SEA unicorns creating new wave of entrepreneurs, startup capital

Thriving startup ecosystem and string of unicorns in Southeast Asia have helped create a new wave of entrepreneurs who are investing in other startups, offering access to new capital that may not have existed before.

The thriving startup ecosystem and string of unicorns in Southeast Asia have helped create a new community of entrepreneurs who are investing in other startups and offering access to new capital that may not have existed before. And those seeking out market opportunities may want to look beyond hot segments, such as artificial intelligence (AI) and blockchain, and consider other key areas such as social commerce. 

The region's startup ecosystem has seen a dramatic increase in capital over the past few years, said Craig Dixon, co-founder of Accelerating Asia, a Singapore-based startup accelerator and early-stage VC (venture capital) fund.

While global venture funding dipped 17.5% year on year in the second quarter of 2019, internet startups in Southeast Asian snagged $7.6 billion in the first half of the year, up 7% from the same period in 2018, according to the e-Conomy SEA 2019 report by Google, Temasek Holdings, and Bain & Company. 

Almost $37 billion was pumped into the region's internet economy between 2015 and the first half of 2019, and it was close to hitting $40 billion and $50 billion in funding, the report noted.

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The tremendous growth has facilitated startups in their efforts to raise more money and expand on private funding, rather than have to seek out other funding sources, Dixon said, in an interview with ZDNet. 

He noted the region's ecosystem has also generated several unicorns and startups worth more than $100 million, which now were acquiring and investing in other startups. This has created a new pool of capital access that previously was not available, he said, adding that these were the two key network effects that did not exist a few years ago.  

Since 2012, 10 unicorns in the region created a combined market value of $34 billion and helped placed Southeast Asia third in Asia-Pacific, behind just China and India. These unicorns, with a market valuation of at least $1 billion, included Grab, Go-Jek, and Traveloka. 

Dixon said: "I'm happy to now see that we're in [version] 2.0 [where] we're seeing startups that had good exits or good investors spinning out people who know how to work in a startup and can start or lead one. They're moving down the pyramid." 

He explained that the early days had seen entrepreneurs from the top of the pyramid, who typically came from wealthy backgrounds and had access to more resources. This new breed of entrepreneurs now was emerging at an apt time, amidst a rising middle-class population in Asia, he said. 

One thing entrepreneurs today could do more of is self-education, he noted, pointing to the vast volume of resources freely available online such as blogs and best practice guides, and those offered by the likes of Y Combinator. Founders from the region that his team worked with often did not avail themselves to such resources, he observed.

Founded in July 2018, Accelerating Asia last month unveiled its second cohort of 10 pre-Series A startups, which hailed from six countries including Singapore, Bangladesh, Myanmar, and Indonesia. According to the accelerator, the startups have already secured more than SG$2 million ($1.46 million) in funding ahead of the programme and boasted an average monthly revenue of at least SG$40,000 ($29,235). 

Accelerating Asia's four-month programme has two cohorts a year that are provided with stay in the US for one to two weeks to meet potential investors and other stakeholders in the ecosystem, according to its co-founder Amra Naidoo. The accelerator also operates its own venture fund and invests SG$100,000 ($73,087) in each startup it works with, of which, more than 40% of the startups' co-founders are female. 

In addition, Accelerating Asia works with Enterprise Singapore's Startup SG Accelerator programme, from which it receives a grant and access to the latter's network of investors and startup ecosystem. Enterprise Singapore is a government agency dedicated to promoting local businesses in the global marketplace. It also streamlines the visa application processes for startups that go through Accelerating Asia's programme. All participants under the scheme are required to move their operations to Singapore. 

Dixon said this condition was mandated because of the trust in Singapore's legal system. It also made it easier to access the ecosystem and funds available here, he said, noting that the country's legal and financial infrastructures supported smaller businesses and early-stage companies. 

He added that while Singapore constantly looked to other more mature ecosystems such as China and the US in establishing its own policies, learning from best practices in these markets, it was also comfortable experimenting in new models. He pointed to the Variable Capital Companies (VCC) framework, for example, which was introduced just last month to encourage more funds to be held in Singapore and boost the country's value as a global fund management centre. 

According to recent figures from Enterprise Singapore, venture investments in the country climbed 36% year on year to hit SG$13.4 billion during the first nine months of 2019, during which startups inked 437 deals. Digital tech companies snagged the bulk of the funds at 93.2%, fuelled partly by the growing internet economy, closing 278 deals between January and September. This was up from 145 last year or a 91.7% increase.

Investments in the early-stage -- deep tech startups -- also are gaining traction, Enterprise Singapore said. It added that three sectors -- advanced manufacturing, urban solutions and sustainability, and healthcare and biomedical sciences -- in particular drew investor interest, inking 76 deals totalling SG$416.4 million, up 25% from SG$333.8 million last year. 

Startups should look beyond AI, blockchain

Asked whether artificial intelligence was a market opportunity for startups, too, since it's been gaining much attention amongst enterprises, Dixon expressed scepticism over startups that did pitch AI or blockchain, for that matter, as their core offering. Noting that the technology was simply a tool, he said AI should not be a basis for a startup.

Instead, he pointed to key trends that have been evolving globally and in Southeast Asia over the past three to five years. Namely, the digitisation of old businesses and logistics, particularly around shipping, trucking, and transport.

There also were increased activities around business-to-government (B2G), where startups have been helping governments speed up processes or build security around privacy and data privacy, he said. In addition, some enterprise startups have entered the social media sector, helping businesses access consumers through such platforms.

Asked if Singapore's emerging digital banking era might offer opportunities for startups, Dixon said it was too early to determine that and urged startups against jumping head in. "It's [an] interesting [space] but too early to speculate. I would advise [them] to do something else until we know more," he suggested. "The startup space is already risky, you don't have to make it more so."

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