Thailand has never been more welcoming to startups. Today, the Thai government’s ambitious Thailand 4.0 program is a concerted effort at encouraging investment and innovation, and the tech community is paying attention. From 2012 to 2016, Thailand went from having only three funded startups to over 100, according to Techsauce. Bangkok and Chiang Mai are both in the top five highest-rated cities for digital nomads, thanks to their welcoming culture, reasonable cost of living and sophisticated technological infrastructure.
Despite the local energy and international interest in developing Thailand’s startup ecosystem, significant roadblocks remain. Read on to learn the root causes of these obstacles, and how the Thai government could play a big part in overcoming them.
Fulfilling the Promise to Fund Thailand’s Tech Future
Since 2016, the Thai government has earmarked hundreds of millions of U.S. dollars to venture capital funds for startups, with the goal of incubating 10,000 startup entrepreneurs. In 2017, the National Digital Economy Committee launched the US$147 million Digital Economy Fund, which listed “supporting the development of tech companies” as one of its four functions.
Several government grants dedicate additional funds to startups, and major state-owned banks and agencies including The Government Savings Bank, Krung Thai Bank, SME Bank and the Stock Exchange of Thailand are pledging support to startups as well. Within the private sector, venture capital funds are becoming more common.
These funding schemes are a great start, but they’re only the first steps in Thailand’s journey. Despite government funding, the Techsauce data shows overall investment in startups is actually in decline. In 2018, the total disclosed fundraising in Thailand was US$61.25 million, a significant decrease from $106.10 million in 2017.
A closer look into these funds’ mandates provides some explanation: There is generally a low threshold for risk due to fear of public backlash from failed investments. Meanwhile, investors often attempt to protect their investments by requiring ownership of the startups’ intellectual properties (IPs) and that startups be incorporated in Thailand – conditions that are hard for startup founders to swallow, since both could limit future funding opportunities.
The Thai government’s reasons for caution are understandable; it wants to ensure public funds are spent wisely and that funded startups serve national interests. Yet Thailand’s regional competitors are less cautious, and that makes them more appealing to investors. For example, Singapore’s state investment firm, Temasek Holdings, invested roughly US$21 billion (S$29 billion) in 2017, growing its total size of portfolio to US$235 billion. These investments have supported both home-grown and international companies, including increased stakes in startup-ups.
Fortunately, there’s good news. Thailand is making a renewed effort to relax restrictive IP ownership requirements to give founders the ownership and flexibility to scale. Over the past year alone, at least 40 projects have received Digital Economy Promotion Agency (DEPA) funding, according to a university research program chief.
While the impact from these changes is part of a longer term process, the Thai government’s continuous support for more funding freedom and flexibility is encouraging for early-stage startup projects.
Growing the Number of Fundable Thai Startups
A less obvious hypothesis about the lack of government funding for Thai startups is there are simply not enough fundable startups in Thailand today. Successful Thai startups tend to attract such a wide pool of interests that they end up incorporating overseas to maximize their funding flexibility.
Two arguments support this hypothesis. First, some believe Thailand’s current education system does not support the tech talent needed to fuel the startup ecosystem. According to data released by Thailand Development Research Institute (TDRI), Thailand has over 540,000 university graduates with IT-related degrees, but only 15 percent end up working in IT. The vast majority find work in other sectors, despite the growing number of job openings in IT fields. In 2017 alone, Thailand universities granted degrees to nearly 20,000 IT graduates, but 7,000 remain unemployed post-graduation.
What could explain this employment gap? TDRI cites a mismatch between the IT skills universities teach and the skills employers demand. Tech employers find little relevance in universities’ outdated IT courses, which did not keep up with the fast-changing technological environment. For example, most universities lack core subjects such as Artificial Intelligence, Big Data and IoT, which are currently in demand.
While there are government scholarships available for gifted Thai students who want to study overseas, but relatively few students receive them. Even less funding supports research grants that could incentivize students to return home, where they could conduct research and teach in Thai universities. Instead, many promising Thai students are lured by the greener pastures of Silicon Valley, where salaries are higher and there is a much larger like-minded community.
One possible solution is shifting the focus from funding startups to investing in research. Around the world, some of tech’s greatest success stories are the result of government funding; Google co-founders Larry Page and Sergey Brin credit the development of their original search algorithms to US government grants that supported their research at Stanford. Crucially, this example highlights the importance of funding tech innovations even before they’re commercialized.
Thailand cannot develop its tech pipeline without also supporting the universities that foster innovation. By subsidizing research initiatives and entrepreneurship courses, Thailand can begin to build a stronger startup culture and ensure that Thai startups have a pool of national talent from which to hire.
Regulations Should Grow Startups, Not Stifle Them
As observed in many markets, cumbersome bureaucracy and rigidity run contrary to the ethos of entrepreneurship. In Thailand, recent years have brought changes that are creating a friendlier regulatory environment for startups, but further tweaks would go a long way toward truly unleashing Thailand’s startup potential.
President of the Thailand Tech Startup Association (TTSA) Panachit Kittipanya-ngam recently described how laws that regulate startups should be “lean” and nimble just like startups themselves. That means lawmakers should implement and test laws, evaluating whether they work before deciding whether to adjust or discard them.
There are some specific areas where a “lean” strategy could yield significant rewards:
Foreign investment. Thailand’s 20 percent capital gains tax discourages many international VCs from investing in Thai startups. Additionally, capital transfers exceeding $50,000 require approval from the Bank of Thailand, resulting in a three-day process that complicates the flow of capital. Investors who are interested in the region will clearly be tempted by Singapore, which has no capital gains tax or fund transfer limits. Enabling foreign investors to earn a greater return on their money is the simplest way to attract more capital.
Visas for foreign workers. The introduction of the SMART Visa in 2017 was meant to attract new talent and investment in 10 forward-looking industries. However, the requirements for this visa are prohibitive to most foreigners, restricted hiring to upper-level talent and requiring recipients to make high salaries (at least US$6,250 per month) or huge startup investments (US$625,000). This effectively prices out many valuable workers and founders, exacerbating Thailand’s significant talent shortage. As one frustrated worker lamented, “It’s actually hard to see who the visa is designed for at all.” Simplifying the visa process and relaxing restrictions would attract the many foreigners who are eager to live and work in Thailand.
Stock options for employees. At the moment, Thai startups are not permitted to provide stock options to their employees, which is a major way new companies attract talent while they’re still working toward becoming profitable. There are rumors that the government plans to change this policy–but until it does, Thai workers will gravitate toward established companies, not startups.
Work with tech to regulate tech. Thailand earned approval from the tech community when it joined the list of countries that offer fintech companies a “regulatory sandbox” to explore new technologies like P2P lending. This openness was encouraging, but it needs to be coupled with regulations that allow startups to grow, providing them with a way out of the sandbox and into the real world. To this end, the government should consider working with fintech startups to draft reasonable regulations, as the Bank of Indonesia did with the Indonesia Fintech Association. By the same token, cybersecurity laws like the one passed in February 2019 could have sought the input of experts in the tech community to make sure they will protect Thailand without turning away foreign investment.
In recent years, entrepreneurs, investors and the government have been working tirelessly toward the same goal: to make Thailand a global hub for innovation. With the right level of support and freedom, there is no doubt that Thai startups will make good on the country’s promise.