From winter to spring for PH, Asean startups
Inquirer.net
17 May 2024
While much has been written about a “funding winter,” one could be forgiven for forgetting that Southeast Asia remains home to the world’s fastest-growing digital economy: the region’s digital economy expanded by 12 percent in 2023 and is expected to record a compound annual growth rate of 16 percent until 2030.
Fundraising figures, however, do show how challenging it has been for the sector of late. The amount of capital raised by startups in the region more than halved in 2023, and the number of deals fell significantly.
As a result, many of the Philippines’ digital economy entrepreneurs have had to dig into personal savings and tap family and friends to keep their startup dreams alive as a freeze in funding drags on despite the region’s many attractions for investors.
We are also increasingly seeing the region’s growing appeal to investors in discussions with clients, including at the recent Global Investment Summit hosted by HSBC.
This sentiment is also borne out in a recent HSBC survey of businesses operating in the Association of Southeast Asian Nations (Asean), 74 percent of which intend to increase their investment in the region in 2024. The same enthusiasm is also observed in the Philippines where 72 percent locally based businesses plan to expand into new markets in the region.
For Filipino startups, financing is key
Capital is the lifeblood of innovative companies, which must often invest heavily in new technologies and platforms before they can commercialize them.
In the Philippines, funding is a key constraint for startups. While there are several promising startup companies, financing is scarce as venture capital arms in the country are focused mainly on supporting mature digital sectors such as fintech, media, entertainment, and e-commerce.
Against that backdrop, HSBC has enhanced our offerings to digital-economy companies, launching a dedicated $1-billion Asean Growth Fund that can help finance companies with a proven track record in generating a sustainable cash flow stream.
Alongside our own efforts, it’s also great to see government programs leaning in to support startups for digital economy firms in the region and the Philippines.
The government has launched two landmark laws that define policy to foster the growth of tech startups through the Philippine Innovation Act and the Innovative Startup Act, both enacted in 2019 and designed to spur technological innovation to achieve economic growth and sustainable development.
Governments in Singapore, Indonesia, Vietnam, Thailand, and Malaysia have all also rolled out important incentives to foster innovation and the creation of tens of thousands of new technology startups.
Other governments in the wider region are taking note as well. A new $1.3-billion government fund was unveiled during an Asean-Australia summit in Melbourne in early March. The fund will provide loans, guarantees, equity, and insurance for projects that will boost the Asean-Australia corridor—something we see in action from visits around the region.
Smart strategy
To sustain their growth, digital economy companies will need to focus on controlling costs and lifting revenues. They must also reconsider their approach to funding to manage their cost of capital and secure their long-term viability.
Exploring partnerships with firms in other markets can also allow startups to expand across borders or develop their capabilities without having to make substantial investments themselves. Securing the right partner can also boost the credibility of a startup, enhance its appeal to customers, and—particularly relevant in the current climate—make it more attractive to potential investors.
Such intra-regional initiatives also align with the aims set out in Asean’s digital masterplan for 2025, which was reaffirmed at a meeting of the bloc’s digital ministers earlier this year.
As both Asean and the Philippine digital economy expand, cross-border e-commerce is also creating growth opportunities for traditional and new economy firms. Making it easier for customers—whether they are consumers or businesses—to pay through a company’s digital platforms can be an important revenue driver over the years ahead.
From winter to spring
While many digital economy firms in the Philippines and Asean found it challenging to raise capital in the past two years, there are reasons to be more optimistic in 2024.
The recovery is driving consumption among an increasingly affluent population of 670 million, as one person enters the middle-income bracket every two seconds on average.
The region also has one of the highest digital penetration rates in the world, with the Philippines ranking second globally and first in Asia for internet usage.
Hence, this is further increasing e-commerce, which has passed the $100-billion revenue mark last year. With progressive approaches to financing, the strong fundamentals of the region will help drive the growth ambitions of businesses in the Philippines. After all, after the funding winter comes a thriving spring. —Contributed
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