Southeast Asia: The Start-Up Ecosystem

As part of their summer break at INSEAD, Team SEACompass decided to travel around Southeast Asia to learn more about the up-and-coming startup ecosystem in the region. The team comprising Georgia Wynter, Vincent He, and Abhinav Lalam, three INSEAD MBA 22D students who traveled to Singapore, Indonesia, Thailand, and Vietnam. They met up with over 35 start-up founders, investors, and start-up advisors to understand the ecosystem and the challenges they face. The team felt that there was much to be learned from studying an ecosystem in Asia whilst living in Europe, but the learnings would also be relevant for the students and alumni of an international MBA program.

Why Southeast Asia? Southeast Asia is a distinctive and relatively under-explored region with regard to start-ups. Though China and India have usually dominated the conversation, recent geopolitical events have brought SEA into the forefront. SEA has enormous growth potential. The extensive diversity in culture, demographics, language, and geography provides challenges for start-ups to solve via innovative means. The region comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. It accounts for about 8% of the world’s population and a GDP of about 3.3 Trillion USD (as of 2020). These numbers are only expected to rise rapidly in the future, continuing a trend of prosperous growth seen in the last decade. The region has seen its GDP per capita grow to 5,017$ and is expected to grow at 6% PA (per OECD). With this incredible growth and growth potential, founders and investors are starting to shift their focus toward to region. SEA has seen the largest increase in VC investment due to the above factors. There has been a 5x growth in venture capital invested in the region between 2015 and 2020.

Opportunities:

The Southeast Asia population has a median age of 30. There is a growing demand for services and commodities in the region as economic growth brings into existence a large and young affluent middle class. Given the sheer size of the population at 600 million plus, this represents a massive potential customer base twice the size of the US. They have a higher mobile penetration than China. And the local population is becoming aware of the various startup services that make their lives more comfortable. In the article below, we have compiled some of the more innovative start-ups we encountered on the trek.

Some of the key trends that drive the potential for innovative startup success can be summarised:

  1. Young Population and growing middle class
  2. High mobile penetration
  3. Relatively underdeveloped with significant social inefficiencies

AgriTech:

Agriculture is an important part of the economies in Southeast Asia, with a total market size of USD 717 billion by 2019. However, the current farmer production efficiency is low for various reasons, including lack of knowledge, technology, market information access, credit, and global climate change. At the same time, farmers are often taken advantage of, and their margins are squeezed by middlemen. As a result, farmers in Southeast Asia often suffer from low and unstable incomes. During our trek, we encountered several innovative startups which educate farmers, support farmers, improve their margins, and eliminate predatory middlemen.

The first of these is Adapanen. The start-up is a sustainability-focused circular agri-tech with two goals: 1) reduce food waste and 2) increase the bargaining power of the farmers. They achieve this through a combination of activities, such as buying produce directly from farmers and allowing farmers to name their prices. They redirect “unpleasant” produce in juice stores or in hotels (B2B model). Adapanen also repurposes unusable farm waste in cattle feed, insect feed, and fertilizer to complete the circularity in their agriculture value chain.

Another innovative startup is Pitik, which focuses on improving chicken farming. The company has built innovative technological solutions that improve chicken yields and decrease illnesses. They provide farmers with end-to-end solutions and processes that improve farmers’ revenue potential. Inseact is another AgriTech startup that utilizes palm tree refuse to grow insects as feed for shrimp farming. This helps reduce the environmental impact of palm oil production and improve shrimp yields in Southeast Asia.

FinTech:

With a growing and affluent middle class, the need for financial well-being becomes paramount. This well-being comes in the form of investment advice, lending facilities, or early wage access. Several fintech startups have been founded over the last few years, each offering a suite of financial well-being services across various countries.

Early wage access is soon becoming an important part of the well-being process. EWA has helped consumers plan their finances better. Companies like Wagely, Salary Hero, and PayD have seen strong success across the region. With increased wages comes the need for savings and investments. But with traditional investment advice being so expensive and only affordable for the wealthiest, startups such as PINA have started to provide a suite of tech-enabled low-cost advice. Another form of financial well-being is access to credit facilities. Given the large Muslim population in these countries, users may not be willing to borrow money due to religious norms. This is where companies such as Alami step in. Being Sharia-compliant, Alami removes any religion-based restrictions and provides access to credit for those who need it.

HealthTech:

Similarly to financial services, an affluent and growing middle class means an increase in the need for accessible and affordable healthcare services. Startups such as Halodoc offer telemedicine services across the country, making access to consultation accessible and affordable even to the most remote of regions, overcoming geographical challenges. A second interesting startup was Rey.id. The startup has integrated insurance, healthcare, and critical services into an all-in-one digitized platform. This ensures ease of use, access, and affordability for patients while providing a hassle-free claims process.

EdTech:

Education has come to the forefront with greater digital penetration and the need for highly skilled workers to support the growing economy. The rising SEA middle-class population and their income are also increasing people’s overall willingness and capability to invest more in education, pushing the demand for education services higher. From the supply side, governments are starting to invest heavily in education sectors, with government-backed ventures funding edtech start-ups capable of effectively addressing the skills gap in the region. Ed-tech start-ups such as LingoTalk (based in Jakarta) and EDSY (based in Bangkok) all start as English teaching platforms. Both have managed to achieve steady growth in the K12 student segment preparing the next generation of talents more comprehensively.

Summary

Though the key challenges in Southeast Asia are comparable to the rest of the world, there is immense opportunity for startups due to the lack of historical government investment or absence of traditional companies tackling these challenges. The growing affluence of the middle class, increased mobile penetration, and opportunities stemming from unique local norms and challenges has given rise to ambitious founder who are building innovative startups and challenging the historical status quo.

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