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Southeast Asia’s tech unicorns navigate global economic headwinds

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Singapore robotics firm AiTreat’s EMMA robot is being demonstrated at a tech start-up fair, Singapore, 13 February 2023 (Photo: Reuters).

In Brief

In 2021, Southeast Asian unicorns — privately owned billion-dollar businesses — came into the spotlight because of an increased inflow of private equity funding for tech start-ups. The region’s growing smartphone usage among its young demographic, expanding middle class and growth in internet users led to investment in the sector.


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The COVID-19 pandemic has accelerated digitalisation and tech companies increased their headcount rapidly on the back of low-interest lending and flush liquidity. Rapid consumer adoption of e-commerce, increased use of food delivery platforms and the push for innovative tech solutions, especially in the finance and banking sectors, attracted greater funding. This fuelled investment in start-ups and the expansion of the tech workforce.

The emergence of unicorns in Southeast Asia attracted a greater inflow of cheap liquidity to the region. The unicorn business model uses investment funds to scale up rapidly by offering customers discounts and incentives. The rationale for companies to scale up is to capture market share — while the need to earn revenue for financial sustainability takes a back seat.

Heading into 2022, the business models of unicorns and start-ups were affected by the global economic slowdown. The resulting reduction in investment inflows triggered a ‘correction’ in the technology industry, so many valuations dropped.

The mantra of growth despite losses was replaced by a focus on sustainability and profitability. Tech companies, especially unicorns, mitigated their financial losses by laying off thousands of workers as they restructured.

Only eight start-ups achieved unicorn status in 2022 compared to 23 in 2021. In the fourth quarter of 2022, Southeast Asian tech companies raised US$2.88 billion in funding, a two-year low. Private funding also decreased by 32 per cent to US$15.8 billion, compared to US$23.2 billion in 2021.

As the funding environment turned bleak, investors, including banks like HSBC, began establishing dedicated debt funds to complement start-ups’ fundraising. This enabled new companies to acquire short-term working capital without diluting the founders’ ownership.

The unicorns have also resorted to a change of strategy to adapt to the leaner inflow of funding. Coda Payments, a leading provider of secure, cross-border monetisation solutions based in Singapore, had a secondary share sale to create returns for early investors — including the firm’s founders — without tapping into fresh capital. Coda is entering into the North American, European and Latin American markets and introducing new payment service offerings. Growth in any of these new markets would generate big returns.

Governments in Southeast Asia will also have to step up with funding schemes and other incentives for start-ups. Some states are already doing so, with Singapore funding several schemes that aim to support start-ups, including Startup SG which is associated with deep tech startups, early-stage funding, commercialisation and development of the proprietary technology. In this programme, the government will co-invest in potential startups with qualified external investors.

Talent is another key challenge for start-ups in the region. Larger ASEAN countries like Indonesia, the Philippines and Vietnam have the potential to provide tech talent for the region. In 2019, Indonesian President Joko Widodo pledged to develop Indonesian talent with the help of international corporations like Google, Huawei and Gojek. Talent in areas like artificial intelligence, data science and software engineering is being developed.

Vietnam’s IT Market Report indicated that Vietnam possesses over 400,000 IT engineers and that its universities are producing approximately 50,000 IT graduates annually. The Vietnamese talent pool could provide start-ups with highly suitable blockchain, machine learning and artificial intelligence and data science personnel. The Philippines has a diverse pool of English-speaking tech talent that supplies government-backed start-ups. Filipino graduates could supply Southeast Asia with workers in cybersecurity, e-commerce and fintech.

Potential unicorns should be encouraged by the substantial unbanked and underbanked population in Southeast Asia. Fintech firms continue to play a crucial role in introducing this population segment to new and innovative financial and insurance solutions. In finance, Fundiin is a promising Vietnamese buy-now-pay-later platform founded in 2019 that began operating in a country where the penetration rate of credit cards was only 5 per cent. The platform offered consumers the chance to make purchases and pay for them over three monthly instalments.

The lifestyle segment is also growing by leveraging the large consumer middle class in Southeast Asia. Examples of promising start-ups in this sector include Partipost, a Singapore-based start-up founded in 2016 and Social Bella, an online beauty and personal care services provider in Indonesia.

Start-ups have also transformed food manufacturing in Southeast Asia. Shiok Meats, founded in 2018, focuses on the production of lab-cultured shrimp and crabs. As part of Asia’s alternative food industry, such start-ups have the potential to stave off future global food crises.

Unicorns and tech start-ups need to transform their business models to survive and grow during the current economic downturn by streamlining their operations, improving corporate governance and being resourceful in the attraction and retention of talent. Unicorns and start-ups could also benefit from the current uncertainty in the global economy. The tech rivalry between the United States and China suggests that Southeast Asia may become an attractive alternative destination for investors and foreign companies.

The resilience of the region despite economic headwinds, coupled with the maturing investment ecosystem, will continue to drive the emergence of unicorns in the region. Government policies and funding for deep tech start-ups could be improved, especially in Indonesia. The rich diversity of entrepreneurial talent in the region is also key to innovation.

Faizal Bin Yahya is Senior Research Fellow in the Institute of Policy Studies at the Lee Kuan Yew School of Public Policy, National University of Singapore.

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