People question whether Southeast Asia is capable of producing billion-dollar technology companies. The skepticism is well-founded if you are trying to predict the future based on the past – the number of $1 billion+ tech valuations that we have seen in ASEAN can be counted on two hands.

But if we look at the population and buying power of the top cities/countries in this region, the conditions are there for a company of significant value to be built from scratch.

I often hear complaints that ASEAN is a beast of multiple markets and regulations, but really it is about three or four main markets. If you look at the largest populations: Indonesia, Thailand, Malaysia, Vietnam – that’s over half a billion people (almost double the US population).

However, population is only one factor, and if we also take into consideration GDP, the data shows that numbers are large and growing:

The other way is to look at the top cities that tech companies in this region are targeting, and the aggregate size of that buying power (below measured as the population of the city x GDP per capita):

By looking at the numbers, we can extract that a technology startup that is able to dominate key cities or countries in ASEAN will be tapping into populations and income levels that are sufficient to drive the demand and creation of billion-dollar technology companies.

To get there, startups should be clear on what kind of consumer they are targeting. There is a huge difference in consumer behaviour between the person who is earning 2,000 USD income per year, or the person earning 12,000 USD. This should shape a start-up’s strategy and expansion plans.

If your product is better suited for the emerging markets, then you should be looking at Thailand, Philippines, Indonesia etc, where you are targeting the consumer who may be earning 2,000 USD per year. You would be targeting the “grassroots” market (as the Chinese would say). An example of this type of company is YY in China, which enabled everyday people to reach a wide audience through the web, and also earn new streams of income (disclaimer: I am a director in YY).  

If your product is more suited for developed markets, then perhaps you will be targeting consumers living in the metropolitan ASEAN cities who are earning 12,000+ USD per year. You would be targeting the “metropolitan cities” market.  An example of this is Reebonz, which ‘targets the region’s insatiable appetite for luxury goods’. Naturally Reebonz would think about regional expansion by city, rather than by country (disclaimer: my partner Kuo-Yi’s previous fund invested into Reebonz).

Chances are, you cannot build a startup that goes after both the grassroots market as well as the metropolitan cities. Be very clear on your target audience. And if you need VC funding, please make sure that the market opportunity is large enough that VCs would fund it.

Co-authored by Peng T. Ong and Lucy Luo.