By Thanit Apipatana
Southeast Asia’s golden decade has lifted living standards across the region. Large inflows of foreign capital and, notably, a thriving small and medium business sector have been the main reasons for its economic ascent. The post-COVID slowdown and “funding winter” are now raising doubts about whether the growth can be sustained. How can we make sure that we stay on track?
Private funding in Southeast Asia has declined to its lowest level in six years, according to Google, Temasek, and Bain’s latest e-Conomy report released in November 2023, raising the pressure for startups. The digital revolution, propelled by a population-wide adoption of mobile technology, has created an economic contribution worth more than US$100 billion. Despite the reduced amount of financing, it continues to offer vast opportunities for entrepreneurial talent.
Digitalisation has greatly benefited more than 70 million Micro, Small and Medium Enterprises (MSMEs) across the region. Affordable technology has been helping businesses optimise processes, and automate routine tasks, resulting in greater levels of efficiency, productivity, and increased access to a much larger global market.
Readying for the next wave
The winners of this revolution have been, above all, e-commerce firms, as well as related businesses in payment, lending, and delivery. Ride-hailing, as well as entertainment and gaming have also grown in prominence. Google, Temasek and Bain now see increased capital flows into nascent areas, including enterprise tech, AI, healthtech, edutech and Web3. The property and automotive sectors should also profit from the second digitalisation wave.
Funding has slowed, but that doesn’t mean that there isn’t any more capital. Growth-equity investor Asia Partners recently lined up US$474 million from the final close of its second fund. Indonesia’s AC Ventures has just announced the closure of its fifth fund at around US$210 million. Singapore-based Whampoa Group, a multifamily office, launched a US$100 million venture fund in collaboration with South Korean gaming company Wemade to invest in Web3 and digital assets.
In 2021 and 2023 respectively, the Qatar Investment Authority led a financing round of combat sports promoter One Championship and invested in Malaysian vehicle marketplace Carsome. Saudi Aramco Ventures has also backed the Singapore-based renewable energy certificate provider Redex.
The higher cost of capital has been driving VCs to go for the safer bets, pushing startups to be mindful of their growth-centric approach and to sharpen their focus on capital efficiency and profitability. Founders will be well-advised to moderate their valuation expectations and adjust expansion plans to extend their runways.
What is needed now
As the high-interest environment drags on, the startup ecosystem will continue to require broader access to funding. We need more financial support mechanisms, such as grants, loans or government-backed funds that invest in promising startups. An example is Malaysia’s state pension fund Kumpulan Wang Persaraan Diperbadankan which said it will invest up to MYR 500 million (US$105 million) over the next two years in the country’s venture and startup ecosystem.
Beyond that, we require incentive programs, tax breaks, and subsidies for startups and small businesses. Governments could further ramp up support for research and development activities. Broadband infrastructure should be expanded to reach the unconnected. Thailand has achieved great success in this regard. While only half of the rural population had internet access in 2016, it has almost closed the gap to the urban connectivity rate which stood at 85% in 2020, according to ITU.
As part of its Thailand 4.0 program, the country introduced tax breaks that encourage startup investment. Until 2032, local and foreign investors are exempt from capital gains tax on share transfers when investing in selected industries that range from logistics and robotics to biofuels and biochemicals. The government is also committed to further promoting digital literacy and government digitalisation.
There is more that can be done to advance our strong SME sector. Given its importance for the regional economy, entrepreneurship skills should be part of the curriculum at all levels of the education system. Specialised training can be provided to aspiring business owners.
Incubators and accelerators offer mentorship, guidance, and resources to new startups.
Fostering a culture of creativity and risk-taking has to be top of mind across the region. Only so can we sustain the momentum of Southeast Asia’s ascent.
Who is Thanit Apipatana:
Thanit Apipatana is a Bangkok-based entrepreneur, investor, and startup advisor with a keen interest in venture building, real estate, F&B, sports and philanthropy. Mr. Apipatana has advised and invested in companies in the region, including Singapore-based proptech startup Mogul.sg and Thai-based Life Below Labs. As a thought leader, Mr. Apipatana shares his insights on entrepreneurship, F&B, education, sports and the social sector.
