While Southeast Asia's tech start-up scene is booming, the emphasis has shifted from producing unicorns to developing deep-tech solutions. To achieve sustainable growth, these start-ups will need a comprehensive ecosystem that includes skilled talent and support for cross-collaboration.
“Venture capitalists (VCs) are shifting their interests now to two particular sectors: general tech and deep tech,” says Clarence Tan, founder and managing partner of Origgin Ventures, a pre-seed investment and venture creator firm based in Singapore that focuses on commercialising deep tech.
General tech uses existing technologies to solve problems or create new applications. In contrast, deep tech involves developing new technologies through advanced scientific principles and engineering innovations. It requires extensive research and development (R&D), often taking years before reaching the market.
“In the deep-tech space, [VCs] are looking at sectors like agriculture and food tech, especially in Singapore, because we are a small country and need to be self-sufficient. The other area is anything related to sustainability, like advanced materials, new energy, or new types of batteries. Recently, because of ChatGPT, AI has come back again. Medtech (medical technology) is another area that many VCs are hunting for,” says Tan. In May, He spoke at the Origin: Asia Tech Conference, co-organised by TNGlobal and the Macau Greater Bay Area Technology Exchange Association.
This offers numerous opportunities for Southeast Asian start-ups, especially given the region’s diverse cultures and fragmented markets. Investors and start-ups can take advantage of the low barriers to entry to build a thriving ecosystem for their ventures.
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What is your added value?
Foreign investors and start-ups have expressed interest in entering the Southeast Asian market and vice versa, so companies in the Southeast Asian market can expand globally. However, there is still a barrier due to a lack of understanding of the local market and disparities in technological advancement in different countries.
“In agriculture, there are plenty of opportunities in Southeast Asia. However, the level of their technology hinders start-ups from accessing those opportunities. In South Korea, we have AI or robotics to help with human physical labour. So, maybe those companies with that type of technology can collaborate with Southeast Asian start-ups to make another foundational revolution on their major businesses in the area,” says Ryu Jung-hee, partner and CEO of FuturePlay, a start-up accelerator in Seoul that invests in tech-centric start-ups.
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Ryu recommends that foreign start-ups take advantage of Southeast Asia’s market size from a technological and cultural perspective. He adds that one key thing they should do is find the gap and grow from there.
Foreign investors entering Southeast Asia should ask themselves this: How can they become valuable partners in such a diverse region? The key is having local expertise. While funding is essential for operations, it is equally important for investors to understand the nature of their investment and the support they offer to the region.
“When we invest in our investees and then try to expand throughout Southeast Asia, whether from China to Southeast Asia or vice versa, we would always help them partner with the local partners. If you have nothing to offer in this process, then at least make sure you bring in some US dollars,” says Adrian Hia, a partner at Kuala Lumpur-headquartered Kairous Capital.
He says Malaysia and Singapore can serve as a test bed for many different business strategies due to their diverse cultures, especially for testing online-focused business strategies like software-as-a-service (SaaS) solutions.
“[Malaysia and Singapore] have the highest online spending per capita in countries throughout Southeast Asia. So, they allow us to test whether some strategies are feasible before they expand to other regions or countries within Southeast Asia. If you can be profitable and scalable in Malaysia, you will most likely be able to do that in other Southeast Asian countries with a local partner,” says Hia.
On the flip side, Southeast Asian start-ups looking to expand into China face challenges similar to those experienced by companies entering Southeast Asia. Ultimately, the key to successful expansion lies in having the top executives develop the right strategy for entering new markets.
“Venturing into other regions requires a high-level strategy. It’s not just about finding an agent to help you sell goods or services. It won’t succeed. You should have the right team to execute the strategy,” says Minjun Liang, founding partner of ATM Capital, a Chinese-led venture capital firm focused on the Southeast Asian market.
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For foreign start-ups, achieving a major tech success story in Southeast Asia would have a positive ripple effect. This “big win” would attract investors, inspire entrepreneurs and draw talent to the region’s tech sector, adds Liang.
“It proves to investors that there is real opportunity and that money will come in. It proves to founders that it can be done, and that’s what [success] looks like. It also proves to talent, locally and abroad, that there’s a real opportunity in tech companies in that market,” says Bit Santos, assistant vice president of portfolio operations at Kickstart Ventures, a corporate VC from the Philippines.
Scaling up
The start-up world is full of innovation, but some founders overlook the essentials in pursuing the next big thing. “First, I think every start-up founder should know the core of their business. Sometimes, we see start-ups entering the industry looking at a fixed service offering. They don’t even know the core of it. That is a problem they will encounter if they want to expand,” says Liang.
The true strength lies in identifying and delivering a unique value proposition that resonates with the businesses’ target audience. Only then can companies choose the most effective technology to amplify that core and propel their business forward.
Liang adds: “Second, you need to use the right technology. Everybody talks about technology and thinks of it as the main spotlight of the business. But no, especially in Southeast Asia, even in the US or China, technology is only one factor that can help you strengthen the business.”
Allocating resources effectively across different aspects of the business is also crucial. “Sometimes, it’s marketing, sometimes it’s the [development of the] team, sometimes it’s the technology. I always talk with the founders in Southeast Asia and remind them that the core of their business [should be prioritised], then only the right technology,” says Liang.
Still, Southeast Asia's start-up scene is thriving, with new ventures emerging across the region. However, launching these businesses requires more than just an initial spark. “The biggest missing piece is probably [the follow-through of] investment into Southeast Asia right now. There’s been a lot of investment in accelerating seed and early-stage businesses, but there’s no follow-through. Several governments have invested in accelerators but have not looked at VC, growth stage or debt companies,” says Rachel Lau, co-founder and chief information officer of RHL Ventures.
Having good start-ups is not enough. Investors will need skilled general partners who can identify strong investment opportunities, manage the investment process and help the start-ups they invest in expand. Lau says: “Another thing is the ecosystem around it, such as [having a network of] lawyers and fund accountants [to scale growth]. For Southeast Asia, we’ve invested a lot in early-stage companies but forget that the rest of the world needs to help them grow.”
Another unresolved issue companies must address is talent development and training. “I think the tech talent in Southeast Asia is pretty good, but they lack exposure. Where I’ve given them more leeway is in meeting people. The more people you meet, the more you talk and the more start-ups you encounter. That is how you know, good or bad,” says Lau.
Tan adds: “The tech area is talent intensive, especially in deep tech. We would like to form teams to complement each other’s weak points and have a mix of skilled talent to make sure the deep-tech start-up can thrive and advance.”
This article first appeared in The Edge Malaysia. It has been edited for clarity and length
