In recent years, the continent of Asia has experienced significant growth with regard to both digital and technological transformation. According to research published by McKinsey in 2020, Asia has accounted for a particularly large share of global growth in a number of key technology metrics over the last 10 years, enabling local investors to impact global markets.
Metrics of particular importance highlighted in this report include a 52 per cent share in the global growth of technology-company revenue, as well as a 43 per cent share in startup investment and a 36 per cent share in the growth of “unicorns”, reflecting the power of Asian investments worldwide.
With a growing population and an almost equally expanding middle class, both organisations and citizens across the continent have an increasing amount of spending power that may be starting to affect consumption across the globe. With China’s middle class alone rising from three to 50 per cent of the population in two decades, the potential impact of Asian investment is clear.
However, for startups and small businesses from further afield to benefit from the growth of the Asian market, leaders must understand how to appeal to the desires of local financiers. With this in mind, here’s how cutting-edge software startups are attracting Asian investors.
Appealing to growing commercial sectors
For startups to reliably attract Asian investors, business leaders must consider which sectors have experienced the most significant growth in the region during recent economic booms.
For example, as of 2022, the Philippines, Singapore and Indonesia now represent the three fastest-growing e-commerce markets in the world, with respective digital sales growth levels of 25.9 per cent, 36 per cent and 34 per cent, figures far larger than the worldwide growth rate of just under 10 per cent.
Software startups either directly or tangentially related to e-commerce operations, including payment processing, cybersecurity and production scheduling software developers, can leverage their positions as facilitators of e-commerce optimisation to garner new investment.
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Of course, the recent significant growth in Asia’s digital economy has not been limited only to e-commerce, with a wide range of technology-based sectors also seeing increasing amounts of attention from Asian investors. Two of which to note are the fintech and health-tech sectors.
Fintech and health tech investments
With regards to the fintech sector, the digital assets market is expected to show a revenue growth of 16 per cent by 2025, with total Assets Under Management (AUM) values for the market expected to reach US$12.15 billion in 2024. For fintech startups to attract Asian investors, pivoting to the development of software associated with digital asset management may prove wise.
Analysing the health-tech sector suggests that the digital fitness and wellbeing market will likely experience the largest potential for investment in the coming years, with experts believing the market to achieve a total revenue value of just over US$2.75 billion in 2024 alone.
The recent success stories of startups involved in these industries, like Grab and Lazada, go some way to illustrating the investment potential for technology-based startups in the Asian market. Both are raising significant funds to expand existing operations in Southeast Asia.
Governmental policies and funding schemes
The growth of the Asian economy and the increasing potential for lucrative investments in technology-based startups have not been overlooked by governments in the region. In fact, a large number of new policies and initiatives have been implemented in recent years to help startups and Asian investors better connect and establish mutually beneficial partnerships.
Of particular benefit to software startups looking to attract Asian investors are the numerous tax incentives offered by jurisdictions in the region. With many funding programs and related regulatory reforms aimed at supporting startups wishing to branch out into the Asian market.
One such example is the Startup SG Equity scheme offered by the Singapore government. Under this program, Private Limited companies based in Singapore qualify for co-investment opportunities funded by both the Singaporean government and qualified third-party investors.
In response to programs such as this, some software startups and IT-based companies are choosing to incorporate their businesses in countries like Singapore. So much so that data published by the Accounting and Corporate Regulatory Authority (ACRA) reveals between 3000-4000 new local and foreign companies were registered per month during 2022 alone.
In short, cutting-edge startups looking to attract Asian investors are beginning to consider the benefits of transferring core operations to Asian headquarters to secure reliable funding.
Ecosystems geared towards startup success
Another way that startups are positioning themselves to best benefit from Asian investment has to do with attracting talent in the Asia-Pacific region. In the last few years, multiple Asian countries have seen a significant increase in the number of venture capital firms operating in their jurisdictions, leading to a sharp rise in venture capital funding between 2020 and 2021.
While average funding levels may have dropped in recent years, experts believe fundraising activity will begin to increase in 2024. However, the levels of available funding at present are not necessarily the main draw for software startups seeking investment. Rather, the previous growth in Asian venture capital activity has laid a foundation for healthy startup ecosystems.
Outside of the traditionally powerful markets of North America and Europe, Asia now has the largest share of emerging startup ecosystems in the world, with figures published in 2022 suggesting that the continent holds a 16 per cent share. These emerging ecosystems have, in turn, led to a growing pool of talent in the Asian market, specifically in fields related to technology.
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With universities and business schools across the region investing heavily in the creation of high-level courses centred around entrepreneurship and expertise in technology-related fields, the number of driven technology professionals in the region is thought to have grown. This is good news for tech startups looking to branch out into Asia in pursuit of investments.
An increase in highly qualified and innovative professionals in the region enables foreign software startups to gain a better understanding of the Asian market, hiring on-the-ground tech leaders to spearhead expansion operations. When coupled with the aforementioned governmental schemes and incentives for basing startups in Asian countries, foreign-born companies can better attract Asian investors by transferring some operations to the region.
The future of startup investment in Asia
While some funding activity and startup growth on the Asian continent has slowed in recent years, enough groundwork has been laid to ensure the market remains attractive to software startups across the globe. With this in mind, cutting-edge entrepreneurs should continue to weigh up their options with regard to which markets represent the most value to investors.
In terms of startup scenes in particular, it currently seems jurisdictions in Southeast Asia hold the most promise for technology-based startups. Recently published figures reveal Indonesia saw an increase in its GDP by over five per cent during 2022, while Malaysia recorded growth of just under nine per cent over the same period, signalling fertile ground for investments in the coming years.
In addition, Singapore continues to represent arguably the most promising area for startups to explore investment opportunities. In 2021, the country was said to be home to 20 startup unicorns active in the technology, e-commerce and communications industries, the most of any country in the Southeast Asian region. Furthermore, Singapore as a nation received the most venture funding per capita globally in 2023, signalling vast potential value for startups.
Looking at the Southeast Asian region as a whole reveals a staggering wealth of investment opportunities potentially available to startups willing to explore operations in the area. While figures may have dropped slightly when compared to 2019 and 2020, startups in the region raised a total of US$17.79 billion in equity and debt funding during 2022, with fintech companies, in particular, receiving increasing levels of attention from Asian investors and financiers.
All in all, cutting-edge software startups looking to attract Asian investors may benefit from exploring fintech, e-commerce and communications developments in the Southeast Asian region, specifically through liaison with newly established professionals in emerging markets.
In Conclusion
Healthy and attractive startup ecosystems have begun to emerge and grow across the Asian continent in recent years, coinciding with booming local economies and an increase in private spending power. These developments have led to higher levels of venture funding and an increase in government schemes aimed towards facilitating technological growth.
For both native and foreign software startups, the Southeast Asian market has quickly come to represent an attractive opportunity for growth, leading many companies to consider transferring operations to the region in search of reliable investments. In particular, fintech, e-commerce, health-tech and communications companies are geared towards Asian consumers.
For cutting-edge software startups to attract Asian investors, zeroing in on these sectors and pursuing professional relationships with native professionals may prove to be an invaluable pursuit. With venture funding expected to increase in the near future, now is the time to act.
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