Startup companies are what you’d call the risk personified. It’s one big gamble of success, with failure usually meaning your money disappears in a puff of smoke. It requires a certain amount of guts to pull off a startup, particularly in the Asian community where people prefer a steady and stable job as opposed to the risk of a startup.
But does that mean there are no startups in Asia? Of course not! Let’s take a good look at the Global Funding Report 2017 and see where that takes us.
Where are we globally?
According to said report, global funds have seen a modest improvement of 2% last year, which doesn’t seem like much. However, in figures, that 2% is a rough 2.5 billion dollars. It gets even more surprising when we take a look at graph no. 1 below. The world is divided into 3 main regions North America, Europe, and Asia. Taking a careful look we see that two of the above three regions have actually decreased funding. This makes Asia’s increase even more monumental, particularly considering that it more than doubled from 2016.
Looking at it from a number of rounds (or deals) perspective, however, shows us that they have globally hit the dust. North America has the most dramatic reduction of 52%, but Asia and Europe have reduced the number of deals too, making the global drop 43%.
The flip side of the coin, however, show us that drop in number of deals means that average deal size gets larger (at a shocking 81% increase worldwide). Compared with North America’s 79%, Asia increased deal size by 123%, going from a previous $30 mil to almost $68 mil. While one could assume that more funds in Asia would mean a large number of small cost startups, the deal size statistics effectively debunk this theory.
How does globally translate into regionally?
According to graph no 2, looking at yearly funding for 5 years, we can see a striking difference between Asia and the other regions. Asia started off with the lowest funding in 2013, but apart from a slight drop in 2016, has managed to keep their funds steadily increasing. In contrast, other regions got off to a good start, but were unable to recover from the 2016 drop.
This is more clearly shown when the funds are indexed to 2013, where Asia has a clear line of increase while it is obvious both Europe and North America have problems recovering. This may be due to the fact that after the drop, their society is less willing to take the risk, while to the Asian community startups are something new.
Taking number of rounds per region over past years, we see that the drop in rounds has been a recurring trend since 2014, with NA having a drastic drop compared to the other two regions. Our attention is again drawn to the fact that Asia has the least number of rounds, despite the significant increase in funding. Curiously enough, once indexed to 2013, we see Asia has a very high peak in the no of rounds in 2014 and 2015, which is why it drop so heavily afterwards.
One can only assume that in the Asian community, this means those who identify the potential in startups are willing to risk a lot on it, while those who don’t…just don’t.
Let’s break it down a little more, shall we?
Well now that we got the big numbers out of the way, let’s look at it by quarter. Amidst the erratically jumping lines, we can conclude that while there are (always) drops and peaks, funding has grown since 2013. However, the North American regions’ funding has reduced dramatically, allowing Asia to near their number with its steadily increasing figure.
Comparing quarterly funding globally by year, it’s not as good as the highest funded year (which would be 2015) but 2017 still manages to improve from 2016. Region wise however, the same cannot be said of North America and Europe, both of which obtained an all-time low on funding this past year. In contrast, Asia had a rather rocky start to the year, but attained an all-time high in funding from the second quarter onwards.
Asia is also able to boast the biggest increase of global share of funding, going from 5% in 2013 to over 40% by 2017, outlining a clear difference from the rest of the world, namely North America’s equally clear decrease, and Europe’s steady progress.
So where did all the funding go?
Of course, being raised by Asian parents mean we come up with a standard set of answers for this. Oh funding? Probably towards medical advancement. No? Then maybe towards engineering. Or maybe science?
However, trend analysis shows that those are pretty much in the bottom of the lists. During the past year, most funding has been directed towards financial services, followed closely by shopping. Apparently investors feel safe with investing in widely popular trends, and you can never go wrong with shopping. Marketing, News and media, Software, Mobile platforms and Ecommerce are also big investments.
Taking into consideration global funding by industry, Information Technology is unsurprisingly at the top of the list. Surprisingly, people and society went from zero to hero in the past year, with the highest increase in funding to become the second industry funds went towards. However, a large part of the “people and society” funding is due to WeWork, who raised $5.7bil in the US. Meanwhile, financial services, which was on par with IT last year, has fallen back on funding to third place.
The changes brought about in one year are huge in some industries, and minor in others. People and society, having the highest increase, has a change rate of 12375%, closely followed by SEO and Cryptocurrency. Tech based industries seem to have undergone a quick rise this past year.
WeWork, dominating the global funding, has of course dominated the North American region as well. However, the overall decrease of funds has resulted in a larger number of industries having a decline in their funding compared to the ones who have increased.
Europe seems to go in a different direction, with financial services, IT and business having the most funds, with the most significant changes being in aviation, autos and vehicles, and transport and logistics. Europe’s trends seem to revolve around the transport industry since last year.
Asian trends are moving towards the tech industry, with IT and Ecommerce receiving highest funding and Big data and AI, Crypto currencies and ecommerce having the highest increases of the year.
