In the 2021 Tokyo Olympics 1500m event, Sifan Hassan, Dutch middle-distance Olympian had good prospects for the race and it went off to a good start. Just 380 meters left in the run, or less than a third of the race, and one of Sifan’s competitors just behind her tripped up causing Sifan to take a fall as well.
That wasn’t game over for Sifan however. In the remaining 44 seconds, she was able to pick herself up and go from being left trailing in the dust to zipping past the front runner (who had been 30 meters ahead of her when she fell), crossing the finish line, and winning gold. Sifan had her 44 seconds, where she took what seemed to be a lost position and converted it into victory.
Every company has their 44 seconds or their “golden hour of opportunity” and often it happens more than once, from pivots into larger businesses or leveraging crises into market leadership. And now this “golden hour opportunity” extends to Southeast Asia’s growing startup ecosystems, amidst the global turbulence and uncertainties coinciding with the continued growth of the digital economies in the region.
As we mentioned in the press release for our US$516 million third venture fund, we see today as the region’s golden hour opportunity because while the market fundamentals for digitalization still remain strong, strains on spending and investments in the financial markets have made it so that the outliers and winners of this decade will become more obvious. So it becomes more important than ever for early-stage investors to spot the “Sifan Hassan’s” of the technology markets before they even make it on the race track. For founders, in a capital scarce environment, it becomes even more critical to shape the business up to be like “Sifan Hassan” and stand out amidst the pack.
The first step is to understand the context in which these market creators and leaders will arise. For this article, we list down seven market drivers behind Southeast Asia’s golden hour of opportunity. In discussing each of these we also cover key, practical opportunities for both early-stage startup founders and investors to take advantage of:
- Talent: Influx of talent bearing ideas and capital flowing into Southeast Asia, especially through Singapore, driven by market uncertainty.
- Capital: Massive dry capital has been raised by venture capital funds in the last 12 months as deployment selects for capital efficiency.
- Macro-Economics: ASEAN economies are posting near-term resilience to breakout inflation.
- Consumer: The rise of the “Entrepreneurial” middle class driving demand for “producer-first” digital economy.
- Society and Culture: Digitalization is becoming independent of market cycles and rooting itself in socio-cultural fabric of Southeast Asia’s societies.
- Founders: Opportunities for Southeast Asia’s three waves of founder talent are becoming more obvious.
- Southeast Asia itself: Emerging advantages of starting a global company in Southeast Asia driving more early-stage value creation in the region.
The Market Drivers of Southeast Asia’s Golden Hour of Opportunity
(1) Influx of talent bearing ideas and capital flowing into Southeast Asia, especially through Singapore, driven by market uncertainty. This is a progressing trend a decade in the making, tracing its roots to as far back as the initial efforts of the government to bring in venture capital firms into the city-state. And at the turn of decade, rather than slowing down amidst the pandemic and global uncertainty, the influx has only ramped up precisely because of the current market environment. Dominated by big tech talent, unicorn founders, and HNW families and individuals looking for the next growth opportunity in technology and innovation, this talent bears with them ideas on company growth and the capital to make it happen.
How this influx has evolved over the years is that now this talent is more involved in company building than ever before as either operators or direct investors into startups. Geographically, this influx has also been increasingly dominated by an exodus from the Greater China Bay Area.
And Singapore remains a destination for this influx not just because of Singapore alone, but because the country has long positioned itself as a commercial and financial gateway to the rest of Southeast Asia. Of course, the flows of tech talent and capital have diversified a lot more to countries like Indonesia, Vietnam, and the Philippines, but many will still find haven in Singapore as a base of operations, either to set up shop and/or live there, then just travel around the region.
“We have been visited by an exponential number of investors, family offices, entrepreneurs with new ideas, and executives from big tech companies looking to join the next big thing, it’s orders of magnitude three to four times in the past six months, compared to a year ago,” Yinglan Tan shares on the On Call with Insignia podcast.
