Southeast Asia: The Next Major Market in Asia for Founders and Investors

Mon Apr 10, 2017 - 10:42am GMT+0000
Southeast Asia: The Last Major Market in Asia for Founders and Investors

When Garena, Southeast Asia’s most valuable startup picked Goldman Sachs Group Inc. to lead a planned initial public offering in the United States, it made an optimistic statement about the future of startups in Southeast Asia. The initial public offering, if completed, would record the largest share of IPO proceeds from Southeast Asia at US$3.75 billion.

“This is an extremely significant deal,” said Vishal Harnal, a partner at 500 Startups in Singapore. “Once you have a success story coming out of the region, it becomes easier for others to emulate. An IPO of this magnitude will galvanize and serve as a beacon to all the startups in Southeast Asia.”

Founded in 2008 by Forrest Li, Garena is a Singaporean unicorn currently valued at US$3.75 billion.

SEA – the Next Rising Star in Asia

Like China a decade ago, Southeast Asia is now an emerging market on the verge of something big. The region has raked in a cumulative funding of US$2.6 billion in 2016, increasing over 60 percent from its previous year of US$1.6 billion. It has even been touted as the most attractive emerging market for private equity investment in Asia, according to Global Lead Insights.

“Southeast Asia for the next 10 years is going to be one of the most exciting regions to invest in. If you think about it, it’s kind of situated between the two giants – China and India – and then if you look at it – Silicon Valley companies who missed out on China and India are looking at where are the last big markets that are left. And Southeast Asia it is,” said Thomas Tsao, the Founding Partner of Malaysia-headquartered Gobi Partners.

But it is not just the market opportunities that have drawn entrepreneurs from around the globe to places like Singapore, Thailand or Malaysia.

The Catalyst to The Rise of SEA

There is a host of factors contributing to the surge of interests in startups outside the established hotbeds for technology and innovation. Southeast Asia’s growing digital connectivity for one, has made the population addressable. With over 300 million smartphone users in the region as compared to the United States which has only 225 million – this brings about a greater consumer demand and purchasing power.

On the other hand, business-friendly initiatives have also further supported the investments in Southeast Asia. For example, the Malaysian government runs Malaysian Global Innovation and Creativity Centre (MaGic), a startup entrepreneurship program that has provided many benefits for startups to find fertile ground in Malaysia.

Programs to help startups like the MaGIC Accelerator Program is readily available across many SEA countries.

Most importantly, the market in Southeast Asia has a lesser competition intensity for startup founders and investors alike which provide a rational entry valuation.

Even Timor-Leste, a country located beneath Indonesia (for those who have never heard of the country) has a proportionately large number of startups despite having the requirements for entrepreneurs to deposit 260 percent of their average income in a bank. This is considerably a huge amount of capital to raise up front in comparison to the global average amount which is just 9 percent.

Non-SEA Investors Dominates Market Sphere

Statistics have also shown that non-Southeast Asia investors are dominating the SEA market sphere. As the region has drawn attention from neighboring countries including Japan, China, and India as well as accumulating substantial capital from major global venture capital firms like Northstar, IMJ and Sequoia Capital.

500 Startups, a United States-based venture capital firm, is also heavily involved in Southeast Asia – having helped startups work on specific growth goals. Just last year, it added another US$50 million into 500 Durians, a micro-fund focused on investing Southeast Asian startups. Its active involvement has even made it SEA’s most active early stage investor.

Another notable investor interested in the region is Jack Ma, extending his influence in the region as he acquired Malaysia’s eCommerce platform Lazada in April 2016 for a total US$1 billion. For Alibaba, this is a big wager on the region as the enterprise competes against Amazon to dominate the eCommerce sphere.

Besides, the Chinese mogul has also been very active in the region’s political scene, associating with the head of states from Thailand, Singapore, and Indonesia, in addition to becoming the economic advisor for Malaysia. The same goes for the Chinese government as it invests heavily in Cambodia, Laos, and Myanmar to transform them into bigger destinations for export.

Alibaba founder, Jack Ma has agreed to act as an advisor to the Malaysian Government on its digital economy

This is an interesting moment in time for Southeast Asia. It is essentially because investors are now realizing that Southeast Asia is the only large market left to grow.

Amidst the positive outlook, ASEAN own startups which are valued at more than US$1 billion, from ride-hailing leader Grab to e-commerce operator Tokopedia, are also coming to age. With this, it is only expected that Southeast Asia’s entrepreneurial ecosystem will receive a tremendous boost in the near future.

And Garena’s IPO is just the beginning.

By Vivian Foo, VCNewsNetwork