When one talks about the tech startups and venture capital industries, the mind can wander to Silicon Valley and maybe a handful of other startup hubs like London, Berlin and Paris. But the reality is that startup hubs and the VC infrastructure that naturally builds up around them are springing up everywhere. From Africa to South America, young entrepreneurs are taking advantage of increased connectivity to fuel their creativity and create new businesses, just like the originals have done in garages in South California since the 1960s.
The latest – and arguably the most exciting – addition to this trend is now occurring in South East Asia. A number of factors have come together over the past number of years, and together are contributing to a major change in the landscape for tech startups and the VC industry in the region. These contributing factors include an exponential growth in internet usage: the Philippines, Thailand, Vietnam, Malaysia and Indonesia all rank among the top 10 countries for internet usage; by 2020, South East Asia will be home to over 50% of the world’s middle class; and in 2015, South East Asia will be home to 7 of the world’s top 20 fastest growing economies (Bloomberg, 2015), with a total GDP of $1.9 trillion in 2013 (Brown, 2013).
The growth isn’t coincidental – rather it comes as the result of a series of policy changes across the region. An ICAEW paper (ICAEW, 2015) notes: “Malaysia rose two places to 20th in the World Economic Forum’s 2015 Global Competitiveness Index, while the Philippines has risen more places since 2010 than any other country. This ranking compares countries on features critical to development such as institutions, infrastructure, business sophistication, health and education. Malaysia is highest among the ‘transition’ economies which are moving from being efficiency-driven to innovation-driven, and hopes to reach high-income status by 2020.”
Startup initiatives in the public and private sectors are also to be seen everywhere in the region. In Vietnam, these come in the shape of 5desire, Hatch.vn, startup.vn and Saigon Hub (Do, 2013); in Malaysia, the government has invested just under $20 million to found the Malaysian Global Innovation and Creativity Centre, aimed at supporting and fostering technology startups (Bingemann, 2015); Singapore’s National University has co-founded Block 71, a startup incubator with more than 300 startups already in operation (Bingemann, 2015); and in Hong Kong, a number of similar initiatives have begun, among them the CreateSmart Initiative, the Innovation and Technology Fund and the SME Funding Schemes (E27, 2010).
These are to list just some of the statistics and initiatives which point to a paradigm shift. Southeast Asia has become the world’s largest region for research investments (Battelle, 2014, p. 12). Huge gains in productivity will stem from this, with R&D investment being associated with rising GDP. Growing internet usage too can lead to the significant productivity gains which have already been experienced for the most part in most developed economies. Much of this usage is driven by smartphone usage (Klaffke, 2014, p.15) and its usage is already manifesting in areas like E-commerce.
E-commerce is not alone, however. An Economist article from back in 2011, notes “Indonesia claims the second-largest number of Facebook members in the world and the third-largest number of Twitter users.” When Thailand’s military staged a coup d´état in 2014, one of their first moves was to close down social media – recognizing its vast usage in the country (Quartz, 2014). Even in Vietnam, social media usage has jumped by 40% since 2014 (Economist, 2015a) Social media applications give rise in turn, to spin-offs such as Instagram and Tinder, themselves now billion dollar businesses. South-East Asia’s familiarity with social media and its booming youthful population are creating an environment where the development of such applications by the local IT crowd cannot be far off.
Underlying all of the above is the increasingly positive and internationally-oriented business environment that is being created across the South East Asian nations. The World Bank’s Doing Business Report (2015) outlines these advances. For some years, Singapore has been the best nation in the world to business in according to its criteria, but there are signs of progress across the region, even if they aren’t as fast as everyone would like. It notes that in East Asia and the Pacific countries, most reforms since 2005 have been carried out by Vietnam (23), followed by Indonesia (22) and China (20). A BBC survey of 24,000 entrepreneurs worldwide found that Indonesia was the best place in the world to be a startup entrepreneur (Walker, 2011).
