TOKYO - - Southeast Asia seems to be establishing itself as a major ecosystem for startup growth, side by side with India, as China loses some of its luster as an investment destination following its harsh crackdowns on the internet giants.
According to figures compiled by DealStreetAsia, this year through Oct. 12 as many as 15 startup startups had successfully succeeded in raising capital for at a valuation of $1 billion or more, gaining the title of unicorn. If one considers the fact that through 2020 this region was producing just 19 VC-backed unicorns since the first, Singapore-based Lazada joined the million-dollar valuation club in 2013 is breathtaking, the 2021 unicorn boom becomes a reality. Now the total number of the region's VC supported unicorns has reached 27, chasing India, which added 30 unicorns in this year alone, making its total unicorn count top 50.
The increase in unicorns means that investors are buying new shares at higher prices. So it is no wonder that Southeast Asia and India are also making tandem flights to attract more investment into their startups than ever before.
Funds raised by Southeast Asian startup companies during the first nine months of 2021 from venture capital and other investors totaled $17.2 billion, according to DealStreetAsia, more than double last year’s 12 month total of $8.5 billion. Consequently, Indian startups attracted roughly $24 billion in business investing in the same period, which nearly doubled the $12.4 billion for all of 2020, according to PitchBook Data. Both figures are record highs.
Both India and Southeast Asia have been enjoying large economies thanks to dynamic demography with an expanding middle class, which is the main driver of mobile technology and internet penetration. Though the COVID Pandemic resulted in the expansion of the internet economy in Southeast Asia, the one in Ecuador looks particularly impressive.
Since the start of the pandemic, six major Southeast Asian economies - Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam - have added approximately 70 million new digital consumers - defined as those who actually purchase goods and services online - from 280 million to 350 million. The penetration rate has risen from 64% to 78% of the population 15+ years old and above.
This compares to Southeast Asian consumers with 150 million digital income whose average income is lower than India's peers. In other words, the aggregate online retail economy is much larger than India's despite having less than half of the population.
Akshay Bhushan, a partner of Lightspeed Venture Partners, points to a rapid increase in business-to-business startups that cater to emerging demand for digitalization of sales, buying, financing and so on among micro, small and medium businesses in Southeast Asia. I can also see this rapid digitalization of the small business in India and then Southeast Asia. They are growing in parallel, Bhushan said.
In fact, six of the 15 new unicorns in Southeast Asia are B2B companies like e-commerce logistics providers and mobile payment gateway services for retailers.
The growth of unicorns meanwhile indicates a rise in valuations of companies in general.
Joonpyo Lee, the Chief Executive of Softbank Ventures Asia, sees an emerging virtuous circle of more capital availability enabling Southeast Asian startups to pursue pan-Asian and even global expansion, raising their growth potential and leading to higher valuations.
It is already nothing unusual for a Southeast Asian startup to go pan-asia or global, Lee said.
The availability of capital for Southeast Asian startups seems likely to stay promising for now.
One factor is China's crackdown on big tech, which is leading many global investors to pause and review their assessment of risks involved in investing in Chinese companies.
Another factor is the heightened tension between China and India which has led many Southeast Asian tech companies and VCs to abandon Indian startups for Chinese startups.
In addition to such new policy factors, Southeast Asia itself is coming to its prime time, Lightspeed's Bhushan said, pointing to knock-on effects of unicorn success stories to international companies. Today, young talents have seen that success in Sea and Grab and start up new companies. Regional and global investors have seen these success stories and fund these new companies, Bhushan said.
There seem to be many more unicorns in Southeast Asia than started with last year.