When investing in companies, ensuring good enterprise value, strong financial ratios, and robust cash flows is crucial for identifying growth opportunities. For decades, these financial metrics have been used to indicate a company worth investing in, potentially promising solid returns for shareholders.

Today, however, integrating environmental, social, and governance (ESG) factors into investment strategies is increasingly critical to capturing the full picture of a firm’s potential and resilience.

Here are three key reasons why understanding ESG factors is critical for investors, especially in the Asia-Pacific region.

Enhancing risk management

ESG considerations are at the heart of effective risk management. Traditional financial metrics are essential, but they often fail to capture a company’s full risk profile. ESG metrics provide critical insights into risks that can significantly impact a company’s performance. 

For example, over 57 million people across the Asia Pacific were affected by climate disasters in 2021. Imagine the financial impact if your investee firms or its employees were located in those regions. Or, outdated technology might mean a facility consumes excessive energy, impacting not only environmental resources but also increasing operational costs. For a “Social” factor, consider an investee company in the technology sector that only hires one gender—can it truly create products representative of our diverse society?

Tracking these risks is the only way to understand the strategies needed to manage them. Often, the data exists but companies fail to operationalise its consolidation because it’s scattered across different parts of the organisation. It is also sometimes an exercise that is done once at the start of the investor relationship instead of leveraging it over the course of the investment period.

Also Read: Small steps, big impact: How SMEs can champion ESG initiatives

Driving operational efficiency

Integrating ESG metrics into traditional financial analysis provides a more holistic view of investee company performance and opportunities to create operational efficiency. For instance, tracking information about sustainable packaging for retailers can lead to cost savings through reduced material use and waste. Similarly, tracking the number of workplace injuries and days lost due to injuries are additional metrics that can contribute to better financial performance and lower risk when managed. 

In Asia Pacific, companies face unique challenges, such as the lack of consistent common language that makes the understanding of global standards tricky. For example, the nuances of diversity, equity, and inclusion (DEI) policies and demographic data tracking can vary significantly between countries, leading to inconsistent data collection processes.

Additionally, human error, lack of information, and overly complex data collection methods can result in poor data quality. An effective ESG strategy involves a clear and consistent approach to yield high-quality data, which is crucial for achieving the efficiency needed for desired investment outcomes, as well as a technology platform that integrates with your current tech stack.

Meeting investor expectations and regulatory requirements

Private equity firms are increasingly requesting metrics that account for emerging risks. Issues such as cybersecurity are particularly relevant to the Asia-Pacific region as technology becomes more sophisticated. Organisations in the Asia-Pacific region experienced an alarming average of 1,835 cyberattacks per week in the first quarter of 2023, compared to the global average of 1,248 attacks per week, according to IMDA Singapore.

Last year, Asia Pacific witnessed the highest level of cybercrime activity for the second consecutive year, accounting for 31 per cent of global attacks. As digitalisation continues to expand across the region, cybercriminals are increasingly targeting Asia, making cybersecurity an essential component of risk management for businesses.

On the ESG regulatory front, there has been an uptick in jurisdictions requiring mandatory reporting from non-listed companies. While many regulations in the region are targeted to public companies, Japan, Hong Kong, Indonesia, and Singapore encourage non-listed companies to adopt sustainability disclosures on a voluntary basis.  Singapore and New Zealand have also established regulatory requirements.

Starting in 2027, Singapore will require large non-listed companies to disclose climate-related information. New Zealand has already introduced mandatory climate-related disclosures for financial institutions and large entities beginning in 2023.

Also Read: ESG frameworks and standards: Cutting through the complexity for private markets

With regulatory requirements also on the rise globally, private equity firms may limit their pool of potential investors during fundraising if they lack robust ESG data. Investors based in regions such as EMEA often have stringent regulations and requirements for ESG disclosures, making comprehensive ESG reporting crucial for attracting and retaining these investors.

Practical steps for investors

To operationalise your ESG processes, consider these basic steps:

• Adopt global standards and frameworks: Leverage existing ESG frameworks such as EDCI, GRI, and SASB to inform sustainability reporting. Having a policy simply means an overview on values and principals but having a framework is a more practical and prescriptive step.
• Integrate ESG into due diligence: Make ESG metrics a core part of your investment evaluation and portfolio management process to demonstrate your commitment to sustainable investing and long-term value creation.
• Engage with stakeholders: Regularly engage with your stakeholders and those of your investee companies.
• Utilise technology: Implement technology solutions to streamline ESG data collection and reporting. If data collection is too onerous, you jeopardise the quality and completion of the process.
• Address regional challenges: Language and Cultural Differences: Provide training and resources to help local teams understand and implement global standards.
• Simplify data collection processes: Develop straightforward, efficient data collection methods to reduce the burden on local teams and improve data quality. This could be assisted with evolving technology today.

