Asia’s startup scene is on the rise, but Covid-19 may choke its growth: report

Asia Pacific’s startup economy is going through a “major transition” amid the increasing democratization of tech across the globe, a study from advisory and research firm Startup Genome and Global Entrepreneurship Network (GEN) suggests.

According to the 2020 Global Startup Ecosystem Report, access to the tech economy is at an all-time high, as seen in the rising number of tech unicorns – startups valued at US$1 billion or higher.

In 2013, when the term “unicorn” was popularized by Aileen Lee from CowboyVC, only four tech hubs worldwide produced firms with that valuation. Now, over 80 ecosystems have at least one startup that’s worth US$1 billion.

The report shows that Asia Pacific emerged as one of the major beneficiaries of this democratization, as the region has gone from having 20% of the world’s top startup ecosystems in 2012 to 30% this year.

There are some significant movements that can be observed in this year’s top 30 global startup ecosystems. For one, Seoul and Tokyo – two R&D powerhouses – have broken into the rankings. China, meanwhile, has four cities in the top 30: Beijing, Shanghai, Shenzhen, and Hangzhou. The country only had two cities in the list three years ago.

In India, Delhi joined Bangalore in the top 30, while Melbourne made it to the list as a runner-up to Sydney.

This gives Singapore and Hong Kong, two markets that continue to perform well, more regional competitors.

The Covid-19 pandemic, however, has presented a new set of problems that could stifle this growth.

“If we were publishing this report in December 2019, our reporting on the state of the global startup economy might have stopped there,” the report notes. “But the Covid-19-triggered economic crisis has hit – the worst global downturn since 1929 – and the startup economy is being severely affected by it.”

According to data from Startup Genome and GEN, the crisis hit startups hard on two fronts: capital and demand.

Right now, there is a capital crunch around the world – the study found that four out of every 10 startups have only three months or fewer of capital runway. If these firms can’t raise additional funding, they may collapse within that timeframe.

Investors have also been more cautious this time around, leading to three out of every four startups having their fundraising process disrupted. This includes startups that already had term sheets from investors before the pandemic hit. Total VC funding has also dropped dramatically across the globe, falling by 20% in the first three months of 2020.

Four out of every 10 startups have only three months or fewer of capital runway.