It’s Time To Invest In Southeast Asia’s Tech Ecosystem

By Kendrick Wong

Appetites are changing—investors and entrepreneurs alike are looking beyond tech mecca Silicon Valley for a slice of the startup pie in Southeast Asia.

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Despite the pandemic, investors are clearly bullish about the region’s massive growth potential and market opportunities, with Southeast Asia tech startups raising an impressive $8.2 billion just last year. In fact, Jungle Ventures estimates that the combined valuation of Southeast Asia’s tech startups will increase by more than 3x in a mere five years, from $340 billion to $1 trillion in 2025.

With capital pouring in and valuations skyrocketing, what is it about Southeast Asia that makes it so attractive to investors?

Leveraging the dominance of digital

Southeast Asia is not only seeing a rapid expansion of its middle class—according to a joint report by Google, Temasek and Bain & Co.–its population is also coming online at breakneck speed, with a whopping 40 million new users having joined the internet in 2020.

More significantly, the report also identified that 94 percent of new digital consumers intend to continue using digital services even after the pandemic, signaling that this digital acceleration is long-term, paving the way for concrete digital transformation in all areas of businesses.

While largely catalyzed by the COVID-19 pandemic—which led to radical shifts in how people shopped, worked and studied online—it’s worth noting that Southeast Asia’s digitally savvy population makes it possible for the single markets in the region to experience tremendous growth: Indonesia already boasts tech unicorns like Gojek, Bukalapak and Tokopedia, while smartphone penetration in the Philippines has enabled crypto adoption as Filipinos looked to play-to-earn game Axie Infinity as a legitimate source of income when the country was on lockdown.

Tapping into a flourishing talent pool

On top of providing fertile ground for digital transformation, a population partial to technology, increased spending on STEM education, and low costs of living make for a skilled and cheap workforce.

Prior to the pandemic, the region experienced a tech brain drain as it was common for talent to move abroad for work. Now, many choose to stay in their home countries, where costs of living are often lower and correspond with lower salaries. Take the cost of hiring an app developer from Vietnam, world-renowned for its first-rate tech talent pool, for instance: Monthly salaries range from $500 to $2,500. This is undoubtedly a significant difference as compared to compensation figures in the West and is bound to draw any tech innovator to the region.

Besides labor arbitrage, consider as well that market valuations in Southeast Asia are often 30 percent to 40 percent lower than in the U.S. and that lower costs are involved across the board when setting up a firm in the region: It’s a no-brainer why Southeast Asia’s tech ecosystem is quickly gaining momentum.

A solid foundation for innovation

As Southeast Asia’s tech ecosystem is burgeoning, processes are perhaps not as established yet when compared to mature markets such as the U.S. and China, but this means there is white space for innovation and freedom for the creation of new infrastructures.

Qxpress’ success story serves as a good indication—originally an offshoot of e-commerce platform Qoo10 developed to bypass legacy infrastructures and provide logistical solutions, the Singapore-based, Peter Thiel-backed company is now weighing an IPO in the U.S. that could possibly see it to unicorn status.

Reminiscent of PayPal co-founder Thiel’s journey from entrepreneur to venture capitalist, the existence of a circular startup space in the region proves to be another pull factor for the next generation of entrepreneurs, as ex-entrepreneurs like Garena’s Forrest Li and Digix’s KC Chng give back to the ecosystem by providing venture capital and even advice to aspiring founders looking to plant local roots.

It also comes as no surprise that international tech giants like Facebook, ByteDance and Tencent are choosing to set up offices and regional hubs in Southeast Asia when there is aggressive governmental support and investment. Thailand, for instance, offers tech companies allowances and exemptions on visas and taxes under its Thailand 4.0 scheme, and Malaysia’s Cradle Fund, has helped to fund over 900 Malaysian tech startups.

The time to invest in Southeast Asia’s tech ecosystem could not be any better—a nascent ecosystem means opportunities abound, and one should enter the market now to fully reap the growth opportunities available.

Kendrick Wong is CEO and co-founder of Omnilytics, a retail analytics platform that delivers real-time market intelligence to retailers and financial market clients worldwide. An active investor in the region, Wong co-runs a private equity firm investing in startups, venture capital funds, and blockchain companies within Southeast Asia in addition to conducting traditional investments out of a family office.

Illustration: Li-Anne Dias