By Low Shi Ping
China Daily, Beijing / Asia News Network
WWR Article Summary (tl;dr) Late last month, an official with China’s Ministry of Science and Technology said the country had $131 billion worth of private startups by the end of 2016, nearly doubling the figure from the year before.
China Daily, Beijing / Asia News Network
Elena Ionenko established “Turnkey Lender” in her native Ukraine to focus on the alternative lending segment.
The financial technology startup developed a platform for the end-to-end automation of the lending business, which offers the banking industry’s best practices and tools at an affordable price.
After analyzing where in the world would require Turnkey Lender’s services, the answer was obvious: Southeast Asia. With a combined population of 645 million, and a large proportion of the region still unbanked, the potential is “huge”, explained Ionenko.
A successful application to The FinLab, a Singapore-based accelerator program, saw her heading for the city-state last May.
“Singapore is the perfect hub for reaching out to our target markets that include Indonesia, the Philippines, Vietnam and Cambodia,” Ionenko said. “To date, we have made quite good progress — (with) paying customers in all these markets, plus strong partnerships with local credit bureaus, which will help us expand quicker in 2017.”
These moves by Turnkey Lender are indicative of the burgeoning startup scene in Asia. And to get a sense of the size of it, one needs only to reference China.
Late last month, an official with China’s Ministry of Science and Technology said the country had $131 billion worth of private startups by the end of 2016, nearly doubling the figure from the year before.
Xinhua News Agency reported that the official, Zhang Zhihong, used the term “unicorn”, which refers to young, unlisted companies with a market value of over $1 billion based on private funding sources.
China’s unicorns are spread over 16 cities, but mostly in Beijing, Shanghai, Shenzhen and Hangzhou. The majority are innovation-driven tech businesses, Xinhua quoted Zhang as saying.
According to Amazon analytics firm Alexa, the United States has 138 billion-dollar startups, most of them located in the tech-heavy San Francisco Bay Area, while India is at fourth place in the world with seven unicorns.
Last year, India registered 350 startups formed by students, a 25 percent increase from 2015.
Paul Santos, managing partner of Wavemaker Partners, said 2016 was the best year yet for his venture capital (VC) firm in Southeast Asia.
He pointed to “exits”, or profitable investments in successful ventures, the company was involved in last year. The acquisition of work chat app Pie was Google’s first in the region, and the Singapore-based mobile advertising network Art of Click was acquired by Philippine tech firm Xurpas. The latter “returned our whole first fund”, Santos said.
“We also saw 16 of our companies raise follow-on financing, and our exit with (cosmetics e-commerce startup) Luxola to (luxury goods giant) LVMH won the Singapore Venture Capital and Private Equity Association VC Exit of the Year.”
Wong Ann Chai, managing director of water treatment startup Nanosun, pointed to the same trend.
“2016 was a year of intensive merger and acquisition activity with buyout funds acquiring numerous startups. Some companies in the Internet space fetched very attractive valuations.”
Wong said a lot of activity currently surrounds “Grab or Uber-type” ride-hailing companies.
“There are also other sectors such as cleantech and energy that are taking off. You either head for the consumer or (business-to-business operators). Each has its rules of the game, and the key is to find that niche to get started.”
Opportunities abound, especially due to the uncertainty caused by Britain’s vote to leave the European Union.
“The value of the UK was the ability to establish a beachhead and passport to the EU. With Brexit, those firms in the UK now have to assess whether they (will) continue with the EU,” said Frank Troise, managing director for Asia at Leonteq AG, a technology and service provider for investment solutions, in an interview with CNBC.
Another reason for the hive of startup activity is an increasing amount of investment capital, spurred by US firms going beyond Silicon Valley.
Within Asia, a growing middle class and rising literacy and education levels have motivated many to start their own business. No wonder then that startup ecosystems, mostly congregated around co-working spaces, have sprouted.
Bali is one such location. Two startups, Hubud and Livit, provide coworking spaces on the popular Indonesian island for entrepreneurs to meet like-minded people and find support for their ventures.
Australian entrepreneur Maire Shanahan relocated to Bali four years ago and runs two successful e-commerce businesses from Hubud.
“You can walk into Bali, just work on your startup, then go for a massage or go do yoga. You have a lot of time to focus on your startups because you don’t have to worry about all the other stuff,” she told Singapore’s Today newspaper.
The “other stuff” refers to the domestic help she hires to maintain the villa she lives in with her family.
But no startup ecosystem is complete without money, and every venture capitalist worth his salt will have a presence in Asia.
Wavemaker Partners is one such example. Originally based in the US, it opened an office in Singapore and is now one of the most active VC firms in Southeast Asia.
Equally engaged is Golden Gate Ventures, which has invested in more than 30 companies across Asia since 2011. Other major players include Sequoia Capital, IDG Ventures and 500 Startups.
Then there are the accelerators, incubators, angel investors and government-backed support.
In China, for instance, government-backed venture funds raised about 1.5 trillion yuan (US$218 billion) in 2015.
In India, the Startup India program launched last year to support entrepreneurs, while state governments including Karnataka and Rajasthan have established their own startup missions.
Launched late last year, the Mekong Innovative Startup Tourism (MIST) Initiative aims to catalyse tourism sector growth in Cambodia, Laos, Myanmar and Vietnam.
The MIST Market Access Accelerator supports early-stage companies with travel technology and traditional tourism business plans. Among its backers are the Asian Development Bank and the Pacific Asia Travel Association.
For the seasoned venture capitalist looking to invest in a startup in Asia, they must be aware of the major differences between the region and the West.
First, there is the diversity. Asia has a varied mix of cultures, ethnicities and business practices. What works in Silicon Valley might not apply to a startup in Vietnam’s Ho Chi Minh City, for example.
Another challenge lies in the fact that the West has had a head start in startups.
“They have already gone through several iterations and are now delving into deep technology such as artificial intelligence and blockchain,” said Felix Tan, managing director of The FinLab, referring to the complex financial technology behind cryptocurrencies like Bitcoin.
However, startups in Asia are “becoming better”, he said. “Academics here are driving the deep tech trend but the businesses need better business development capabilities to compete with the West.”
Then there is the factor of manpower. Startups in Asia tend to be founded and staffed by people in their 40s and 50s, who have the money and experience to branch out into uncharted territory.
Nanosun’s Wong said 2017 will be a good year to take stock.
“We anticipate an interest rate hike, which normally is not always a good thing, but it does discipline the way capital is invested.
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Overall, a multi-year approach is needed because a startup needs 18 months to two years to get grounded and start the ball rolling.”
He said the sector must stay alert for disruption in the markets, “whether in terms of technology, market forces, regulations and policies, and ultimately a substitute which is more capable and cheaper to work with”.
Asked whether this is just a bubble that will burst like the dotcom boom, The FinLab’s Tan does not think so.
“The pace of innovation has increased and will not slow down. Many of the startups have a basis for their establishment,” he said. “We also note that the value-creation process is at a more even pace, which means there is more sanity in the market.”
Wavemaker’s Santos believes the startup scene will continue to flourish. “We now have about 50 portfolio companies in the region. We hope to invest in about 15 to 20 new companies this year.”
Macroeconomic and demographic factors make it attractive, he said, “but what makes it even more exciting for us is that Southeast Asia is open for business”.