- Opportunity for founders: Diversifying sources of co-founder as well as senior leadership talent and specialized, strategic capital (e.g. unicorn founders or family offices who can offer industry knowledge and networks)
- Opportunity for investors: Being able to serve as a platform to connect founders to this pool of wealth and talent is a key advantage
(2) Massive dry capital has been raised by venture capital funds in the last 12 months as deployment selects for capital efficiency. This combination of supply accumulation (dry powder) and tightening distribution to an equally increasing demand pool (startups fundraising) is shifting the dynamic of startup fundraising where investors will have more leverage. However, this also has its potential downsides for investors that may not be able to deploy as actively with respect to their fund size.
But this shift in leverage will not apply to all companies. Those run by the more resourceful and capital efficient operators will thrive in terms of fundraising relative to the rest of the market.
“In a climate like this where there’s a flight to quality you’re gonna get the best companies…The truth is that they still select who they partner with. It used to be the case where we decide who to partner with, but I think these [companies] have the privilege of choosing which venture investors choose to partner with. And we certainly hope to be the partner of choice, in terms of what we can do for them.” – Yinglan Tan, On Call with Insignia podcast
One example is a Super, the leading social commerce platform in second-tier, third-tier, and rural cities in Indonesia. The key for this example is that long before the pandemic, the company had already been built on a culture of capital efficiency.
Yinglan continues on the same podcast,“…they have been growing at breakneck speed by working with rural community leaders, mom and pop shops, and they are still maintaining pretty good unit economics, and they’re creating real livelihoods for their agents and group sellers and group buyers…the thing about Super is that I mean the DNA of the company is very, very capital efficient, very frugal from the start. They had to pivot a few times, as a result, they are always making sure that, they are thrifty and capital efficient about how they use every dollar to produce the maximum result.”
As Steven shared back in 2020 on the On Call with Insignia podcast, “…what we do in the short-term goal has always been a calculated growth. As I mentioned before, we prefer healthy growth. It’s not all about growing your GMV or all of your sales at all costs, but now with “wise costs,” as we like to call it. So in every single transaction that we make right now at Super, it needs to be profitable, it needs to be giving us a good gross margin here and there.”
- Opportunity for founders: The counterintuitive point here is that the more self-sufficient a business is (e.g. gross profitable, strong business model moats, diversified monetization), the more likely it is to attract capital to grow even further. And healthy growth is not just about reducing burn, but embracing a culture of capital efficiency — this means not just the founders but employees’ decisions need to be aligned on this.
- Opportunity for investors: Winners will win even further in a capital scarce environment so it becomes important to focus as well on portfolio companies. Developing “alpha” to find and win over these winning companies will be critical as capital converges on these businesses.
(3) ASEAN economies are posting near-term resilience to breakout inflation. GDP growth for ASEAN-6 economies has, for the most part, remained above CPI, as illustrated in this Financial Times article, thanks to rejuvenated travel regimes, exports (e.g. Vietnam manufacturing), and economic policies (e.g. price controls).
- Opportunity for founders: This is primetime to roll out and develop retentive monetization, aligning with spending habits.
- Opportunity for investors: This is primetime to focus on technology enablers of industries driving this near-term resilience, as demand and spending for softwares in these areas will be relatively stronger.
(4) The rise of the “Entrepreneurial” middle class driving demand for “producer-first” digital economy. Alongside the resilience of the ASEAN economies is the continued rise of the middle class with GDP/capita across ASEAN-6 countries having rapidly closed in on the US$4000-5000 mark of massive tech market creation.
But more than just the rise of the middle class per se is how the rise is taking shape. In particular, with the increasing adoption of ewallets or crypto wallets, there are more people taking ownership of their wealth growth and generation, whether through investments, starting a (side) business as an MSME, or even engaging in the creator and gaming economy.
This is not just driven by rising incomes and therefore “room” to invest, but also a mindset shift around what makes a career (e.g. linear, dependent progression vs experimental, independent growth), what brings income (e.g. single job vs one main job along with side hustles and other income sources), and what constitutes personal fulfillment (e.g. financial security vs financial stability + personal impact/ following passions).