An emerging IT class
While the middle class in South East asia tends to hog most of the limelight, another wave of people is emerging which can bringing sweeping changes of its own, particularly in the fields of tech startups and VC investment: an emerging IT class. South East Asia now has its own band of international investors and incubators, far better information channels than ever before and an increasingly tech savvy and youthful population (Klaffke, 2014, p. 41). One author notes of Indonesia: “The Indonesian startup scene began with 30 founders in Starbucks in 2010 and now has regular meetings with 200-300 tech entrepreneurs, high-class conferences, co-working spaces, blogs and informal spaces.” (Klaffke, 2014, p. 41)
South East Asia has a culture of entrepreneurship which is beginning to manifest itself in information technology. It’s worth noting that microfinance was born in this part of the world. This fact takes on increasing resonance when one considers that South East Asia was home to the second most fintech investments in the world after the US in 2014, with US$797m of investments (TechInAsia.com, 2015). Prominent among the firms who received this investment were Fastacash, a P2P Payments firm from Singapore, Omise, an online payments firm from Thailand and Dr. Wealth, an online wealth management firm from Singapore. A full list of the most funded tech startup firms in South East Asia can be found below (techinasia.com, 2015):
Fintech is just one area, however. Angel List has over 550 firms on its books in South East Asia, with an average valuation of just under $3m each. While it may seem small by international standards, one has to consider how this comes against a backdrop of still relatively few of the population having access to high-speed internet as in other parts of the world. Alibaba, the Ecommere giant is swallowing up startups all over South East Asia (Chen, 2015) including Youku, Kanbox and Vendio, in a sign that it sees huge opportunities in the sector. This looks like it could mimic the path already laid down by Silicon Valley: tech giants spawning more tech giants. Few tech giants in the Ecommerce sector compare to the might of Alibaba.
South East Asia’s growing consumer class means opportunities are everywhere for tech entrepreneurs willing to try things in Ecommerce. Tech startups like Singapore’s Honestbee (a shopping deliveries service), Go-Jek (the Uber of motorcycles, based in the Philippines), Carousell (a Singapore consumer-to-consumer Ecommerce site), NinjaVan (a pan-South East Asian delivery service using sophisticated algorithms and GPS) and Iflix (Singapore’s answer to Netflix).
Consumption accounts for much of GDP growth in the region. This is as powerful a driver for startups as it is for society in general. Indonesia’s middle class, for example, numbered less than 2 million in 2004 and reached around 150 million in 2014. Even if their salaries are still well below those of Europeans or Americans, their vast numbers mean that businesses can at least reach a target market which allows them to sell in massive volumes. What’s more, the volumes means that even niche interests can amount to millions of consumers.
VC is never far behind
Perhaps there is no better indicator of the potential of the area for tech startups than the news that VC firms are showing keen interest. For the first time, specialist funds are also being created with the intent of investing in and taking advantage of the growing number of sophisticated South East Asian startups. VC firms abound. These include CyberAgent Ventures (with a $50m fund aimed at Indonesia), Golden Gate Ventures (with a $50m fund and strong ties to Silicon Valley), Jungle Ventures (with a $100m VC fund for South East Asia) and Monk’s Hill Ventures (with an $80m fund and looking to add up to 20 firms to its ranks in the coming 12 months) (Vo, 2015).
These are some of the VC funds which have driven Southeast Asia to new highs in terms of investments and exits. As the charts below exhibit (expara, 2014), there has been a huge movement towards the region in the past three years.
Perhaps the biggest VC investment of all in South East asia has come from Venturra Capital, a $150m fund designated for investments in the region (Russell, 2015). The fund, based out of Jakarta, has been founded by three stalwarts of the VC industry: Stefan Jung, founder and MD of Rocket Internet South East Asia, Rudy Ramawy, a former country manager of Google Indonesia and an active angel investor, and John Riady, director of the Luppo Group, an Indonesian conglomerate with over $15 billion in assets. Certainly, none of their investments will be short for cash or know-how.
Venturra has a broad focus, with potential investments being in any area from health to fintech and education. These can be in the B2B or the B2C space. Stefan Jung, one of the fund’s founders told Tech Crunch: “If we believe in the founder and business idea, we want to be working with them as soon as possible… we are willing to write the first check. We’re also in a position where we can lead Series A/B deals. We can write $2/3 million checks, but can also follow on and participate in later rounds.” (Russell, 2015). What enticed a crew of such expertise with such financial backing to look to South East Asia? Jung continues: “the puzzle pieces (for South East Asia) have come together in terms of investors, quality of entrepreneurs, and co-working spaces, accelerators and mentorship. Those didn’t exist three years ago and it’s quite impressive how it has grown.”