As the investment landscape evolves, integrating ESG considerations into your strategy not only enhances operational efficiency and risk management but also aligns with global investor and regulatory expectations, ensuring robust and sustainable growth for the future. Make sure you have the full picture.

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The Echelon X fireside chat titled ‘$10M in 2 Years: Building Direct-to-Consumer Brands in Southeast Asia’ provided an insightful look into the business of DTC brands in SEA. The session explored key themes such as testing and manufacturing, branding and marketing, the metrics that truly matter, the resurgence of retail experiences, and the maturation of the DTC space in the region.

Moderated by Prahlad Jaya, Founder of Kurate, the fireside chat featured Roy Ang, Co-Founder and CEO of Evo Commerce. Together, they offered a comprehensive look into the business of DTC brands in SEA. From the initial stages of testing and manufacturing to the critical aspects of branding and marketing, the discussion covered the essential metrics that drive success in this competitive landscape.

Additionally, the speakers explored the return of retail experiences and how the DTC space is evolving and maturing in Southeast Asia. The session provided valuable insights and practical advice for entrepreneurs and industry professionals alike.

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In the past decade, India has witnessed a dramatic rise in the number of startups, transforming the country into one of the most vibrant entrepreneurial ecosystems in the world. With a rich pool of talent, increasing access to capital, and a supportive government, the Indian startup landscape has evolved rapidly.

This article delves into the factors driving this growth, the challenges faced by startups, and the future prospects of entrepreneurship in India.

The Indian startup ecosystem: A snapshot

India’s startup ecosystem is one of the fastest-growing in the world, boasting over 80,000 startups as of 2023. These startups span various sectors, including technology, healthcare, finance, education, and agriculture.

The growth of this ecosystem has been fueled by several factors:

• Demographic advantage: India has a young and dynamic population, with over 65 per cent of its citizens under the age of 35. This demographic dividend has created a large pool of energetic and ambitious entrepreneurs who are eager to innovate and disrupt traditional industries.
• Digital transformation: The widespread adoption of smartphones and the internet has opened up new avenues for digital startups. With over 700 million internet users, India presents a vast market for tech-driven solutions. The government’s push for a digital economy through initiatives like Digital India has further accelerated this transformation.
• Access to capital: The availability of funding has been a crucial factor in the growth of Indian startups. Venture capital firms, angel investors, and government-backed funds have played a significant role in providing the necessary capital for startups to scale. Additionally, India has seen a rise in corporate venture arms and international investors looking to tap into the burgeoning market.
• Government support: The Indian government has introduced several policies and initiatives to foster entrepreneurship. The Startup India initiative, launched in 2016, offers a range of benefits, including tax exemptions, simplified compliance processes, and access to government tenders. Moreover, the government has set up funds like the Fund of Funds for Startups (FFS) to provide financial support to startups.
• Educational institutions and incubators: Indian educational institutions, particularly the Indian Institutes of Technology (IITs) and Indian Institutes of Management (IIMs), have become hotbeds of entrepreneurial activity. Many of these institutions have established incubation centres that provide mentorship, resources, and networking opportunities for budding entrepreneurs.

Key sectors driving growth

The Indian startup ecosystem is diverse, with several sectors showing significant promise. Some of the key sectors driving growth include:

