- 21/12/2016
- Category: Commentaries
In late 2015, global funding from venture capitalist showed declining trend. The decline was resulted from the tumbling of stocks on NASDAQ stock market that eventually led to the current decline in venture money flowing to startups. An example of such decline is shown in the case of LinkedIn and Twitter whose share price dropped 49% and 51% respectively on November 2015. Another direct example is noticeable when Fidelity Investment decided to slash valuations of startups, such as Dropbox (-10.34%) and Stemcentrix (37.74%), by 5 to 37 percent. The trend reflected investors’ anxiety at the foundations of the profitability and sustainability in startups business models. As investors begin to question startups’ business models, they start to look for other considerations in collecting data on startups’ performances, which are on-the-ground knowledge, analysis and trusted viewpoints.
Fortunately, in Q1 2016, investors started to find the answer for this question. The answer to gain new footing on startups profitability and scalability is by channeling more investment to Asia. During the first quarter of 2016, startup funding both on early and late stages increase from US$ 13.76 billion in Q4 2015 to US$19.37 billion in Q1 2016. In aggregate, the startups investment during the first half of 2016 almost doubled compares to same period last year. On H1 2016, the total of startup funding broke an all-time record, amounting to US$ 41 billion, doubling the figure from H1 2015 which collected US$ 24 billion.
Figure 1 Quarterly Investment Growth on Startups in Asia (TechinAsia, 2016)
Despite its enormous investment value, not all startups in Asia receive equal investments. China still becomes the home of startups and will be carrying Asia on its shoulder. From all total startups investment, China receives 87% of startups investment, leaving other major players in vain with less than 5%. China gains US$20.7 billion worth of startups tech funding, with less than US$3 billion going into the rest of Asia. The largest recipient of tech startups funding after China is Israel with US$1.1 billion, and India followed closely behind with US$700 million at Q2. In addition, Chinese companies claimed top 10 startups deals in Asia, which means most of the top startups are Chinese.
Figure 2 Percentage of Startups Investment in Asia (Techinasia, 2016)
Despite gaining only 2% of the overall investment, Southeast Asian startups, at the same time, are also gaining more footing in terms of venture capitalist (VC) investment. For instance, Indonesia now enjoys an almost 7 times higher growth in VC investment during the first half of 2016 compares to the same period in previous year. The immense growth was largely pushed by Tokopedia, an online marketplace startup that successfully raised US$ 147 million. Other Southeast Asian countries, except the Philippines, were also experiencing promising growth during this period.
Figure 3 Percentage of Startup Funding Growth from HI 2015 to H1 2016
According to Facebook’s co-founder, Eduardo Saverin, the increased investment in Asia is mainly because Asia is the fastest-growing internet market in the world. With more than two billion people and the fastest internet penetration rate, it is an opportunity for VCs across the globe to gain on-ground profitability and scalability in startups. Additionally, Google also reported that Asia currently has 260 million people on line and the number will double to about 480 million by 2020 as web access becomes more common. This trend will contribute to the significant increase in combined online media and e-commerce industries in Southeast Asia. The total value of these industries combined will reach a total of US$ 200 billion by 2025, a 7-time increase from the current value of US$ 30 billion.
Besides increasing companies’ valuations, these enormous projections is indeed tempting for VCs because they can mine large data pattern. Imagine how digital based startups can gain massive on-ground data captured by the current digital innovation such as big data and cloud computing. With abundant data from multiple touch points and new analytic tools, tech-based startups are getting better and better at customizing products and services through the creation of ever-finer consumer microsegments. This advantage could totally change the whole business acumen, and that is why tech-based Asia is the forefront powerhouse for VC investment on startups in 2016.
References
Bughin, J., Chui, M., Manyika, J., ‘Ten IT–enabled Business Trends for the Decade Ahead,’ McKinsey (online), May 2013, , accessed on December 15th 2016.
Giancotti, J., ‘Declining VC Funding Hurts Startups Globally, But Hope Remains In Asia,’ Forbes (online), June 7th 2016, , accessed on December 15th 2016.
Lee, T., ‘Asian Startup Investments almost Doubled in H1 2016. But it’s Not All Good News,’ Techinasia (online), July 20th 2016, , accessed on December 16th 2016.
Martono, A., ‘Asia Sees Record High $23.4b in Startup Funding in Q2,’ Techinasia (online), August 5th 2016, , accessed on December 16th 2016.
Primack, D., ‘Fidelity Slashes More Startup Valuations,’ Fortune (online), February 28th 2016, , accessed on December 15th 2016.
Purnell, N., ‘Southeast Asia Startup Scene is Sunny, Investors Say,’ The Wall Street Journal (online), June 3rd 2016, , accessed on December 16th 2016.
Wee, W., ‘Indonesian Marketplace Tokopedia Raises $147m,’ Techinasia (online), April 8th 2016, , accessed on December 16th 2016.
