Investment Trends in the Asian Startup Ecosystems

Investment activity in Asia

Quite often we tend to limit our focus to Silicon Valley when the context turns to startups and innovation. But, over the last decade, the number of startups in Asia has been increasing significantly and the ecosystem is also dynamically evolving to support these startups.

In 2016, venture capitalists and large corporations have invested approximately $57.9 billion in 3803 startups. The number of Asian startups that have successfully raised funds has tripled and the amount of money invested has gone up five-fold in the last years, according to Preqin, a leading source of data and intelligence for the alternative assets industry.

In 2013, investments in startups accounted for 14% of total investments in the world. However, this number rose to 40% in 2015, which has been a drastic jump in a short period of time. Hence it can be inferred that Asian startups are gaining more traction and have turned into an ever-expanding opportunity for investors.

Moreover, there are around 60 “Unicorn” [Startups whose market cap is over $1 billion] companies in Asia. A lot of uncertainty may be associated with these unlisted companies, which often leads to decrease in market cap during M&A deals.

Diversity and Main Industries in the Asian Startup Ecosystems

Asia is a continent composed of many different countries where the cultural settings and historical background, population demographics and economic factors are entirely different from country to country. Despite the diversity, there is an overall young market of US$2.2 billion, which is a promising potential source of new business and innovation.

Countries like India and Indonesia, where GDP is growing at a rate of 7% and 5% respectively, have witnessed the naissance of a new middle class. Only a mere 26% of the total population in India use the internet, while this number is 22% in Indonesia. This is a promising prospect and inexpensive smartphones are driving the rise of this market. In the near future, smartphones are expected to increase internet traffic and consumption in these countries as millions of new users will join the internet.

E-commerce and the businesses directly associated with it – namely online payment systems and logistics startups – have flourished in the domain of mobile internet market. Transportation applications such as those to rent cabs and taxis have also achieved significant growth.

One trend in the consumer market business is the unbound inflow of Chinese money, which has influenced growing businesses in most countries. Furthermore, companies from the United States have targeted and expanded to the Asian market and this expansion has been proven to be positive in most cases. This tendency of the local companies competing with the United States companies, while supported by Chinese investments, can be seen in many countries.

Apart from the mobile internet market, Asia accounts for 60% of global semiconductor shipments. Hardware startups in Shenzen, China are growing rapidly. Similarly, startups in Bangalore, India are focusing on the BtoB software market whereas in Singapore the government has been promoting FinTech and is currently supporting the Smart Nation project actively. These fields have also seen a rise in startups.

Japan's Activities with other Asian Startup Ecosystems

Last year the Ministry of Economy, Trade and Industry (METI) of Japan initiated an “IoT Acceleration Lab” where 30 growing IoT startups mainly from India, Israel and Southeast Asia were invited to Japan. The startups were matched with Japanese corporations in order to create new collaboration. The aim of this initiative was to help Japanese companies connect and know more about the Asian markets, human resources available, and the technology developed in Asia.        

In February 2017, the IoT consortium of Japan and India’s NASSCOM signed a Memorandum of Understanding (MoU) to join forces to exploit each country’s respective strengths in the fields of manufacturing and software. This agreement aims to bring forth new business models and accelerate IoT development globally.

The Asian market has a significant influence over Japanese businesses whose growth depends on their skill to incorporate the developments and growth of Asia into their business.