In the last decade, Asia Pacific has become a hub for innovation, fostering a diverse network of start-ups across its economies. With a rich talent pool and supportive government initiatives, the region has piqued the interest of global investors eager to nurture this growing ecosystem.
Singapore, for example, offers attractive tax benefits, strategic access to the rest of the region, and a business-friendly regulatory environment with inclusive immigration policies. The city-state made its maiden entry in the global top 10 list of best start-up ecosystems last year, climbing to eighth place from 18th in the previous year, according to a report by insights firm Startup Genome.
Recently, however, the region has seen increased volatility. The impact of the Covid-19 pandemic and supply chain shocks, further exacerbated by heightened inflation and interest rates, caused many Asian economies to suffer economic slowdown. This, in turn, caused a slowdown in deal flows, says Baring Private Equity Asia (BPEA) EQT partner and head of Southeast Asia Janice Leow.
Based on data from Crunchbase, start-up funding in Asia in 1H2023 dropped 50% from the previous year to US$36.3 billion ($49.7 billion) from US$73 billion in 1H2023. On the other hand, deal volume dropped 40% y-o-y to 3,237.
Despite the short-term volatility amid the market corrections, there are still a lot of long-term thematic trends that will continue to support the region’s start-up ecosystem, especially in Southeast Asia, says Leow. This includes positive demographic trends, a growing middle class, and the region’s growing role as a supply chain re-risking hub.
She highlights that Southeast Asia has also leapfrogged many economies in terms of having a digitally savvy population. “Due to the rapid penetration of the Internet coupled with the adoption of new technologies, a large percentage of the population are digital-first, not needing to go through the hassle of traditional offline channels. This provides an effective landscape for high-growth, digital-focused companies to execute their vision,” says Leow.
See also: Singapore-headquartered Purpose Venture Capital co-invests US$17.3 mil into biotech startup
Continued optimism
The strong fundamentals in the region over the years have translated to more quality deals — notably, there has been substantial advancement in corporate standards and professionalism, Leow says. Enterprises in Southeast Asia are becoming more refined and are proactively investing in strategies that promote long-term sustainability, she explains.
Additionally, founders are increasingly willing to collaborate with their investors to tap into their expertise to create value. “I also feel that the region’s deal quality has accelerated over recent years due to the increase in local champions. It is encouraging to see many homegrown companies scale beyond a single market into becoming a regional leader, inspiring many others to replicate the success,” says Leow.
See also: Silicon Valley start-ups had their worst funding year since 2019
As a private equity firm, EQT continues to be bullish on Southeast Asia and Asia as a whole as it seeks to deploy more capital in the region. The firm has a strong regional footprint, especially following its combination with BPEA, completed in October last year.
Before the transaction completion, BPEA closed the Baring Asia Private Equity Fund VIII at US$11.2 billion, making it one of the largest private equity funds ever raised in Asia. Thus far, the fund has been deployed to companies such as specialist backend services firm IGT Solutions, healthcare technology provider Sagility and business services firm Tricor.
“We have been quite successful and active in deploying capital despite the general market slowdown. We will continue to look for interesting deals in the region,” says Leow.
Being a thematic investor, Leow says that the firm always looks for opportunities from a sectoral perspective instead of a geographical one, partly due to the diverse and fragmented nature of the economies within the Asia Pacific region. The four key sectors EQT’s Asian private equity teams focus on are services, software, healthcare and industrial technologies.
“These are sectors with good track records and where EQT has operational expertise. Therefore, when we engage with a company based in Vietnam, Indonesia or Singapore, we can leverage our track record and best practices developed over the years to work with them seamlessly. We can also help open doors for them in multiple geographies because of our strong global presence,” says Leow.
She adds that the firm can also help upgrade the companies’ operations, especially in digital transformation and environmental, social and governance initiatives. “This is as we tend to partner with companies over the long term, with a typical horizon of five to 10 years,” says Leow.
Providing more support
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Against the current challenging business backdrop, Leow points out that many start-ups may face difficulty in securing capital. The challenges could be further amplified among purpose-driven small enterprises, as they tend to have less of a track record and may need more time for proof of concept.
As these companies are typically still in the early-stage phases, they may need more help in terms of business operations and management, says Leow. This is especially true as they are responsible for including impact and sustainability in their key performance indicators (KPIs).
Leow says the newly unveiled EQT Impact Challenge seeks to address this gap. Organised in partnership with The Edge Singapore and Asia’s largest tech media platform E27, the EQT Impact Challenge aims to provide an avenue for early-stage start-ups within the areas of planet and humanity to showcase their breakthrough solutions or innovation. Aside from clinching investment from EQT Foundation, the challenge winner will also enjoy access to EQT’s knowledge, operational assistance, and strategic planning and business development consultation from a professional services firm.
Leow believes many founders in the region are determined to make a positive impact with their innovative ideas and eager to find the right resources to catalyse their entrepreneurial journey. This is particularly true as the region is home to enthusiastic young entrepreneurs who aspire to replicate the successes observed in other parts of the world.
“I think it is important to support these companies and provide them with better chances to prove their value. Hopefully, we can attract more resources into this space — once a few unicorns are built to become successful examples, more players and investors will be keen on the space. I believe it is a positive cycle that needs some initial push,” adds Leow.
For more information on the EQT Impact Challenge, visit https://e27.co/eqt-impact-challenge/
Application period: Sept 12 to Oct 22
