Southeast Asian economies have weathered the pandemic and post-pandemic challenges in strong shape. Indonesia, the Philippines and Vietnam continue to rank among the world’s fastest-growing major economies. The region’s financial hub, Singapore, has expanded as global capital flees rival Hong Kong.
So why is Southeast Asia’s startup engine stalling?
Venture capital and private equity (VC/PE) flows have slowed in most regions as central banks have raised interest rates to combat inflation. In Southeast Asia, the flood has turned into drought. Venture capital/PE and infrastructure investment in the 10-nation region is down two-thirds from its 2021 peak, according to the Global Private Capital Association (GPCA). By comparison, investment in India has halved.
The main reason is that Southeast Asia is actually an imaginary construct made up of 10 very different real countries at very different levels of development, says Prantik Mazumdar, head of Singapore-based entrepreneurs association TiE. During the irrationally turbulent period of 2020-2021, investors bought into the idea that e-commerce startups such as Grab or Tokopedia could easily capture the regional market of 650 million people. Not anymore.
“It became clear that these were 10 countries with 10 languages.” says Mazumdar. “The only way for local companies to scale up is to expand into the US or Europe, and that will take another five to 10 years.”
Local institutional capital is scarce throughout the region, leaving young growth companies vulnerable to changing sentiments in distant global wealth. “Most of the money came from investors without a local presence,” says Carlos Ramos de la Vega, GPCA’s director of venture capital. “They may have retreated to focus on key positions in the US or elsewhere.”
This global sentiment has also shifted away from e-commerce, where Southeast Asia’s large consumer base has been tempting, to artificial intelligence and green technology, where the region is less competitive with existing tech hubs, De la Vega says.
Southeast Asia does not have a vibrant stock market where startup investors can exit through public offerings, adds Mazumdar. “Singapore as a public stock market is virtually dead,” he says.
India compares well on all these parameters. It offers a huge domestic market, which Prime Minister Narendra Modi’s reforms have made more cohesive; a growing class of local oligarchs eager to finance the industries of the future; world-class English-speaking brain trusts in Bangalore and elsewhere; and a vibrant exchange with more than 5,000 publicly traded companies and a growing domestic investor base. “I am very optimistic about India,” says Mazumdar. “You have a lot of great options.”
Not all news in Southeast Asia is bad. As venture capitalists flee the region, the world’s tech giants are starting to build data centers in anticipation of the wave of artificial intelligence. In early May, Amazon Web Services promised to allocate $9 billion to Singapore alone for these purposes.
De la Vega adds that several regional startups are still generating excitement with their innovative ideas. Silicon Box, a Singaporean innovator in microchip packaging, raised $200 million in January to reach unicorn status with a $1 billion valuation. Atlan, which built India’s “national data platform” before moving to Singapore, raised $105 million in May .
Southeast Asia isn’t exactly swimming naked now that the wave of ultra-cheap capital has subsided. But its shortcomings as a nexus of innovation and investment destination are more noticeable.