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Crazy Rich Asians: It Takes More Than a Big Bankroll to Play in Southeast Asia’s Startup Ecosystem

Yuan-Sheng Yu, Senior Analyst
November 26, 2018

Interest in Southeast Asia’s startup ecosystem continues to rise as two of the region’s most popular unicorns, Grab and Go-Jek, grab headlines with multi-billion-dollar funding rounds this year. But for many of our Western clients that are peering in from the outside, they only see the meteoric rise of VC funding that topped $8 billion in 2017. The region remains a black box, and building a strategy for the region is fraught with landmines.

Over the course of this year, we spoke with leading venture capitalists, serial entrepreneurs, and innovation leaders playing key roles in developing the startup ecosystem in Southeast Asia. Throughout these conversations, two key themes emerged that are unique to Southeast Asia for investors looking to enter the market.

Is there such a thing as too much money?

Back in the 1990s there were very few investors in Southeast Asia and now there seems to be an investor with an open checkbook on every corner. While this has made the region vibrant, many are concerned with the increasing flow of capital and the lack of “unwritten rules” to keep both startups and investors in check. Startups even mention that many investors intentionally take significant equity in startups at a very early stage to push out additional investors – consequently limiting the growth potential in many cases.

We are only witnessing the beginning of Southeast Asia’s rise, so a new wave of untapped capital could drastically shakeup the startup scene. Startups will seek unrealistic funding rounds and over-eager investors will drive excessive valuations.

Your network is your net worth in Southeast Asia.

There was unanimous agreement within our network that a personal relationship between startup and investor was the primary factor for an investment decision – not the product or the business model. Several challenges, such as cultural differences, inflated egos, and lack of trust have led to many costly failures and fear of “invasive investors” seeking full control, or even worse – stealing IP. The biggest wins in the region all had a perfect balance of personal and professional relationships.

This is probably the least surprising element of Southeast Asia’s startup ecosystem, as many Asian countries continue to function on personal networks, but it also lays a clear road-map of how to be successful in the region. There is no replacement for boots-on-the-ground and tapping local universities and R&D institutes is the quickest way to build an active role in the region’s innovation ecosystem. Despite being geographically dispersed, many will find Southeast Asia to be a “small world.”

Major corporations across the rest of Asia sit in an advantageous position, already staking claim to this fast-growing region. Japan’s SoftBank has done so through strategic investments in Grab and China’s Alibaba has done so through both investments and acquisitions of some of the regions flagship startups, such as Lazada and Tokopedia. But we continue to meet an increasing number of Western investors – high-net-worth individuals, institutional, venture capital, and corporate – at local industry events throughout the year. Despite this trend, newcomers to the region struggle to penetrate the ecosystem. What’s clear is that those seeking growth in Southeast Asia need to build the right relationships – and spend their money wisely.