That said, this evolution into an “entrepreneurial” middle class is not something without fundamental roots in Southeast Asian cultures. For instance in Vietnam, the emergence of digital platforms to support wealth management like Finhay has tapped into the country’s deep-rooted culture around entrepreneurship and risk-taking.
As Finhay CEO Huy Nghiem shares on the On Call with Insignia podcast, “That entrepreneurship characteristic is really strong among Vietnamese. So that’s why for that risk-taking or willingness to [make investments] is another option for them to put in money down…So that’s why we can see the behavior of investing is strong and the sentiment also strong…And a bit of insight sharing here — back in 2020 to 2021 and as of right now [March 2022], we started to see a shift from clients’ money from banks to the stock market, simply because the market was bullish, and also the real estate was kind of slow during the COVID period.”
Becoming an ecommerce entrepreneur or even a venture-backed startup founder as well is not as “taboo” as it once was a decade ago, with more tools, resources, and networks available.
As Rainforest CEO JJ Chai shares on the On Call with Insignia podcast, “So everything from kitchen products to home products…the ability for anyone to sort of go down the entrepreneurship path, the barriers are so low now that anyone can do it. I think that was one of the most amazing things that I’ve seen so far, just talking to all these entrepreneurs who are creating all these brands.”
- Opportunity for founders: Market makers of the next decade won’t just monetize, they will be enabling their customers to monetize as well.
- Opportunity for investors: Digital infrastructure, tech stack tooling, and embedded digitalization will drive innovation in the next decade as demand shifts from the digital user simply being a consumer to the digital user being a producer.
(5) Digitalization is becoming independent of market cycles and rooting itself in socio-cultural fabric of Southeast Asia’s societies. While there’s a lot of discussion around the sustainability of thin-margin, discount-subsidized business models, the reality is that regardless of business model sustainability, the impact of venture-back tech startups is not skin-deep. We wrote earlier in this piece about specific cultures unlocking ease of adoption for certain digital services; the reverse is also true.
Flip CEO Rafi Putra Arriyan talks about the impact of his company’s money movement platform on the On Call with Insignia podcast. “We’re trying to explore more solutions because currently we are seeing the behavior is already there. [There are] lots of users that use our platform, it’s becoming very sticky, almost no churn…because money transfer as you know, Paulo, basically [has] become a culture here in Indonesia. Everything is being done using money transfer…and we are doubling down on this product to ensure we have the best solution.”
This causal relationship between digitalization and socio-cultural fabric of societies is best observed as well in rural areas, where digitalization is meant not just to fulfill conveniences but solve longstanding inefficiencies, from excess costs and waste in the fisheries supply chain to access to equitable financing for MSMEs. Ultimately the nature of this dynamic is rooted in startups needing to localize their services precisely to the relationships and behaviors of their target users.
It’s also worth noting that this progression from purely transactional or economic to socio-cultural nature of digitalization is also driven by regulation (i.e. release of licenses, frameworks) and adoption by political institutions as well.
- Opportunity for founders: Localization and solving ASEAN-first problems is key to building up long-term advantages against larger competitors.
- Opportunity for investors: “Unsexy” (typically offline) but complex (multiple fragmented transactions, players) problems are likely places to start high-gross margin businesses tackling large addressable markets.
(6) Opportunities for Southeast Asia’s three waves of founder talent are becoming more obvious. The three waves of founders (big tech and unicorn mafia, foreign talent, and returnees) continues to evolve in Southeast Asia. These waves have existed for a long time, but the biggest difference today is that these waves are being drawn in by more obvious circumstances than before.
The sources of big tech and unicorn mafia are diversifying with more local growth-stage scaleups producing founder talent in Southeast Asia and the restructuring many big tech and unicorns have had to undergo recently. Foreign talent, as mentioned in the first point, are being drawn in by the region’s opportunities vis-a-vis other places.
