5 factors fueling Southeast Asia’s startup ecosystem

Image credit: amanda tipton

After residing in Southeast Asia for 25 years, and spending the last 2 years as a mentor to startups, I’ve seen momentous change and growth in the region. With the soon-to-be-established ASEAN Economic Community (AEC), Southeast Asia is buzzing with investors.

The AEC is labeled as the ASEAN’s “EU moment,” where Southeast Asian countries move towards economic integration, a common market, and a powerful combined GDP of US$2.57 trillion.

Diversified, yet full of opportunities

Southeast Asia is extremely diverse — home to 620 million people across 11 countries — with different languages and religions. AEC aims to facilitate more intra-region trade and build a region fully integrated into the global economy. The top 6 wealthiest economies are Singapore, Malaysia, Thailand, Indonesia, Vietnam, and Philippines with at least US$2000 GDP per capita.

The IMF (International Monetary Fund) predicted the top five Southeast Asian economies’ growth rate will be 5.2 percent this year, which is higher than the United States or Europe. The region’s demographic is very young, with 60 percent of the population being aged 15-34. Furthermore, this youth demographic is quick to adopt new technology and boost commoditization.

Governments have realized the tech growth potential

Southeast Asia governments recognize high-growth and scalable startups are going to be the next-gen pillars for their economics, and they’re putting their money towards this future. Malaysia’s government funds MaGIC, an accelerator and community builder which grabbed headlines with its opening attended by US President Barack Obama.

Armed with US$11.4 million in funds, MaGIC’s mission is to enable local startups and make Malaysia an attractive destination for expatriate tech companies. Neighboring Singapore is also on an aggressive growth plan. Its government co-invested US$770,000 in startups with third-party investors, as well as awarding US$178,000 of grants.

Selected Singapore-based investors also stand to benefit. If they raise at least US$7.1 million from third-party investors, they will receive dollar-for-dollar matching from NRF (National Research Foundation), up to a maximum of US$7.1 million.

International attention

Southeast Asia has gathered attention around the globe, with most technology companies having a regional headquarter in Singapore to take care of their entire Asian market. Social media giant Facebook has successfully penetrated the market, and Whatsapp, Facebook Messenger, Line, and Viber all serve as the social media and communications platforms for startups to build their customer base on.

Global commerce giants such as Rocket Internet’s Lazada, eBay, Alibaba, and Rakuten continue to invest heavily in online shopping expansion — getting more users accustomed to buying online. And even at Braintree, we’ve expanded our footprint beyond North America and Europe into Singapore and Malaysia, allowing companies incorporated in these countries to experience frictionless selling.

Access to capital internationally and regionally

Global investor 500 Startups has set up micro funds of US$10 million and US$15 million in Southeast Asia. In addition, assets managed by private equity and venture capital fund managers in Singapore are valued at aroundUS$28.3 billion, with venture capital being US$1.8 billion of that total for 2014.

For those who prefer debt financing, three of Singapore’s largest banks (OCBC, DBS, and Standard Chartered) offer special lending schemes and banking services focused exclusively on startups.

Mobile growth penetration and its impact

The IDC (International Data Corporation) estimates that about 1.5 billion smartphones will be shipped globally in 2015 — up from 1.3 billion last year. New brands such as Cherry Mobile, Himax, and I-Mobile are emerging to grab the Southeast Asian market from stalwart global smartphone brands.

These newer phone makers aim to get consumers hooked on their own keenly-priced but strongly-specced devices, that sell for about half the price of leading brands. Cheaper smartphones allows lower-income groups to adopt these devices, resulting in greater growth and penetration as the median income rises. Mobile-first startups (HotelQuickly, KFit,Sugar) have huge opportunities to secure funding and expand rapidly in the region.

Looking up