Growth may be the keyword for South East Asia and its VCs. South East Asia may offer an antidote to the United States VC scene, where ‘funding rounds in Silicon Valley are are happening less often and taking longer’ (Economist, 2015b). No other continent can currently boast of the credentials, which make it the growing VC hub that Stefan Jung speaks of: half the world’s population, becoming more tech savvy, more mobile and above all, more prosperous. The next wave of world VC is set for Southeast Asia and it’s going to make interesting viewing.
Bibliography
Battelle (2014), ‘2014 Global R&D Funding Forecast.’ Battelle.
Bingemann, M., (2015), ‘Southeast Asia leads in hi-tech government funding race.’ The Australian, July 11, 2015. Available online at: http://www.theaustralian.com.au/business/technology/southeast-asia-leads-in-hitech-government-funding-race/news-story/49585697377e6cf1310c7c0ea6ffb872?=
Bloomberg (2015), ‘World’s 20 fastest growing economies for 2015.’ Available online at: http://www.bloomberg.com/news/articles/20150225/the20fastestgrowingeconomiesthisyear
Brown, J., (2013), ‘Southeast Asia: Region on the Rise.’ Inbound Logistics, January 2013. Available online at: http://www.inboundlogistics.com/cms/article/southeast-asia-region-on-the-rise/
Chen, L.Y., (2015), ‘Alibaba buys Youku in deal said to be valued at $4.8 billion.’ Bloomberg Business, November 6, 2015. Available online at: http://www.bloomberg.com/news/articles/2015-11-06/alibaba-agrees-to-buy-video-site-youku-tudou-for-27-60-a-share
Do, A, (2013), ’10 reasons why Vietnam’s startup scene is the most aggressive in Southeast Asia.’ TechInAsia.com, September 16, 2013. Available online at: https://www.techinasia.com/10-reasons-vietnams-startup-scene-aggressive-southeast-asia
E27 (2010), ‘Southeast Asia startup government funding chart.’ E27, July 20, 2010. Available online at: http://e27.co/southeastasia-funding-chart/
Expara (2014), ‘Venture Capital in Southeast Asia.’ Expara, November 9, 2014. Available online at: http://www.slideshare.net/expara/venture-capital-in-south-east-asia
ICAEW (2015), ‘Economic Insight, Southeast Asia, Quarterly Briefing Q4, 2015.’ ICAEW.
Klaffke, T., (2014), ‘Indonesia Trends Report, 2014.’ TomCatFuturist.com.
Quartz (2014), ‘Thailand’s coup d´état has a social media blindspot.’ Quartz, May 23, 2014. Available online at: http://qz.com/212787/thailands-coup-detat-has-a-social-media-blindspot/
Russell, J. (2015), ‘Venturra Capital is a big-hitting $150m fund for startups in South East Asia.’ Tech Crunch, October 9, 2015. Available online at: http://techcrunch.com/2015/10/09/venturra-capital-is-a-big-hitting-150m-fund-for-startups-in-South East-asia/
Sreda (2014), ‘Results of 2014/Trends of 2015.’ Sreda VC.
TechInAsia.com (2015), ’15 most funded fintech startups in Asia.’ TechInAsia.com, 2015.
See online at: https://www.techinasia.com/15-most-funded-fintech-startups-South East-asia-infographic
The Economist (2011), ‘Indonesia’s Middle Class: Missing BRIC in the Wall.’ The Economist, July 21, 2011.
The Economist (2015a). ‘The Internet in Vietnam: If a tree falls…’ The Economist, April 18, 2015.
The Economist (2015b), ‘Tech Unicorns: Gored.’ The Economist, November 28, 2015.