And finally, for returnee talent, often from foreign business schools, the opportunities to start a company back home are more obvious than ever before, to the point that some may even forego going abroad in favor of developing their career locally or delaying it after building up local startup experience.
- Opportunity for founders: Co-founder talent can be intentionally found through these waves.
- Opportunity for investors: It can be valuable to have strong ties to these pools in not only together early-stage founder talent, but also the right leaders, if needed, to take companies from 1 to 100 or help them navigate through growing pains in a difficult environment.
(7) Emerging advantages of starting a global company in Southeast Asia driving more early-stage value creation in the region. While the long-standing narrative for tech startup building in the region has been to take existing models and see how they might work for the region, startups coming out of the region are proving that there is merit to actually building first in Southeast Asia, and leveraging strengths or learnings gained from that to scale globally.
A prominent example here is in artificial intelligence-based SaaS solutions, where unstructured data in the region is able to make AI models and solutions more fit to deal with the demands of the global market.
As AI-driven data processing and workflow automation platform bluesheets CEO Christian Schneider shares on the On Call with Insignia podcast, “If you are looking at a problem in Southeast Asia where you’re solving for several different languages, several different markets, the likelihood of applying AI on top or inside that process with messy, regional or local data sets is close to zero…so that’s where we come in. We help build these really robust data sets that you can utilize later on when you need to, or can finally apply AI on top of that. That will be a transformation for these companies that they’ve never seen before. It’s not even happening in the Western markets right now, so we definitely are far away from that.”
- Opportunity for founders: Advantages gained from overcoming challenges in digitizing Southeast Asia industries can be leveraged for smoother go-to-market in more developed markets or even other emerging markets.
- Opportunity for investors: It pays not just to know models that exist but also how starting from Southeast Asia can set up portfolio companies for success.
Key to taking advantage of Southeast Asia’s golden hour: Unlocking founder-market fit
For investors looking to find the “Sifan Hassan” founders — those who are unstoppable enough to leverage the market drivers and opportunities we just covered above and build the next decade’s market makers and leaders — a good place to start is founder-market fit. Or more precisely, finding places where this fit is realized, catalyzed, or created.
If there’s anything else Sifan Hassan’s story can teach us it is that the answer to the question of what does it take to turn crisis into opportunity and growth is not capital, resources, or market forces — it’s people. It’s Sifan herself. It’s the founders themselves. So it’s important for founders to be able to operate in a space where they can turn dust into gold, and not be limited by misalignment.
“So obviously the product market fit is very important and there are certain sectors that are more well resourced and well pursued than others. But I think founder product fit is also super important. So I look one of our younger companies. We have a doctor Dr. Mesty who specializes in pediatrics, combined with Garri from Tokopedia, Harvard Business School, who has obviously gained a ton of experience in Tokopedia. They have that winning combination to capitalize on a large market. That’s the kind of thing we look for. So I don’t think we presuppose we know which sectors are gonna be interesting.” – Yinglan Tan, On Call with Insignia podcast
At Insignia, we’re building platforms and tools to catalyze this founder-market fit, from things as fundamental and simple as the market statistics page on our website to Insignia Ventures Academy, a VC education company bringing together the next generation of investors and founders in the region through its 12 week VC accelerator and other programs.
If you’re looking to build this platform with us, join our team!
If you’re looking for your own founder-market fit or already are working on something, we’d love to see how we can work together.
Paulo Joquiño is a writer and content producer for tech companies, and co-author of the book Navigating ASEANnovation. He is currently Editor of Insignia Business Review, the official publication of Insignia Ventures Partners, and senior content strategist for the venture capital firm, where he started right after graduation. As a university student, he took up multiple work opportunities in content and marketing for startups in Asia. These included interning as an associate at G3 Partners, a Seoul-based marketing agency for tech startups, running tech community engagements at coworking space and business community, ASPACE Philippines, and interning at workspace marketplace FlySpaces. He graduated with a BS Management Engineering at Ateneo de Manila University in 2019.