TOKYO -- Southeast Asia seems to be establishing itself as a major ecosystem for startup growth, side by side with India, as China loses some of its luster as an investment destination following its harsh crackdowns on internet giants.
According to figures compiled by DealStreetAsia, this year through Oct. 12 as many as 15 venture-capital-backed startups in the region had freshly succeeded in fundraising at a valuation of $1 billion or more, gaining the title of "unicorn."
When one considers the fact that through 2020 this region had produced just 19 VC-backed unicorns ever since the first, Singapore-based Lazada, joined the billion-dollar-valuation club in 2013, the 2021 unicorn boom is stunning. Now the total number of the region's VC-backed unicorns has reached 27, chasing India, which has added 30 unicorns in this year alone, making its total unicorn count top 50.
The increase in unicorns means investors are buying their new shares at higher prices. So it is no wonder that Southeast Asia and India are also making a tandem flight in attracting more investment into their startups than ever.
Funds raised by Southeast Asian startups during the first nine months of 2021 from venture capitals and other investors totaled $17.2 billion, according to DealStreetAsia, more than doubling last year's 12-month total of $8.5 billion. Indian startups, meanwhile, attracted roughly $24 billion in VC investments during the same period, which nearly doubled the $12.4 billion for all of 2020, according to PitchBook Data. Both figures are record highs.
Both Southeast Asia as a region and India have been enjoying high economic growth thanks to favorable demography with an expanding middle class, which is the main driver of mobile-phone and internet penetration. Though the COVID-19 pandemic accelerated the expansion of the internet economy globally, the one in Southeast Asia looks particularly impressive.
According to a recent report by Facebook and Bain, the six major Southeast Asian economies -- Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam -- have added, since the start of the pandemic, roughly 70 million new "digital consumers," defined as those who actually purchase goods and services online, from 280 million to 350 million. The penetration rate has risen from 64% to 78% of the population 15 years old and above.
This compares to India's 150 million digital consumers, whose average income is lower than Southeast Asian peers'. In other words, Southeast Asia's aggregate online retail economy is much larger than India's despite having less than half the population.
The digital economy is not only about consumers.
Akshay Bhushan, Bangalore-based partner at Lightspeed Venture Partners, points to a rapid increase in business-to-business startups that cater to emerging demand for digitalization of selling, buying, financing and so on among micro, small and medium businesses in Southeast Asia. "I have seen this rapid digitalization of small businesses first in India and then Southeast Asia, and now they are growing in parallel," Bhushan said.
In fact, six of the 15 new unicorns in Southeast Asia are B2B companies like e-commerce logistics providers and mobile payment gateway services for retailers.
The increase in unicorns meanwhile also indicates a rise in valuation of companies in general.
Joonpyo Lee, chief executive of Softbank Ventures Asia, sees an emerging virtuous circle of more capital availability enabling Southeast Asian startups to pursue pan-Asian and even global expansion, raising their growth potential and leading to higher valuations.
"It is already nothing unusual today for a Southeast Asian startup to go pan-Asia or global," Lee said.
The availability of capital for Southeast Asian startups seems likely to stay promising for now.
One factor is China's crackdown on big tech, which is leading many global investors to pause and review their assessment of risks involved in investments in Chinese companies.
Another factor is the heightened geopolitical tension between China and India, which has led many Chinese tech companies and VCs to shift their attention away from Indian startups to Southeast Asian startups.
"In addition to those international political factors, Southeast Asia itself is coming to its prime time," Lightspeed's Bhushan said, pointing to "knock-on effects" of unicorns' success stories to newer companies. "Younger talents today have seen those successes by Sea and Grab and start up new companies. Regional and global investors have seen those success stories and fund those new companies," Bhushan said.
There seem to be many more "next unicorns" in the making in Southeast Asia.