Vaswani, K., (2012), ‘Indonesia’s love affair with social media.’ BBC News. Available online at: http://www.bbc.com/news/world-asia-17054056
Vo, T., (2015), ‘These venture capital firms are doubling down on South East Asia.’ TechInAsia.com, 2015. Available online at: https://www.techinasia.com/talk/venture-capital-firms-doubling-South East-asia
Walker, A (2011), ‘Entrepreneurs ‘most supported’ in Indonesia.’ BBC News. Available online at: http://www.bbc.com/news/business-13547505
World Bank (2015), ‘Doing Business 2015 Fact Sheet: East Asia and the Pacific.’ World Bank, 2015.
The growth isn’t coincidental – rather it comes as the result of a series of policy changes across the region. An ICAEW paper (ICAEW, 2015) notes: “Malaysia rose two places to 20th in the World Economic Forum’s 2015 Global Competitiveness Index, while the Philippines has risen more places since 2010 than any other country. This ranking compares countries on features critical to development such as institutions, infrastructure, business sophistication, health and education. Malaysia is highest among the ‘transition’ economies which are moving from being efficiency-driven to innovation-driven, and hopes to reach high-income status by 2020.”
Startup initiatives in the public and private sectors are also to be seen everywhere in the region. In Vietnam, these come in the shape of 5desire, Hatch.vn, startup.vn and Saigon Hub (Do, 2013); in Malaysia, the government has invested just under $20 million to found the Malaysian Global Innovation and Creativity Centre, aimed at supporting and fostering technology startups (Bingemann, 2015); Singapore’s National University has co-founded Block 71, a startup incubator with more than 300 startups already in operation (Bingemann, 2015); and in Hong Kong, a number of similar initiatives have begun, among them the CreateSmart Initiative, the Innovation and Technology Fund and the SME Funding Schemes (E27, 2010).
These are to list just some of the statistics and initiatives which point to a paradigm shift. Southeast Asia has become the world’s largest region for research investments (Battelle, 2014, p. 12). Huge gains in productivity will stem from this, with R&D investment being associated with rising GDP. Growing internet usage too can lead to the significant productivity gains which have already been experienced for the most part in most developed economies. Much of this usage is driven by smartphone usage (Klaffke, 2014, p.15) and its usage is already manifesting in areas like E-commerce.
E-commerce is not alone, however. An Economist article from back in 2011, notes “Indonesia claims the second-largest number of Facebook members in the world and the third-largest number of Twitter users.” When Thailand’s military staged a coup d´état in 2014, one of their first moves was to close down social media – recognizing its vast usage in the country (Quartz, 2014). Even in Vietnam, social media usage has jumped by 40% since 2014 (Economist, 2015a) Social media applications give rise in turn, to spin-offs such as Instagram and Tinder, themselves now billion dollar businesses. South-East Asia’s familiarity with social media and its booming youthful population are creating an environment where the development of such applications by the local IT crowd cannot be far off.
Underlying all of the above is the increasingly positive and internationally-oriented business environment that is being created across the South East Asian nations. The World Bank’s Doing Business Report (2015) outlines these advances. For some years, Singapore has been the best nation in the world to business in according to its criteria, but there are signs of progress across the region, even if they aren’t as fast as everyone would like. It notes that in East Asia and the Pacific countries, most reforms since 2005 have been carried out by Vietnam (23), followed by Indonesia (22) and China (20). A BBC survey of 24,000 entrepreneurs worldwide found that Indonesia was the best place in the world to be a startup entrepreneur (Walker, 2011).