• E-commerce: India’s e-commerce sector has witnessed exponential growth, driven by increasing internet penetration, rising disposable incomes, and changing consumer behaviour. Startups like Flipkart, Snapdeal, and BigBasket have revolutionised the way Indians shop online, offering everything from electronics to groceries at the click of a button.
• Fintech: The financial technology (fintech) sector in India has emerged as a global leader, with startups like Paytm, PhonePe, and Razorpay leading the charge. These companies have disrupted traditional banking and financial services by offering innovative solutions such as mobile payments, digital wallets, and online lending. The government’s push for digital payments through initiatives like UPI (Unified Payments Interface) has further fueled the growth of fintech startups.
• Edutech: The education technology (edutech) sector has gained significant traction, especially in the wake of the COVID-19 pandemic. Startups like BYJU’S, Unacademy, and Vedantu have transformed the learning experience by providing online courses, interactive content, and personalised learning solutions. With the increasing demand for quality education and skill development, the edtech sector is poised for continued growth.
• Healthtech: The healthcare sector in India has seen a surge in healthtech startups offering innovative solutions to address the country’s healthcare challenges. Companies like Practo, 1mg, and PharmEasy have revolutionised the way healthcare services are delivered, from online consultations to medicine delivery. The COVID-19 pandemic has further accelerated the adoption of digital health solutions, making healthtech one of the most promising sectors in the Indian startup ecosystem.
• Agritech: Agriculture is the backbone of the Indian economy, and agritech startups are playing a crucial role in modernising the sector. Startups like Ninjacart, DeHaat, and CropIn are leveraging technology to improve supply chain efficiency, provide real-time data to farmers, and offer precision farming solutions. With the government’s focus on doubling farmers’ income, the agritech sector is expected to see significant growth in the coming years.
• Electric vehicles (EVs) and clean energy: The push for sustainability and clean energy has led to the rise of startups in the electric vehicles (EVs) and clean energy sectors. Companies like Ola Electric, Ather Energy, and ReNew Power are leading the charge in developing electric vehicles, charging infrastructure, and renewable energy solutions. With the government’s ambitious targets for EV adoption and renewable energy capacity, this sector is set to play a vital role in India’s future.

Also Read: How can biofuel reduce India’s dependence on oil imports?

Challenges faced by Indian startups

Despite the impressive growth, Indian startups face several challenges that can hinder their progress:

• Regulatory hurdles: Navigating the complex regulatory environment in India can be daunting for startups. While the government has made efforts to simplify processes, compliance with multiple regulations across different sectors can be time-consuming and costly.
• Access to talent: While India has a large pool of talent, there is a shortage of skilled professionals in areas such as data science, artificial intelligence, and cybersecurity. Startups often struggle to attract and retain top talent due to competition from larger companies and global players.
• Funding challenges: Although there has been a surge in funding, not all startups have access to the necessary capital. Early-stage startups, in particular, may find it challenging to secure funding without a proven track record or strong connections in the investor community.
• Market competition: The Indian startup ecosystem is highly competitive, with numerous players vying for market share in key sectors. Startups need to continuously innovate and differentiate themselves to stay ahead of the competition.
• Scaling issues: Scaling a startup in India can be challenging due to the country’s diverse market, which is characterised by varying consumer preferences, regional languages, and infrastructure limitations. Startups need to adopt a localised approach to effectively reach and serve customers across different regions.
• Intellectual property (IP) protection: Protecting intellectual property is crucial for startups, especially those operating in technology-driven sectors. However, the process of obtaining and enforcing IP rights in India can be cumbersome and time-consuming, posing a risk to startups’ innovations.

Success stories and unicorns

India’s startup ecosystem has produced several success stories, with numerous startups achieving unicorn status (valued at over $1 billion). Some of the most notable unicorns include:

• Flipkart: Founded in 2007, Flipkart is one of India’s earliest e-commerce giants. Acquired by Walmart in 2018, Flipkart has played a pivotal role in shaping the Indian e-commerce landscape and inspiring a new generation of entrepreneurs.
• Paytm: Launched in 2010, Paytm started as a mobile recharge platform and has since evolved into one of India’s leading fintech companies. With a wide range of services, including payments, banking, and e-commerce, Paytm has become a household name in India.
• BYJU’S: Founded in 2011, BYJU’S is the world’s most valuable edtech company. With its engaging and interactive learning platform, BYJU’S has transformed the way students in India and abroad approach education.
• Ola: Ola, founded in 2010, is India’s leading ride-hailing company. It has expanded its services to include electric vehicles, food delivery, and financial services, making it one of the most versatile startups in the country.
• Zomato: Founded in 2008, Zomato is a leading food delivery and restaurant discovery platform. Zomato’s success has paved the way for other foodtech startups and contributed to the rapid growth of the food delivery market in India.

