The startup ecosystem in Southeast Asia is booming. Some term it the “golden era” for startups here. Notwithstanding the pandemic, startups within the region saw a record number of 393 investments in H1 2021, with a total of US$4.4 billion raised, eclipsing the 327 investments made in the same period last year.

Not only is the region seeing substantial investment in startups, but it is also seeing several of its startups become large fledgling companies. In 2021 alone, the region saw 21 unicorns, bringing its total to 40 unicorns, and counting.

Broadly speaking, Southeast Asia’s startup ecosystem has been driven by a top-down approach, with strong government support. In Singapore, the government has taken the lead in fostering entrepreneurship by encouraging entrepreneurship programmes at the university level and supporting the creation of a strong investment ecosystem.

In other words, the government is an active stakeholder in the ecosystem. Accelerator and incubator programmes set up by industry associations and companies have helped develop a community of startup founders, angel investors, venture capital investors and private equity firms.

Other macro trends have been critical in bringing us where we are. Digital adoption in the region has been phenomenal, especially in terms of mobile-first. The adoption of digital capabilities is exceptional and still growing in countries like Singapore, Indonesia, Vietnam and the Philippines.

Developments in markets with robust data collection frameworks and strong privacy laws, such as Singapore and the Philippines, have helped fuel the adoption of digital in Southeast Asia. And while COVID-19 has accelerated digital adoption across the board, it has been a boon for three specific sectors, e-commerce, gaming and fintech, in particular.

Most importantly, however, in just about a decade, the risk appetite of founders and investors in the region has grown dramatically.

There’s positivity in the startup community, young graduates are eager to set up their own ventures, and we are also seeing ex-employees of large regional unicorns such as Grab starting on their own as we’ve seen in Silicon Valley, or investing in other innovative startups. This has provided a strong boost to the angel investment ecosystem.

In short, there’s a buzz around startups and startups investing in Southeast Asia. This is excellent news for investors because we see deepening and broadening investment opportunities.

The ecosystem isn’t without its challenges, however. One key challenge in Southeast Asia is the insufficiency of talent. Startups often find it challenging to get the right people with specific skill sets to plug holes in their teams.

However, the pandemic has inadvertently helped alleviate some of these challenges, especially as it has normalised remote work. Startups are increasingly acknowledging that hiring people from different time zones is not as much a challenge as it was once made out to be. If anything, it can even allow for more timely service delivery.

Driving change  

I’m often asked about the importance of investing in positive change. I like to respond to that by saying that every startup, company or business exists to provide a solution to a problem or to eliminate specific pain points. By virtue of that itself, every startup is driving positive change in some form or another.

But additionally, some startups go that one step further to offer solutions that help drive sustainability or provide products and solutions that help poorer or marginalised sections of society. This does not mean these startups want to be commercially unviable. And instead, they want to play a part in driving positive change while remaining profitable.

In this respect, startups in Singapore have support from the government. Under its recently announced Enterprise Sustainability Programme, the Singapore government has come forward to develop, strengthen and foster sustainability capabilities among businesses in Singapore, especially SMEs.

Further strengthening its commitment towards a greener Singapore, the government has also launched the Enterprise Financing Scheme, Green, promising to risk-share 70 per cent of the capital needed by startups, focused on technologies and solutions that aim to reduce waste resources use or greenhouse gas emissions.

This outlook is also carried over to the upcoming generation of startup founders. It was very encouraging at a recent startup competition to see that almost nine in ten pitches focused on solving severe environmental or economic issues such as food insecurity, climate change, or poverty.

So, I believe what we’re seeing is greater awareness among young entrepreneurs about the scale and the severity of some of the challenges our world faces.

In some ways, these developments result in the lines blurring between what we see as traditional startups on the one hand and social ventures on the other. It’s almost an awakening of sorts that it is possible to have purpose and make profits simultaneously.   

These developments resonate well with the investor community, which has been making the right noises around ESG investing, with a particular focus on challenges related to the climate and the environment.

Increasingly, many limited partners incorporate stringent ESG criteria in determining what funds to commit capital to. This naturally has a trickle-down impact on venture capital funds to make the “right” kind of investment.

Owing to these developments, it is a great time to be an investor in the region because the diversity of meaningful investment opportunities has not been seen before.

Accelerator programmes  

Good accelerator programmes have also been an effective tool in catalysing the development of a strong startup ecosystem in the region. Large global ones provide essential platforms for startups to network and exchange ideas with peers from around the world.

Startups use these as a vehicle to bring change. Large global accelerators also act as catalysts to drive conversations around stigmatic or less openly discussed topics such as mental health among startup founders and investors.

It is difficult to underscore the importance of accelerators in this global exchange of ideas and criticisms and the osmosis of thoughts and conversations.

I’m fortunate to be associated with early-stage startups that are part of or have emerged from accelerator programmes such as Y-Combinator, Antler, Accelerating Asia, and SuperCharger.

These programmes all serve different requirements of startups and help strengthen the startup ecosystem in several ways, ranging from funding to fresh ideas and everything in between.

These accelerators and the startups that have come through them provide me with enough confidence as an investor that we’re witnessing something different in Southeast Asia than we have ever before.

A golden era? 

Many have asked me. Is this a golden era for startups in Southeast Asia? Indeed, it is not just for startups but also investors in startups.

This is an ideal time from a founder’s perspective because the appetite for risk among families and society more broadly is much higher today than earlier. And similarly, capital is readily available today. Raising money to the tune of SG$250,000 to SG$500,000 in Singapore has never been easier.

As investors, the range of investable opportunities is greater than ever before. And that’s a good thing.

But I believe we still need a bit of a mindset change in some respects. Given the seeming ease with which founders are raising capital, I believe many are setting up ventures solely with the view to making a quick return and exiting the market in a few years.

I believe this: founders must be passionate about the problems they are trying to solve, whether for purpose or profitability, or both.

By Prantik Mazumdar

Source: EDB Singapore