An emerging IT class
While the middle class in South East asia tends to hog most of the limelight, another wave of people is emerging which can bringing sweeping changes of its own, particularly in the fields of tech startups and VC investment: an emerging IT class. South East Asia now has its own band of international investors and incubators, far better information channels than ever before and an increasingly tech savvy and youthful population (Klaffke, 2014, p. 41). One author notes of Indonesia: “The Indonesian startup scene began with 30 founders in Starbucks in 2010 and now has regular meetings with 200-300 tech entrepreneurs, high-class conferences, co-working spaces, blogs and informal spaces.” (Klaffke, 2014, p. 41)
South East Asia has a culture of entrepreneurship which is beginning to manifest itself in information technology. It’s worth noting that microfinance was born in this part of the world. This fact takes on increasing resonance when one considers that South East Asia was home to the second most fintech investments in the world after the US in 2014, with US$797m of investments (TechInAsia.com, 2015). Prominent among the firms who received this investment were Fastacash, a P2P Payments firm from Singapore, Omise, an online payments firm from Thailand and Dr. Wealth, an online wealth management firm from Singapore. A full list of the most funded tech startup firms in South East Asia can be found below (techinasia.com, 2015):
Fintech is just one area, however. Angel List has over 550 firms on its books in South East Asia, with an average valuation of just under $3m each. While it may seem small by international standards, one has to consider how this comes against a backdrop of still relatively few of the population having access to high-speed internet as in other parts of the world. Alibaba, the Ecommere giant is swallowing up startups all over South East Asia (Chen, 2015) including Youku, Kanbox and Vendio, in a sign that it sees huge opportunities in the sector. This looks like it could mimic the path already laid down by Silicon Valley: tech giants spawning more tech giants. Few tech giants in the Ecommerce sector compare to the might of Alibaba.
South East Asia’s growing consumer class means opportunities are everywhere for tech entrepreneurs willing to try things in Ecommerce. Tech startups like Singapore’s Honestbee (a shopping deliveries service), Go-Jek (the Uber of motorcycles, based in the Philippines), Carousell (a Singapore consumer-to-consumer Ecommerce site), NinjaVan (a pan-South East Asian delivery service using sophisticated algorithms and GPS) and Iflix (Singapore’s answer to Netflix).
Consumption accounts for much of GDP growth in the region. This is as powerful a driver for startups as it is for society in general. Indonesia’s middle class, for example, numbered less than 2 million in 2004 and reached around 150 million in 2014. Even if their salaries are still well below those of Europeans or Americans, their vast numbers mean that businesses can at least reach a target market which allows them to sell in massive volumes. What’s more, the volumes means that even niche interests can amount to millions of consumers.
VC is never far behind
Perhaps there is no better indicator of the potential of the area for tech startups than the news that VC firms are showing keen interest. For the first time, specialist funds are also being created with the intent of investing in and taking advantage of the growing number of sophisticated South East Asian startups. VC firms abound. These include CyberAgent Ventures (with a $50m fund aimed at Indonesia), Golden Gate Ventures (with a $50m fund and strong ties to Silicon Valley), Jungle Ventures (with a $100m VC fund for South East Asia) and Monk’s Hill Ventures (with an $80m fund and looking to add up to 20 firms to its ranks in the coming 12 months) (Vo, 2015).
These are some of the VC funds which have driven Southeast Asia to new highs in terms of investments and exits. As the charts below exhibit (expara, 2014), there has been a huge movement towards the region in the past three years.
Perhaps the biggest VC investment of all in South East asia has come from Venturra Capital, a $150m fund designated for investments in the region (Russell, 2015). The fund, based out of Jakarta, has been founded by three stalwarts of the VC industry: Stefan Jung, founder and MD of Rocket Internet South East Asia, Rudy Ramawy, a former country manager of Google Indonesia and an active angel investor, and John Riady, director of the Luppo Group, an Indonesian conglomerate with over $15 billion in assets. Certainly, none of their investments will be short for cash or know-how.
Venturra has a broad focus, with potential investments being in any area from health to fintech and education. These can be in the B2B or the B2C space. Stefan Jung, one of the fund’s founders told Tech Crunch: “If we believe in the founder and business idea, we want to be working with them as soon as possible… we are willing to write the first check. We’re also in a position where we can lead Series A/B deals. We can write $2/3 million checks, but can also follow on and participate in later rounds.” (Russell, 2015). What enticed a crew of such expertise with such financial backing to look to South East Asia? Jung continues: “the puzzle pieces (for South East Asia) have come together in terms of investors, quality of entrepreneurs, and co-working spaces, accelerators and mentorship. Those didn’t exist three years ago and it’s quite impressive how it has grown.”
