Though 2021 was a year where both global and regional efforts were made to contain and reduce impacts of the COVID-19 pandemic, Southeast Asia’s 2022 forecasts remain resiliently hopeful. Despite economic slowdowns, they estimate the region to be the world’s fifth-largest economy, poised to become the fourth-largest by 2030. In part related to national post-pandemic rebounding, these projections might also be due to the region’s rising status as an attractive global investment destination. Rapid digitalisation (catalysed by the pandemic) has presented multifaceted opportunities, garnering and gaining steady interest from overseas investors, especially those from the US and China. Beyond assessing how Southeast Asia is fostering and growing healthy start-up ecosystems, this month’s edition of ‘From the Hill’ explores several other potential dynamics that the region’s ‘gold rush’ of investments might present.
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Start-up funding in Southeast Asia more than doubled in 2021, significantly contributed to by the digitalisation of services related to the F&B sector, especially food deliveries. However, despite generally strong interest in the backing of super-app ecosystems (such as those by Grab, GoTo, or Shopee) facilitating their growth, international investors are looking at the varied opportunities that may arise in the future. One such opportunity is being more mindful of the potential that the ‘ripple effect’ of their investments into certain sectors is causing -given many startups are hiring as fast as they can to facilitate faster growth.
Investors are also looking to generate impact, namely those aligning with socio-economic sustainability, such as investing in AgriTech to improve supply chains for the benefit of food security. This is in addition to efforts to leverage the technological and FinTech boom to provide financial inclusiveness to underserved markets. Beyond these, there have also been investors looking to bring high-potential Southeast Asian startups to the global market with growing recognition and support of the conveniences afforded by regional Special Purpose Acquisition Company (SPAC) listings. Attracting further investment and growth, this follows in the wake of Grab being publicly listed on Nasdaq via a SPAC merger.
While such positive ecosystem developments and growth are encouraging, they are also occurring in the context of increasingly global interests. For a long time, Southeast Asia’s startup ecosystem was a space largely dominated by players originating from the region itself. Today, US-based investors are increasing their footprint, whilst officials from China are taking on venture capitalist-like roles doubling down their state’s funding interest in the region which, interestingly enough, is taking place against the backdrop of domestic regulatory crackdowns. What this suggests is that China’s undimmed interest in emerging markets may be factored by greater, strategic interests in using venture investments as attrition for the technological rivalry between two of the world's leading superpowers. These dynamics could potentially lead to the region needing to play a balancing act between competing international interests as well as its own aspirations with the startup ecosystem.
So where does this leave Southeast Asia-based investors, who are caught in between? One opportunity, especially for venture capitalists and private equity firms, is to sharpen investment strategies for local startups and the continuously evolving competitive environment. Meanwhile, regional and national governments (and their funding vehicles such as sovereign wealth funds) may need to lean on more coordination with private sector ecosystem stakeholders – such as the aforementioned venture capitalist and private equity players – to balance and weigh up influences that may impact their interests beyond purely fiscal, monetary and investment ones.
As long as Southeast Asia’s start-ups and investors remain cognisant of the now, wider-reaching, and global implications arising from their own region’s ecosystem trends and contexts, there will be tremendous market opportunities to capitalise on in the coming years.
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