Also Read: India beats Singapore, US to rank highest for AI project implementation

The future of Indian startups

The future of Indian startups looks promising, with several factors contributing to the continued growth of the ecosystem:

• Increased digital adoption: The ongoing digital transformation in India will create new opportunities for startups across various sectors. The rise of 5G, the Internet of Things (IoT), and artificial intelligence (AI) will drive innovation and open up new markets.
• Global expansion: Indian startups are increasingly looking beyond domestic markets and expanding their presence globally. With a focus on innovation and cost-effective solutions, Indian startups have the potential to become global leaders in their respective fields.
• Focus on sustainability: As the world grapples with climate change, there will be a growing emphasis on sustainability and green technologies. Indian startups in sectors like clean energy, electric vehicles, and sustainable agriculture will play a crucial role in driving this transition.
• Government support: The Indian government’s continued support for entrepreneurship, through initiatives like Startup India and Atmanirbhar Bharat, will provide a conducive environment for startups to thrive. Policy reforms aimed at simplifying regulations and improving ease of doing business will further boost the startup ecosystem.
• Rise of deep tech startups: As India’s startup ecosystem matures, there will be a shift towards deep tech startups that leverage advanced technologies like AI, blockchain, and quantum computing. These startups will drive innovation in areas like healthcare, finance, and cybersecurity, creating new opportunities for growth.

Conclusion

India’s startup ecosystem has rapidly evolved into a global powerhouse, driven by innovation, resilience, and a spirit of entrepreneurship. As startups continue to disrupt traditional industries and create new markets, they are not only contributing to economic growth but also shaping the future of technology and business.

The road ahead is filled with opportunities as well as challenges, but with continued support from the government, investors, and the community, Indian startups are poised to make a significant impact on both the domestic and global stage.

The next decade will likely see Indian startups not just thriving within the country but also becoming influential players on the world stage, driving change and setting new benchmarks in various industries. As the ecosystem matures, it will be exciting to watch how these startups continue to innovate, adapt, and lead the way into a new era of entrepreneurship.

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Singapore-headquartered savings and investment platform Syfe has closed a US$27 million funding round.

The money came from two unnamed UK family offices and existing investors Unbound and Valar Ventures, the US-based VC firm co-founded by Peter Thiel.

Also Read: Wealthtech, insurtech, SaaS fintech are the new hot verticals in Indonesia: AC Ventures report

This round brings the total funds raised by the company to US$80 million.

Syfe will use the funds to accelerate product development. This will include launching new verticals in its newest markets, Hong Kong and Australia, to match the holistic offering of managed investment portfolios, cash management solutions and full-fledged brokerage already available to customers in Singapore.

Dhruv Arora, founder and CEO of Syfe, said: “We will also be assessing strategic investment opportunities or acquisition targets aligned with our mission and growth objectives.”

Licensed and operational in Singapore, Hong Kong and Australia, Syfe aims to empower people to build their wealth for a better future. It caters to individuals’ wealth needs with diversified proprietary portfolios, cash management solutions, and brokerage.

Also Read: Peter Thiel’s Valar Ventures leads Singapore wealthtech startup Syfe’s US$30M Series B round

In Singapore, Syfe manages multiple billion dollars in assets, and over 5 per cent of adult citizens use the platform to achieve their financial goals. According to the company, its Singapore unit turned profitable in early 2024.

The startup has customers from 60-plus countries.

In 2021, Syfe announced the closing of its US$30 million Series B funding round, led by Valar Ventures. A few months earlier, the same VC firm led a US$18.6 million Series A funding round in the firm.

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Image Credit: Syfe.

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Singapore-based global VC firm Antler has invested US$110,000 in pre-seed funding in AI-driven DevOps-as-a-Service platform NEBU as part of its Malaysia Residency programme.

The startup will use the capital to develop its platform, enhance its AI models, and fund its go-to-market strategy.

Also Read: Antler closes US$72M SEA Fund II, to invest US$27M in 45 startups in 6-9 months

Cloud misconfigurations present significant challenges and risks, including security vulnerabilities, data breaches, and increased operational costs. These misconfigurations can result in downtime, loss of customer trust, and substantial financial losses.

NEBU’s solution aims to mitigate these risks by automating the detection and remediation of cloud misconfigurations, ensuring continuous and secure cloud operations.

The startup’s primary customers are cloud-native companies. By leveraging expert AI, NEBU automates all DevOps infrastructure activities, reducing the costs associated with monitoring and maintaining cloud environments. This enables businesses to focus on creating value, while NEBU augments their capabilities of cloud infrastructure management efficiently.

Recently, Antler announced the final close of its second Southeast Asia fund, worth US$72 million. Fund II will continue investing in early-stage tech-enabled companies in the region with pre-launch, pre-seed, and seed capital.

Also Read: Antler invests in 19-year-old’s AI-powered research and writing platform Intellecs

Over the next six to nine months, it targets to invest US$27 million in 45 early-stage startups. Part of the funding will also support startups formed during Antler’s residency programmes in Singapore, Indonesia, Vietnam, and Malaysia.

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Image Credit: Nebu.

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