How are startups in Southeast Asia dealing with the COVID-19 threat?

Photo: ITU Pictures from Geneva, Switzerland / CC BY

Until recently, startups in Southeast Asia were rising fast with support from governments and investors. But many startups in the region are now fighting for survival as revenues and funding plummet due to the COVID-19 crisis.

By Umair Jamal

A Silicon Valley of Asia

Southeast Asia is emerging as the Silicon Valley of Asia. The region’s high-tech parks and promising new technology ventures underscore the region’s viability as a new hotbed for startups and investment. 

Southeast Asia’s digital economy has great potential due to the region’s young and tech-savvy population. According to a 2019 report by the World Economic Forum (WEF), “ASEAN’s youth have a strong preference for entrepreneurial settings.”

Governments across Southeast Asia are deploying the services of different health-related startups to manage the COVID-19 threat.

Indonesia-based health care startup NalaGenetics has introduced an online platform that uses genetic testing to reduce adverse drug reactions and increase prescription efficacy, improving health care providers’ ability to treat COVID-19. The startup recently secured major funding from the Indonesian government to supply 1,000 genetic test kits in five villages in Papua and West Papua.

However, as the world tackles COVID-19, startups in Southeast Asia are struggling to raise funds. According to the Thailand Tech Startup Association (TTSA), “up to 80% of local start-ups are struggling financially with revenue drying up amid the pandemic.”

This doesn’t bode well for an industry that is contributing massively to Southeast Asia’s economic growth.

Why has Southeast Asia been so promising for tech startups?

Several factors explain why Southeast Asia has become a promised land for tech startups. The market conditions in the region are exactly where they should be for a startup to find a strong support system. Southeast Asia’s market is open to trying new products and people are willing to pay for these services.

According to InformationAge, “there will be around one billion new customers added to the market by 2040, making Asia the thriving nest of business productivity.”

“The startup market is expected to grow even more, so that by 2024, the Southeastern region is presumed to produce at least 12 new businesses with a total market value of at least US$1 billion each,” noted James Murphy in an article for e27.

Photo: Pxfuel

In ASEAN, governments across the region have either facilitated or fully endorsed the tech ecosystem. This support system at the state level forms the backbone of a thriving startup culture.

The Thai government, for example, is working on an ambitious plan to transform the country into the next global hub for startups by addressing legislative loopholes and ensuring easier access to funds. In Indonesia, the government has launched a “10,000 startups initiative” to provide financial, technology and marketing support to emerging startups.

There is a growing understanding that private and public bodies across Southeast Asia need to work along with startups and other industry stakeholders to support a strong ecosystem for emerging businesses.

The potential for further growth remains strong as Southeast Asia’s startup industry is dominated by youth. Additionally, customers’ demands continue to increase, making immense contributions to Southeast Asia’s startup development.

Understating the threat COVID-19 poses to startups in the region

Amid COVID-19, startups across Southeast Asia are facing massive revenue shortfalls. It is getting increasingly difficult to tap into new funding sources to control looming financial disruptions in Southeast Asia’s startup sectors. Startups dealing with travel, tourism and hospitality are the most affected.

Before the emergence of COVID-19, a larger number of new startups in Southeast Asia faced growing scrutiny from international investors looking to assess new companies’ growth prospects. According to an article from Nikkei Asian Review, in 2019, 30% of new startup funding disappeared due to tougher scrutiny from investors.

The financial burden imposed by COVID-19 means new companies are cutting marketing and expansions plans to stay afloat. A Malaysia-based flower delivery startup, BloomThis, is one of the country’s hardest-hit startups due to widespread closures of nonessential businesses. Malaysia’s ban on mass gatherings has resulted in a sharp drop in demand and the startup has been scrambling to cut costs.

Thailand’s startup sector, being relatively large, is likely to be the most affected in the region. “We estimate that the income of up to 80% of local start-ups has fallen to zero,” said Panachit Kittipanyangam, president of the Thailand Tech Startup Association (TTSA).

“In the post-COVID-19 world, 40-50% of the local start-ups might disappear in Thailand,” Panachit added.

In the midst of this gloomy situation, some of Southeast Asia’s leading startups are overcoming the financial crunch by implementing diverse growth strategies. “The first and foremost lesson is to expand early—to develop and activate a market expansion strategy from the onset as opposed to waiting to scale and becoming entrenched in a single country,” wrote Jonathan Moed, founder of website Startup Universal in Forbes.

“The reason this is crucial is that so much of the experience of a startup scaling in Southeast Asia is determined by the rate at which it expands across multiple countries, from its relationship with regulators to its partner network to its product development,” he added.

Despite the pessimism surrounding COVID-19, some financiers in Southeast Asia are still looking to invest in startups hit by the pandemic. A Singapore-based venture capital firm, TNB Aura, which focuses on Southeast Asian investments, recently started a new fund to “invest US$2 million in each startup affected by the COVID-19 pandemic.”

“With the current market sentiment, which we expect to persist for at least another six months and possibly till next year, we’ll be witnessing a continued flow of startups facing urgent cash flow issues,” the company told Tech in Asia.

A lot of people see the pandemic turning into a driving force for innovation. Governments across the world are using technology and startups to contain COVID-19. It is high time that governments across Southeast Asia also offer financial stimulus packages for startups affected by the pandemic. For the startups themselves, it is time to remain optimistic and devise recovery strategies for the post-COVID-19 period.

About the Author

Umair Jamal
Umair Jamal is a freelance journalist and a Ph.D. candidate at the University of Otago, New Zealand. He can be reached at umair.jamal@outlook.com and on Twitter @UmairJamal15