Growth may be the keyword for South East Asia and its VCs. South East Asia may offer an antidote to the United States VC scene, where ‘funding rounds in Silicon Valley are are happening less often and taking longer’ (Economist, 2015b). No other continent can currently boast of the credentials, which make it the growing VC hub that Stefan Jung speaks of: half the world’s population, becoming more tech savvy, more mobile and above all, more prosperous. The next wave of world VC is set for Southeast Asia and it’s going to make interesting viewing.
Bibliography
Battelle (2014), ‘2014 Global R&D Funding Forecast.’ Battelle.
Bingemann, M., (2015), ‘Southeast Asia leads in hi-tech government funding race.’ The Australian, July 11, 2015. Available online at: http://www.theaustralian.com.au/business/technology/southeast-asia-leads-in-hitech-government-funding-race/news-story/49585697377e6cf1310c7c0ea6ffb872?=
Bloomberg (2015), ‘World’s 20 fastest growing economies for 2015.’ Available online at: http://www.bloomberg.com/news/articles/20150225/the20fastestgrowingeconomiesthisyear
Brown, J., (2013), ‘Southeast Asia: Region on the Rise.’ Inbound Logistics, January 2013. Available online at: http://www.inboundlogistics.com/cms/article/southeast-asia-region-on-the-rise/
Chen, L.Y., (2015), ‘Alibaba buys Youku in deal said to be valued at $4.8 billion.’ Bloomberg Business, November 6, 2015. Available online at: http://www.bloomberg.com/news/articles/2015-11-06/alibaba-agrees-to-buy-video-site-youku-tudou-for-27-60-a-share
Do, A, (2013), ’10 reasons why Vietnam’s startup scene is the most aggressive in Southeast Asia.’ TechInAsia.com, September 16, 2013. Available online at: https://www.techinasia.com/10-reasons-vietnams-startup-scene-aggressive-southeast-asia
E27 (2010), ‘Southeast Asia startup government funding chart.’ E27, July 20, 2010. Available online at: http://e27.co/southeastasia-funding-chart/
Expara (2014), ‘Venture Capital in Southeast Asia.’ Expara, November 9, 2014. Available online at: http://www.slideshare.net/expara/venture-capital-in-south-east-asia
ICAEW (2015), ‘Economic Insight, Southeast Asia, Quarterly Briefing Q4, 2015.’ ICAEW.
Klaffke, T., (2014), ‘Indonesia Trends Report, 2014.’ TomCatFuturist.com.
Quartz (2014), ‘Thailand’s coup d´état has a social media blindspot.’ Quartz, May 23, 2014. Available online at: http://qz.com/212787/thailands-coup-detat-has-a-social-media-blindspot/
Russell, J. (2015), ‘Venturra Capital is a big-hitting $150m fund for startups in South East Asia.’ Tech Crunch, October 9, 2015. Available online at: http://techcrunch.com/2015/10/09/venturra-capital-is-a-big-hitting-150m-fund-for-startups-in-South East-asia/
Sreda (2014), ‘Results of 2014/Trends of 2015.’ Sreda VC.
TechInAsia.com (2015), ’15 most funded fintech startups in Asia.’ TechInAsia.com, 2015.
See online at: https://www.techinasia.com/15-most-funded-fintech-startups-South East-asia-infographic
The Economist (2011), ‘Indonesia’s Middle Class: Missing BRIC in the Wall.’ The Economist, July 21, 2011.
The Economist (2015a). ‘The Internet in Vietnam: If a tree falls…’ The Economist, April 18, 2015.
The Economist (2015b), ‘Tech Unicorns: Gored.’ The Economist, November 28, 2015.
Vaswani, K., (2012), ‘Indonesia’s love affair with social media.’ BBC News. Available online at: http://www.bbc.com/news/world-asia-17054056
Vo, T., (2015), ‘These venture capital firms are doubling down on South East Asia.’ TechInAsia.com, 2015. Available online at: https://www.techinasia.com/talk/venture-capital-firms-doubling-South East-asia
Walker, A (2011), ‘Entrepreneurs ‘most supported’ in Indonesia.’ BBC News. Available online at: http://www.bbc.com/news/business-13547505
World Bank (2015), ‘Doing Business 2015 Fact Sheet: East Asia and the Pacific.’ World Bank, 2015.
