to continue using digital services in the post-pandemic.
The post-pandemic customers have new shopping habits and are more cautious with their spending. Also, smartphone penetration in the region is an essential factor for startups in the post-pandemic era.
Southeast Asia can be known as a smartphone-first region, and this pattern can reshape the startups’ plans. Most Internet users in this region are connected through their smartphones. In 2022, 88% of internet users in the region will be smartphone users, and this amount can reach 90.1% in 2026.
The pattern of using mobile apps in the post-pandemic has also changed. These days, more people tend to use mobile apps to access digital services, including online payments, food delivery, ride-hailing, investment, and shopping.
A booming economy and continuous growth in the tech sector have paved the way for Southeast Asian startups to become unicorns and Decacorns, a company with a valuation of over $10 billion. Back in 2014, there were only three unicorns in the region. Now, you can find 49 unicorns and Decacorns there.
Given the increase in using digital services, more startups have the chance to become unicorns in the post-pandemic. Millions of new people have just come online and are looking for digital services.
As per a report by InformationAge, by 2040, Asia is projected to top 50% of global GDP and drive. Also, one billion new customers can be added to this market by 2040.
“We’re going to have more than a billion new consumers added to the population, which obviously drives demand. And the kinds of goods produced need to be tailored for India, need to be tailored for Indonesia, and so forth. This, again, creates a ton of opportunity,” Oliver Tonby, chair of McKinsey in Asia, said.
The pandemic experience in Southeast Asia proved that non-digital businesses are extremely vulnerable to a threat.
The startups in Southeast Asia were traditionally focused on offering services to individuals and followed a B2C scheme. However, the prospect of new startups is more focused on emerging technologies.
According to a report by Google, startups in this region are more likely to explore AI, decentralized finance (DeFi), fintech, e-commerce, health technology, and sustainability.
Regional investors are also more likely to invest in startups focusing on emerging technologies. In 2021, ASEAN DeFi startups could raise $1 billion in equity funding.
The survey of Southeast Asian startups shows that they have been able to use the opportunity of the pandemic to develop their market and attract more funds from investors.
For example, in September 2021, Indonesian halal-focused social commerce startup Evermos could raise $30 million in Series B.
In another example, the Indonesia-based cryptocurrency exchange app Pintu raised $35 million in Series A funding in August 2021.
Youth population, governmental support, and the US-China conflict are driving startup ecosystem transformation in Southeast Asia.
But the question is, what is driving this massive post-pandemic transformation? There are some factors that contribute to and accelerate change in Southeast Asia. First, the youth population and their spirit for entrepreneurship.
The United States and China often influence the entrepreneurial spirit in this region. Also, the median age in South-Eastern Asia is 30.2 years, and young people are more integrated with technology, providing a great opportunity for tech-driven startups.
The 2019 report by the World Economic Forum insisted on the ASEAN’s youth’s strong preference for entrepreneurial settings.
The second influential factor is the governmental support from the startup ecosystem. Traditionally, the service sector and agriculture are the greatest contributors to the GDP and economic growth of the region.
However, the governments have identified the potential of startups and their contribution to the GDP. Countries like Indonesia and Singapore have well-established startup ecosystems and have become the leaders of transportation in the region, followed by countries like Thailand, Malaysia, the Philippines, etc.
The trade war between the United States and China could also help. China is traditionally the home of multi-million dollar startups. However, the conflict with the US and restrictions imposed by the Chinese government made investors look for other growing markets. Southeast Asia startups could seize the opportunity and convince investors to write the checks.
Southeast Asia is getting more attention from investors, and its market size and value are constantly growing. Thanks to the flourishing economy, the region also has a growing middle class. In the post-pandemic era, more people in the region will join the digital bandwagon and tend to use online services.
The Southeast Asia startup ecosystem started to prosper years before the pandemic began. However, the pandemic brought millions of new people online for the first time, and it became an accelerator to motivate people to use digital services.
Despite remarkable growth and a promising future, launching a startup in Southeast Asia still has its own challenges, including government regulations, overall policies, developing an international growth mindset, and talent shortage.
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