Southeast Asia’s investment and startup landscape in 2023 has been a bit of a rollercoaster. The venture capital (VC) funding trends for the year showed that the region was likely to raise USD 18.2 billion, which would be lower than USD 18.7 billion in 2022 and USD 21.2 billion in 2021. Forecasters attributed this decrease to the struggling global economy that exerted pressure on investor funds, leading them to withhold their capital.
Nevertheless, the startup ecosystem showed tremendous resilience to navigate those economic storms. McKinsey & Co. reported that the six biggest economies in the Association of Southeast Asian Nations (ASEAN)—Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam—experienced declining or worsening economic indicators in the second quarter (Q2) compared to the first quarter (Q1) of 2023.
We explore navigating the deeptech investment landscape in Southeast Asia
The region’s challenges included geopolitical conflicts, high energy costs, recession, inflation, high-interest rates, reduced manufacturing, limited import-export activities, and supply chain disruptions. Furthermore, climate change continued wreaking havoc on the region, with carbon emissions harming the environment.
Regardless, companies decided to focus on meeting customer needs, innovating products, taking opportunities in fast-growing industries like eCommerce, and learning how to negotiate with investors for funds.
What to expect from investment trends in 2024
According to the eConomy SEA report 2023 by Google, Temasek, and Bain & Company, Southeast Asia has significant headroom for growth. The five leading sectors in the digital economy include eCommerce, transport and food, online travel, online media, and financial services.
Currently, eCommerce is doing well as more businesses find their way online and other startups innovate products and services that simplify or automate business functions like marketing. The logistics industry requires more significant investment in infrastructure to prevent vehicle damage or a lack of access to some areas. Infrastructure development also involves introducing electric vehicles and motorcycles on the road, creating a need for more servicing stations and charging ports in many parts of ASEAN.
The food delivery sector grew due to the COVID-19 virus as people realised it was much more convenient for someone else to cook and for couriers to deliver the meals. Online travel is getting funding because the industry has reopened after the pandemic, and travellers need hotel booking and transportation services. Online media is about harnessing images, video, and streaming technologies for advertising, gaming, or promoting an entertainment or communication solution.
Lastly, the financial technology (fintech) segment has disrupted many industries with its accounting, investing, banking, payment solutions, and more. Cash is no longer the go-to payment option, as 50% of transactions are now digital. Fintech is integrated into many industries now and should get consistent updates to ensure data security.
New sectors, such as climate technology (climatetech), will establish themselves as 2024 businesses to look out for. It will attract the most financial backing from investors because there is great concern about the state of the environment and the impact of climate change. These eco-friendly innovations will help to reduce greenhouse emissions, protect the soil, keep water clean, increase energy efficiency, and create jobs.
Businesses will be more incumbent on showing their value to investors by showing proven profitability models, realistic entry valuations, and offering visible exit pathways. ASEAN governments should push citizens to participate more in the digital economy by downloading, browsing, using apps, and becoming comfortable with making online payments.
Startup trends gaining traction in 2024
Startups must be ready to cope with global economic headwinds, shortage of tech workers, additional geopolitical conflicts, and inadequate access to capital. Plus, restrictive regulations will need a review for ASEAN to realign their policies, making it easier for regional countries to collaborate.
Emerging or advancing technologies in 2024 will affect the startup landscape immensely. For example, Phygital convergence—combining physical and digital realities—will improve as tech solutions like virtual reality (VR) are enhanced. Quantum, cloud, and edge computing will push the limits of processing data, whereas blockchain and sustainable solutions will provide avenues for the startup ecosystem to launch innovative products and thrive.
Adopting artificial intelligence (AI), such as generative AI, will enable companies to scale and have greater functionality. It can analyse data, create content, automate marketing, review code, provide forecasts, and assist with cybersecurity. Improvements to generative AI like ChatGPT will be required to prevent copyright infringement, bias, and quoting from misleading sources.
Ultimately, Southeast Asia’s tech startups appear on track to reach USD 1 trillion after 2024. Its driving factors will be its youthful and tech-savvy population, smartphone penetration, extensive local and foreign investment influx, and new payment models like Buy Now, Pay Later (BNPL). There should be attempts to address the digital divide between urban and rural areas by resolving funding issues, upgrading infrastructure, and lowering tech costs.
Companies with ESG (Environmental, Social, and Governance) policies in place will be the ones that secure financial backing in the new year as the region’s startup landscape continues to evolve and become more environmentally conscious.