Gary Khoeng of Vertex Ventures shares the challenges, opportunities and general outlook for Southeast Asia’s startup ecosystem
In the dynamic realm of startups—where aspirations are nurtured and fortunes are made—a recent article with the headline caught my attention: “Looming startup failures are giving VCs a reality check.” This made me wonder: Are we falling short of expectations when compared to the robust ecosystems of Silicon Valley, China and the United Kingdom?
Southeast Asia’s startup ecosystem is still very nascent and is one that is mostly less than a decade old. Here are my two cents on where it stands.
Read more: Should startups look at equity crowdfunding to raise capital?
The overall outlook for Southeast Asia
Despite the uncertainties that plague the global technology sector, Southeast Asia’s innovative startups continue to captivate investors in search of new growth opportunities. The region’s growth potential is staggering, with a projected increase of $130 billion from 2022 to 2025 and an impressive CAGR of 20%. It is predicted that Southeast Asia’s technology startups could reach an astounding valuation of $1 trillion by 2025, up from $340 billion in 2020.
The promising outlook for Southeast Asia’s startup ecosystem sets the stage for a future brimming with potential and exciting opportunities. Notably, Indonesia, the largest e-commerce market in the region, commands nearly half of the entire market share. Its economy is also expected to grow by 4.8% in 2023 and 5.0% in 2024 as the commodity boom wanes and domestic demand normalises.
Read more: Startup challenges and overcoming setbacks: Young entrepreneurs weigh in
Investments in Southeast Asia’s startup scene experienced a slowdown with venture capital funding for the first five months of 2023 totalling $4 billion. This is a significant decline of 65% from the same period last year, marking the lowest level since the second half of 2019.
While this dip may raise concerns, the presence of VC dry powder combined with geopolitical factors favouring Southeast Asia, provides a ray of optimism. Adding to the positive outlook, listed tech unicorns in the region, such as Grab and Goto, are projected to turn profitable within the next three to four quarters. Despite the temporary setback, the potential for a resurgent dawn in Southeast Asia’s startup landscape remains strong.
Headwinds that we need to continue monitoring include the impact of higher interest rates triggered by escalating inflation. As economies grapple with rising prices, increased borrowing cost poses a challenge for startups and investors alike. Additionally, economists have expressed concerns regarding lower-than-expected growth in Southeast Asian economies, signalling a need for careful observation and strategic planning to navigate potential obstacles.