Earlier in January, Accelerating Asia, a startup accelerator and early stage venture capital fund headquartered in Singapore, formally unveiled its second cohort. The ten startups that comprise Accelerating Asia’s second cohort hail from six countries including Australia, Bangladesh, Malaysia, Myanmar, Indonesia and Singapore. They have already raised over S$2 million in funding ahead of the programme, employ close to 200 people and have an average monthly recurring revenue of over S$40,000.
Accelerating Asia serves as one prominent example of Southeast Asia’s increasing viability as a hub for venture capital investment. The number of startup investment deals done in Southeast Asia has almost doubled in the past year, according to a recent 2019 report by Cento Ventures. Early-stage investments below US$500,000 spiked in the first half of 2019 due in part to deals done by accelerators and incubators such as Accelerating Asia.
SME Magazine was able to secure an interview with Craig Dixon, Co-Founder of Accelerating Asia:
Over the past few years, we have seen an exponential increase in startup and venture capital investment in the SEA region. What are some of the reasons for this influx of investment?
Southeast Asia’s sheer market size, coupled with favourable macroeconomic conditions is a key reason for the influx of investment. A recent Google and Temasek report on Southeast Asia put the region’s population of over 650 million people and 350 million mobile-first. The region’s growth rate also remains positive – SEA’s internet economy is expected to grow at 30 percent CAGR through to 2025 – while the US, China and Europe are facing significant economic headwinds, this also points to positive growth for investors and startups.
From a startup growth perspective, the interconnectedness of Southeast Asian countries and the population also allow startups to grow rapidly and scale across individual countries with relative ease compared to other regions. There are also more exit opportunities in the region fuelled by more corporations with startup investment vehicles and larger startups starting to invest in and acquire smaller startups. Unicorns in the area such as Grab and Go-Jek are also beginning to acquire startups.
Another factor is the global climate; investors are moving away from previously established markets in the region to Southeast Asia as global geopolitical changes impact capital flow. For example, Vietnam is one market where the tech startup scene is garnering interest from Chinese and US investors as the focus shifts.
With the fast-growing number of startups in the SEA region, what are some of the key factors that help identify startups and venture capitals that have good potential for growth?
As a fund and accelerator that is focused on pre-Series A startups, we look for startups that are a bit more advanced than other accelerators and early-stage funds in the region. The pre-Series A startups Accelerating Asia invests in having traction and at least one viable product that is being experienced by users and ideally some revenue. Startups should also have a high-potential business model that has a clear path and plan for commercial success and profitability. We think that startups with traction and a sound business model have a high-potential for growth.
The team is also an essential factor because we’re investing at an early stage. Startups must have a full team with all of the skills needed to execute on the vision for the next 18-36 months. Because without a reliable team, no matter how good the idea, it can be hard to turn the concept into reality.
Investors are taking a more cautious approach to startups due to some of the high-profile mis-steps by companies. What can startups that are seeking investors do to allay some of these fears?
It’s always been harder in Southeast Asia to fund startup growth purely on investment capital; Southeast Asian startups have had to find a path to cash flow positivity earlier than startups in say, Silicon Valley, so in some sense, the ecosystem is already primed to deal with this situation.
Startups should have a clear path to generating enough cash flow to cover expenses and not assume they can raise a Series B (or even possibly a Series A) round. This might mean growing a bit more slowly but also de-risks the business from failure to raise funds which has the added benefit of keeping management focused on growing the business instead of spending much of their time out fundraising.
Do you see the SEA region continuing to be a hotbed for investment over the next decade?
The signs were seeing point to SEA is one of the top growth areas for startups in the next ten years. There are some historical parallels to the USA and Chinese markets, for instance, the number of unicorns. Once the US and China reached around ten unicorns, growth in the ecosystem accelerated dramatically and within the next few years reached 50+ unicorns. In SEA we had just hit ten unicorns in 2019, so we’ll see if the parallels continue.
SME Magazine has also had the chance to interview several startups that are part of Accelerating Asia’s second cohort regarding the challenges they face and how they overcame them. You can view the interview here.