Southeast Asia has seen nothing short of an exponential surge in startup investment in the past few years. Although 2019’s investments in tech startups departed from the trend by presenting a significant drop of 36%, the region remains highly attractive to investors as a startup hub, and it is still one to watch.
2018 vs 2019: The drop
Compared to 2018, the total investment in tech startups in Southeast Asia for 2019 fell from $12 billion USD to $7.7 billion USD, according to a report published by venture capital firm Cento Ventures. This was mainly considered to be as a result of the drop in larger-round, late-stage “mega deals” —2019’s figure of $5.3 billion USD was almost half of 2018’s $10.5 billion USD. Even Grab and Gojek, two of the region’s renowned decacorns, had fundraising rounds in 2019 that seemed down from last year.
Although there has been considerable discussion about the importance of profitability after WeWork’s incident, not all is lost. Grim as the situation may initially seem, there is still much about Southeast Asia that secures its place as an important startup hub.
Thriving startup scene
With an increasing crop of startups in the region now valued at over $100 million USD, these heavyweights continue to attract substantial capital. As they grow and mature, they move into larger fundraising rounds, following in the footsteps of their Southeast Asian unicorn predecessors. According to Mark Suckling, a partner at Cento Ventures, this may provide the opportunity for a resurgence of the upward trend in 2020.
Furthermore, Craig Dixon, co-founder of startup accelerator and early-stage venture capital fund, Accelerating Asia, noted that there have been numerous signs paralleling Southeast Asia’s startup scene growth to top-tier markets like the United States (US) and China. One such indicator is the increase in the number of unicorns. In 2010 China had one Unicorn, VANCL, and in less than 10 years this figure had grown to 206 while the USA has gone from zero to 203 by late 2019. Having hit the 10-unicorn milestone, Southeast Asia’s flourishing startup scene is solidifying its position as a promising epicentre for entrepreneurs.
Unshaken investor confidence
Although overall investment fell last year, smaller deals amounting to less than $50 million USD skyrocketed, reaching a record-breaking high of $2.4 billion USD from 2018’s $1.5 billion USD. In the first half of 2019 alone, the region saw investment in an unprecedented total of over 300 startups. Partially backed by newly-established incubators and accelerators, and supported by increasing exit opportunities, these numbers show investors’ shift from established regions like China and the United States to Southeast Asia, signalling a promising outlook for the region’s startups.
Both the current boom of the startup scene and continued investor backing can be attributed to the region’s fundamental advantage. In a recent interview, Dixon highlighted the region’s sheer population size of more than 650 million as a critical factor. The close interconnectedness among member countries also facilitates rapid scaling with considerable ease. Moreover, there has been swift digitisation, with mobile phones becoming the primary accessing device. Following the internet economy’s predicted year-on-year growth of 30% until 2025, industry sectors are also scrambling to upgrade their technologies to meet demands. Economically, the region’s positive growth rate puts it even further ahead of counterparts such as China, Europe and the United States, who are facing substantial headwinds. Fuelled by these advantages, Southeast Asia is primed to capitalise on opportunities that arise.
Rising stars: countries and sectors to look out for
Since last year, the region’s investment in tech startups has been undergoing geographical and sectoral diversification. Country-wise, Vietnam was 2019’s star performer, almost doubling its number of deals from 2018. Investment also accelerated from 4% to 18%, exceeding Singapore for the first time. This outcome is mostly down to Vietnam’s late-stage companies like Sendo, Tiki and VNPay. Indonesia, while securing a smaller cut of 58% compared to 2018’s 76%, still took the lion’s share of investment, while Malaysia, the Philippines and Thailand, with a steady stream of funding, are up-and-coming players to note.
Categorising by sectors, multi-vertical digital businesses (like Grab and Gojek) and online retail still hold first place as the most strongly-funded. However, financial services, payments and travel companies have emerged as serious contenders who consistently attract investors. The education, healthcare and logistics sectors, though relatively newer, have also garnered increasing interest since the first half of 2019. With so many changing trends, we can expect 2020 to be an eventful year.
2019’s reduction of investments in tech startups across ASEAN was most likely due to the natural rhythms in the startup world—a rise in early-stage companies seeking funding and a temporary drop in late-stage ones. As more of the region’s startups grow and mature amidst the favourable conditions of the burgeoning scene, unwavering investor confidence, and a unique set of regional assets, Southeast Asia looks set to join the ranks of the US, Europe and China as the next global startup hub.