When it comes to starting a startup, most founders think that they should reside in the United States, especially Silicon Valley, to have a successful business. While Silicon Valley offers great access to key people and companies, the fierce competition and fast-paced environment could soon kill the dream of starting a startup.
But there are other areas of the world that may not be as desirable as Silicon Valley but have outstanding growth potential. Southeast Asia is one of them.
The region covers 11 countries. It is home to more than 680 million people and over 400 million internet users – almost 70% of the population.
As reported by Google, Temasek Holdings and Bain & Company, up to 40 million people in six countries in the region — Singapore, Malaysia, Indonesia, Philippines, Vietnam and Thailand — go online in 2020 for the first time in 2020. . The report predicts that the region’s internet economy could surpass $300 billion by 2025.
As the region was preparing for a new period of economic boom, the Covid-19 pandemic hit. Southeast Asia is besieged by Covid-19. Hundreds of thousands of people died, and millions were affected. According to the Asian Development Bank, Covid-19 has pushed 4.7 million people into extreme poverty across Southeast Asia and claimed 9.3 million jobs in the region.
The region’s economy is recovering and adapting to the new normal. If we ignore the devastating effects of Covid-19 on the economy and people, this pandemic could change the outlook for startups in Southeast Asia.
Even before the pandemic started, startups in Southeast Asia were thriving and were able to raise large sums of money from investors. According to Jungle Ventures, Southeast Asia’s tech startups have a total valuation of $340 billion by 2020. This number could triple by 2025. In addition, startups of Southeast Asia raised a record $6 billion in the first quarter of 2021.
Venture capital (VC) is the main source of funding for startups in the region. In 2010, venture capital investment in startups in Southeast Asia was just $100 million. However, this amount could reach $9.6 billion in 2018. This number is increasing every year.
The pandemic has dramatically increased the need for access to digital services.
The expansion and closure of the Pandemic has led to a spike in the use of digital services and the creation of new startups. Example Yahoo report that Vietnam has added 8 million new digital consumers, with 55% of them coming from non-major cities between the start of the pandemic and the first half of 2021.
In addition, between the start of the pandemic and the first half of 2021, Indonesia could have an additional 21 million new digital consumers, of which 72% will come from areas outside the major cities.
Now that the pandemic is over, startups in the region will be meeting the needs of millions of new customers. 94% of survey respondents by Google, Temasek Holdings and Bain & Company said they plan to continue using digital services after the pandemic.
Post-epidemic customers have new shopping habits and are more cautious in spending. Additionally, smartphone penetration in the region is a necessity for startups in the post-pandemic era.
Southeast Asia can be known as a smartphone-first region, and this model could reshape the plans of startups. Most Internet users in this area are connected through their smartphones. In 202288% of internet users in the region will be smartphone users and this number could reach 90.1% by 2026.
Post-pandemic mobile app usage patterns have also changed. Today, more people tend to use mobile apps to access digital services, including online payments, food delivery, ride-hailing, investments and shopping.
The booming economy and continued growth in the tech sector have paved the way for Southeast Asian startups to become unicorns and Decacorns, which is valued at over $10 billion. Back in 2014, there were only three unicorns in the area. Now, you can find 49 unicorns and Decacorns there.
With the increase in the use of digital services, many startups have the opportunity to become unicorns after the pandemic. Millions of new people just got online and are looking for digital services.
According to a report by InformationAge, by 2040, Asia is projected to account for 50% of global GDP and be the driving force. Additionally, a billion new customers could be added to this market by 2040.
“We are going to have over a billion new consumers added to the population, which will obviously drive demand. And the types of goods produced need to be suitable for India, need to be suitable for Indonesia, etc. This again creates a multitude of opportunities,” said Oliver Tonby, president of McKinsey Asia.
The experience of the pandemic in Southeast Asia has demonstrated that non-digital businesses are vulnerable to threats.
Startups in Southeast Asia traditionally focus on providing services to individuals and follow a B2C plan. However, the outlook for new startups is more focused on emerging technologies.
According to one Google reportstartups in this region are more likely to explore AI, decentralized finance (DeFi), financial technologye-commerce, health technology and sustainability.
Investors in the region are also more likely to invest in startups that focus on emerging technologies. By 2021, ASEAN DeFi startups could raise $1 billion in equity.
Survey of Southeast Asian startups shows that they have been able to take advantage of the opportunity from the pandemic to develop the market and attract more capital from investors.
For example, in September 2021, Indonesian halal-focused social commerce startup Evermos was able to raise $30 million in Series B.
In another example, Indonesia-based crypto exchange Pintu raised $35 million in Series A funding in August 2021.
A young population, government support, and US-China conflict are driving the transformation of the startup ecosystem in Southeast Asia.
But the question is, what is driving this massive post-pandemic transformation? There are a number of factors contributing to and accelerating change in Southeast Asia. First, the youth force and their entrepreneurship.
The United States and China often influence entrepreneurship in this region. In addition, the average age in Southeast Asia is 30.2 years old and young people are increasingly integrated with technology, providing great opportunities for tech-based startups.
The World Economic Forum 2019 report emphasizes the strong preference of ASEAN youth for businesses.
The second influencing factor is government support from the startup ecosystem. Traditionally, the service sector and agriculture have been the largest contributors to the region’s GDP and economic growth.
However, governments have identified the potential of startups and their contribution to GDP. Countries like Indonesia and Singapore have well-established start-up ecosystems and have become the locomotives in terms of transportation in the region, followed by countries like Thailand, Malaysia, Philippines, etc.
The trade war between the US and China could also help. China has traditionally been home to multi-million dollar startups. However, conflicts with the US and restrictions imposed by the Chinese government have led investors to look to other developing markets. Startups in Southeast Asia can seize the opportunity and convince investors to write checks.
Southeast Asia is getting more attention from investors, the market size and value is constantly increasing. Thanks to its strong economy, the region also has a growing middle class. In the post-pandemic era, many people in the region will join the digital wave and tend to use online services.
The Southeast Asian startup ecosystem started to prosper years before the pandemic began. However, the pandemic brought millions of new people online for the first time, and it became the driving force behind people to use digital services.
Despite its remarkable growth rate and a promising future, setting up a startup in Southeast Asia still has its own set of challenges, including government regulations, overall policy, international growth mindset development and talent shortage.
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