Aggregated Series A investments in Southeast Asian (ASEAN) internet startups have almost tripled in the 2010-2014 period, from $29 million in 2010 to $87 million in 2014, according to a report released by Golden Gate Ventures, a venture capital (VC) firm wirh investments spanning Southeast Asia (ASEAN) and Silicon Valley.
Most capital in Southeast Asia flowed into Singapore, where 10 startups ventures raised $60 million in 2014 in total, with a Series A investment as between $1 million and $10 million by GGV. Only nine other Asian companies won Series A investments last year outside of Singapore, said a Forbes feature that had reviewed the data from The Bamboo Report released by Golden Gate Ventures (GGV).
In 2015, Series A deals are predicted to reach $85 million.
Launched in 2012, Golden Gates’ $10 million first fund has made early stage investments in 20 companies. with a portfolio of 22 investments across 18 companies as of 1 August 2015.
Singapore has created a conducive environment for startups that has gained considerable traction in recent years. However, a Singapore-domiciled startup venture is not necessarily founded by Singaporean nationals or conducts its operations in the city-state, with many being registered and incorporated in the city-state.
Two examples cited are 2C2P and GrabTaxi. 2C2P is a digital payment services provider officially based in Singapore but started in Thailand by a Burmese migrant entrepreneur, with the majority of its customer base outside of Singapore.
GrabTaxi established its headquarters and research & development centre in Singapore but its founders are Malaysians and it was first deployed in Malaysia, with most operations outside the city-state.
In a statement to digital technology and startup news platform TechCrunch, Compass CEO Bjoern Herrmann observed: “Singapore, for example, is a very good place to be. Many companies that start in Kuala Lumpur or Jakarta move over because the [investor] money is there, it’s easy to open bank accounts, and you have a good regulatory framework, among other things.”
While comparisons with India and China have been made, it should be noted that these are large, unified markets with some degree of commonality across their various sub-districts in terms of regulations and market conditions, being single markets large markets, whereas Southeast Asia is a fragmented web of economies in varying states of development.
The AEC – Association of Southeast Asian Nations (ASEAN) Economic Community – is designed to facilitate the formation of a common market aimed at encouraging trade and human capital flows, as well as integrating industries and supply chains across borders. However, its impact for now remain nebulous and further off in the future.
The largest ASEAN economies – Indonesia, Malaysia, Singapore and Thailand – are not going to target the harmonisation of rules governing foreign direct investment (FDI) or defining of terms and conditioning regarding domains like e-commerce portals, retail platforms, digital content and logistics.
This is due to protectionism by Indonesia, the third largest market in Asia outside of China and Indian in terms of population. While such a policy does economic harm, it also appeals to the nationalist instincts of the Indonesian population and keeps existing political players in power and relevant to the political narrative of the period. This protectionism can also threaten the future growth prospects of Indonesia.
Similarly, the regional infrastructure has to improve considerably, particularly the telecommunications, transport and logistics infrastructure. In fact, there is a wealth of investment opportunities related to physical infrastructure across Southeast Asia.
Human infrastructure like judicial and education systems also need to evolve, in order to foster the rule of law and knowledge capital, with the rule of law crucial to wealth creation and innovation. Research by the World Economic Forum suggests that social infrastructure, political institutions and the corresponding systems and processes must be built to ensure the growth of new businesses.
For the foreseeable future, the region – and Singapore in particular – possesses access to a growing amount of capital. This is buoyed by the economic boom that the region is experiencing. But the deals that are emerging and the opportunities present in the region seem better suited to corporate investors and private equity firms, rather than small venture capital funds. There’s a wealth of opportunities that can be found in the region, across a number of sectors.
In a Harvard Business Review article, Scott Anthony, a managing partner of Innosight, noted: “Like Silicon Valley, Singapore has strong research institutions and limited enforcement of noncompete clauses, a condition that academics now suggest can be a major driver of innovation. Like Israel, Singapore is small, with limited natural resources, which means economic growth requires innovative macroeconomic approaches.”
Anthony added, “Both Singapore and Israel have liberal immigration policies for skilled workers. Both also have mandatory military conscription for males (Israel also has mandatory conscription for females), and as Dan Senor and Saul Singer argue in Start-up Nation, the Israeli military has been a breeding ground of innovation.”
PE landscape in South East Asia guided by market-specific factors: Bain &Co