Startups in Southeast Asia seem set to have better luck fundraising in 2024 after overcoming the funding winter of yesteryear. According to McKinsey & Co., the six most significant economies in the Association of Southeast Asian Nations (ASEAN) suffered worsening economic indicators in 2023 due to challenges like inflation, high-interest rates, geopolitical fighting, soaring energy prices, climate change expenses, and talent recruitment and retention costs.
Thus, companies weathered the financial storms by innovating better products, expanding into other markets, and looking for opportunities in fast-growing industries like eCommerce. Having adequate funds enables businesses to maintain their cash flow, invest in research and development (R&D), and pay for expenses and commodities.
We take a look at Southeast Asia’s investment and startup landscape in 2024
Moreover, they can use the money to pay for new-age technologies like generative AI, which can help reduce operational costs by providing solutions such as marketing.
Looking ahead, here are five funding trends for startups that you should expect to see this year:
Increased investment in early-stage startups
Statista Research predicted Southeast Asian companies would raise capital worth USD 18.2 billion by the end of 2023, with the early-stage market reaching USD 9.8 billion. Despite the high figures, the total money raised last year was lower than in 2022, which had USD 18.7 billion, and 2021, which had USD 21.2 billion.
Thus, the goal for investors in 2024 must be to increase early-stage startup funding rates by identifying emerging businesses with the most potential for success. ASEAN governments should also set aside funds to support budding companies and help them innovate vital solutions for the region.
Financial backing in the early stages proves that a company’s product or service idea is valid. The money helps hire new employees, move the business to a new location, and boost the brand by using an investor’s image. Furthermore, early-stage funding provides much-needed capital for operational costs and product development.
Growing importance of ESG factors
There is a global shift toward sustainability and the development of eco-friendly products. With investors trying to de-risk their portfolios between 2022 and 2023 when there was much economic volatility, differentiating factors like Environmental, Social, and Governance (ESG) policies became essential. Companies innovating with ESG in mind are more likely to attract investors than those harming nature with toxic goods, non-biodegradable packages, and pollution-causing supply chains.
For example, Singapore-based startup Zuno Carbon received funding to help businesses in industries with large carbon footprints reduce their emissions. Other companies are focused on Tech for Good initiatives, positively impacting society socially and environmentally. These initiatives provide a win-win situation for venture capital (VC) firms and startups because the investors benefit from the positive coverage of protecting the environment while the founders receive the funds they need.
Increased diversification of funding sources and growth of crowdfunding
With thousands of ASEAN companies competing for funds, founders must uncover novel funding sources. The most common sources include angel investors, government grants, and VC firms, but other options receive little attention. For example, crowdfunding platforms attract a diverse community to back a startup financially, giving it money and acting as a marketing tool by spreading the message among potential customers.
Additionally, there are little-used investment funding options, such as family offices and gaming platforms like Axie Infinity, where users can earn cryptocurrency on the metaverse. Family offices are private wealth management firms for affluent families to manage their finances, invest in company equity, manage their finances, and make philanthropic contributions.
Preference for sustainable and scalable business models
Investors prefer startups with good corporate governance because it ensures the company sustains its cash flow, develops sustainable and innovative products, and can expand to other markets. The business model should ensure scalability by adopting cloud technology solutions, acquiring more office space, hiring more workers, reaching more customers, and maintaining a growing revenue base.
Increase in cross-border investment within Southeast Asia
Establishing the ASEAN Economic Community (AEC) envisions a highly integrated region, enabling the free flow of goods, creating a single trade market, and developing a networked production base. Moreover, the organisation promotes the financial integration of the member states, creating new cross-border financing and investment opportunities.
Connecting regional countries makes it easier for investors to fund local communities rather than waiting for companies from foreign nations to arrive.
The various funding trends for startups above show that ASEAN is a viable investment hub where businesses can receive essential capital. Ultimately, emerging companies should learn to diversify their monetary sources, look to investors from the region, and try community-driven solutions like crowdfunding.
For better results in securing funds, startups in Southeast Asia should adopt scalable and sustainable business models, which guarantee smoother business operations. Investors will be more comfortable with a stable company with well-established ESG policies.