At MHV, we've been privileged to see dozens of companies grow from the seeds of a good idea to scaled, successful enterprises spanning the region. As entrepreneurs working with other entrepreneurs to elevate the region’s tech companies, we've watched Southeast Asia's tech startup scene go from a fledgling ecosystem mostly replicating business models from more established startup hubs like the US to a mature, thriving ecosystem producing companies valued at hundreds of millions of dollars.
I'm often asked what drives the rise of Southeast Asia's vibrant and diverse tech startup space today. As you can appreciate, the answer is complex as there are a wealth of variables particular to the region, macro trends, and individual motivations at play. However, there are three distinct characteristics, or pillars, that go some way to defining the region's burgeoning success: people, potential, and passion.
People: Experienced, visionary founders
There is now a broad consensus among investors that the quality of founders across the region has increased. Since MHV started our journey in 2014, we've seen more founders come through with relevant experience in their chosen field, greater clarity in terms of the problems they're solving for, and generally better armed and able to articulate their company's vision, model, and value to investors and customers.
These characteristics are especially interesting to MHV and our first principles-driven, founder-focused approach to investing. Importantly, as the caliber of the region's founders improves, it de-risks the human capital aspect of the ecosystem. When coupled with other very visible signs of the region doing well - macros and the emergence of more companies - that's good news for investors.
More recently, the continuing impacts of the COVID-19 pandemic have also driven a coming-of-age among the region's startup founders. The founders and companies that have emerged from this experience have learned valuable lessons - most importantly, what an actual, precipitous down cycle can feel like. The pandemic sharpened the entrepreneurial instinct about what to do in a crisis: the need to act fast and avoid navel-gazing. What's emerged is a stronger group of companies and leaders scarred but hardened.
Potential: A boom in digital consumption
On the financial capital side, there is more interest now in Southeast Asia than ever before. A wider variety of investors—from VCs like MHV to private equity funds, family offices, sovereign wealth funds, and the like—have embraced the region. The inflow of capital de-risks the ecosystem further because there's now more capital availability and certainty. At the same time, the region's tech startup voices are attracting more attention globally, further comforting investors.
Concurrently and despite some initial shock, tech companies in Southeast Asia have in general benefited from the pandemic. Consumer trends that were already in flux due to technological disruption were accelerated by the isolation and separation of lockdowns, border closures, and the virus itself. Unlike past pandemics, this time around, technology has stepped in to bridge the gap and solve problems like shopping, logistics, remote working, health, and finance, to name a few.
Even more specific to Southeast Asia, the pandemic has led to the rise of the digital enablers of ecommerce. Southeast Asia has always been a region where people connect and do business. However, traditionally larger markets like China and India beckoned because of the sheer size of their addressable markets. Yet as markets further afield have become less accessible due to travel restrictions, we've seen companies attack 'glocal' problems; digital consumption in the region around us has burgeoned. So Southeast Asia has become a very viable and addressable market for digital-first tech companies, as an alternative to China and India.
Passion: Solving distinct and real pain points for consumers in Southeast Asia
While Southeast Asia's most successful tech entrepreneurs share many traits with their global counterparts - commercial savvy, a clear vision for their company's place in the world, and the ability to execute relentlessly- perhaps the most exciting aspect of the regional startup scene right now are the companies rising to solve distinctly regional challenges.
A good example comes from one of MHV's portfolio companies, ErudiFi; a mission-driven technology company focused on making education affordable in Southeast Asia. Fundamentally, the company's value proposition is comparable to other companies in the US, China, and India trying to do the same thing. However, what differentiates ErudiFi from its global counterparts is its nuanced approach to solving education funding in Southeast Asia.
In monolithic markets like the US and China, the job of funding education generally falls to governments or another centralized authority that makes sure things happen from a governance perspective. However, in the culturally and economically interconnected - yet regulatorily distinct - region of Southeast Asia, entrepreneurs and the community have stepped in to smooth out inefficiencies.
In the case of ErudiFi, the company works directly with universities to create win-win financial arrangements for students to undertake study on an almost interest-free loan, essentially democratizing access to higher education for thousands of students in Indonesia and the Philippines. It's just one example of entrepreneurs in the region applying technology to change how people live, work and grow.
Cementing Southeast Asia's place in the global tech order
Investors provide capital to companies with the expectation of financial returns. In the tech startup space, investor returns most often occur when the startup is acquired or goes public through an IPO. Exits aside, though, what will cement Southeast Asia's tech startup ecosystem in the global order will be consistency and repeatability in producing successful and enduring tech companies.
I believe that Silicon Valley will remain creative and innovative; that big, category-defining, and consequential tech companies will continue to come out of Silicon Valley in the future. China is arguably headed in the same direction as well.
Likewise, Southeast Asia's tech startup sector needs to demonstrate that the rise of the region's ecosystem is systemic; that we are truly on an upward ascent underpinned by solid fundamentals. Moreover, that the region's tech enterprises form the economic bedrock for the ways people consume, work, play, learn, and stay healthy in much the same way that the technology successes in the other ecosystems do today.
Ultimately, it's the 'flywheel' of consistency over time - through the deliberate action of backing and building early-stage companies - that will demonstrate Southeast Asia is here to stay.