A different perspective to Southeast Asia’s startup ecosystem

My friend Jon Russell from The Next Web has recently penned that there are four issues challenging Southeast Asia’s startup ecosystem: risk aversion, fear of failure, lack of big firm presence and immature ecosystem.

To his credit, he has spotted some inherent weaknesses of a diverse market fragmented not just by geography but also business culture. In a similar reflection, Michael Smith Jr from Spuul focused on the lack of enough big firms.

While there is a lot of hurrah with the arrival of 500 Startups to the region, there are several trends that might deter the growth of the ecosystem — the purpose of this article is to open a discussion on what these might be.

Both perspectives from Jon and Smithy highlighted the macro trend of people moving from the west to east, but local infrastructures have to cope with a set of challenges. An interesting but not surprising conclusion that emerged from their analysis is that not all global technology companies have localized their offerings to the market.

While companies like Google are selling their advertising services to local advertisers, their developer and technical support on other product offerings which are central to the startup ecosystem in this region are not in their focus at all.

To present a different perspective from what Jon and Smithy have discussed in their article, I present four trends that complements or extend the case from Jon’s earlier article. My perspective stem from how regional companies have also deterred potential investors from entering the market and at the same time crushed the potential growth of the startup ecosystem.

1. Subtle brain drain: In the past few years, we observed three interesting waves of activities which are leading to a brain drain in Southeast Asia.

The first type of activity is the “acqu-hire” model where we saw a few examples: Octazen by Facebook and GridBlaze by a US company. In the first case, Facebook took the technical talent to build up their engineering capability but also leverage on the business people to set up Facebook for Southeast Asia in the past few years.

In the second case, the US company is basically migrating talent over to Silicon Valley. It is actually economical for a US company with global focus to acquire Southeast Asian companies at a cheaper cost than within US, where the valuation can be unrealistic.

The acquisition of Koprol by Yahoo! is another example. They acquired a Foursquare like service and if the post acquisition-integration effort for Koprol to Yahoo! had been successful, Yahoo! would have effectively bought an under-priced FourSquare to bolster their efforts in location-based services.

If acquiring companies in Asia are cheaper for a US company, the same goes for talent. While everyone’s eyes is zooming in on the exaggerated successes of Southeast Asia startups that receive funding, very few are focused on how several companies have stolen talent from local universities.

A lot of people complained about the dearth of talent from local universities. Actually, they exist but the problem is that companies from the United States like Quora, Palantir and Facebook are snapping the smart ones out from Singapore to Silicon Valley. That’s the second wave.

They can replicate the same model to source for talent around Southeast Asia, particularly Philippines, Indonesia and Thailand. These companies have been supporting local hackathons and events for the universities with the aim of acquiring overseas talent.