Industries have a big variation from region to region, throwing an interesting mix into the global charts.
When does a startup get these funds?
Globally, funding is mostly directed towards series B+ in all three regions while the early stages receive the lowest funding, again from all three regions. However, it is worth noting that most of Asia’s funding remains undisclosed so the actual situation may vary.
Comparing the above information with the total rounds per stage, we notice America’s high funding in series B+ comes from an equally high number of rounds. In comparison, Asia’s series B+ and undisclosed funding both have very little rounds, which suggests very large deal sizes ongoing. Asia’s largest deal size however, comes from the debt stage (where startup companies take a loan as their capital), which has next to no rounds at all, so it makes sense. This is particularly true of a community which may be reluctant to adapt to the risk taking environment of startups.
Comparing 2017 with the year before, ICO funding and undisclosed funding (latter probably the work of Asia) has gone up. Meanwhile series B+, having the highest funding, remains virtually unchanged. Average deal size has risen in all stages globally, the most notable being, once again, undisclosed.
Regionwise, North America with the decreasing funding has lower figures in almost all stages. ICO remains the one exception, for which funding has slightly increased. However, series B+ still remains the top dog. Europe on the other hand, increased funds for both ICO and series B+. They did however deal a drastic decrease on debts. Asia, predictably, has the most increase in undisclosed (privacy remains of utmost importance). However, they too seem to adapting to the trends of the rest of the world, with slight increases in ICO and early stages and a small but significant drop in debts.
Why is funding pouring out of America and into Asia?
So looking at all the figures, big and small, one thing is abundantly clear here. While the funding for the rest of the world decreases, Asia is thriving on it. The question is, why?
For starters, while Asia is classified as one region, it should be kept in mind that the dynamics vary wildly country to country. Take Singapore for an example, one of the world’s wealthiest countries. Their company Grab managed to garner the largest investment in the latter half of 2017, $2billion.
Contrast this with Indonesia, which has one of the highest GDP’s in Asia but also has close to 130mil people who are not digitally literate. The untapped potential is enormous, and that is why most investors and entrepreneurs are willing to risk such a lot on a startup. A prime example would be Intudo Ventures, who launched a $10M fund mid 2017 dedicated to startups. Indonesian based marketplace Tokopedia alone has raised more than $1.1billion from investors as well.
Taking into account funding data in southeast Asia since 5 years ago, it’s not surprising to see Singapore and Indonesia in the lead, holding a significant difference between them and Malaysia, which comes third. Interestingly, $3.1billion of those funds were raised in Singapore in 2017, as well as $3billion from Indonesia. This shows us how fast Indonesia is catching up on the market.
In addition to that we have countries like Malaysia. The support by the government and a private sector that has begun to step up, Malaysia has become the second top hotspot to launch startups in the world. This is evidenced by the success stories they have had, a couple being grab and iflix. Thailand, while seeming to hold a meager fifth place, is one of the most rapid progressions of them all. They raised $78million (85% of their total funding) just in 2017. This was done with noteworthy startups like Kitty Live and Zilingo.
In addition we have Philippines, named by Forbes as one of the fastest growing economies of the world. To highlight that, we notice despite raising just $18M in funding since 2012, the Philippines increased deal activity, closing 100 deals over the years. This was just 14 less than Thailand, which has closed 114 deals totaling $92M. China has gotten a lot of funding as well, particularly from the tech giants in the country. Tencent invested in 38 funding deals, e-commerce giant Alibaba – the owner of the South China Morning Post – invested in 23 and search engine Baidu in 6.
Startup giant Japan has also been generous with the money flow. According to techinasia.com various startups like Minden, Flamingo, and EveEve have received funds more than $1.5 mil the past year. The fact that Asia still has a large untapped market is a significant factor in these funding trends. While America and Europe have almost all their population integrated into the digital world, and commercial giants secure in top places, Asia is still developing.
World Bank states that 27% of people in Southeast Asia have a bank account. Startups that are payment oriented have a large market in the unbanked population. The best examples for these are Fipino based Coins.ph, Singaporean InstaReM and Thailand’s Omise. It might be that Asian startups are focusing on better things now. Indian Aakrit Vaish, co-founder and CEO at Haptik, states the following about Indian startups;
“This year will definitely be a lot better than last year, as realism sets into the ecosystem. Previously, a lot of startup investments and valuations were based on consumer reach, without much attention to unit economics. This applied to both investors and founders. Now, everyone cares about the right things: P/L, unit economics, and overall long-term viability, without having to depend on outside investment.”
His statement is that money was previously flowing into startups based on how many users it had, not how much profit they were gaining. Priorities have now changed and investors are beginning to invest in worthy startups. Take, for instance, the ecommerce market. Despite large sites already securing a tophold, investors have continued to funds other sites that are more specific. The previously mentioned Zilingo, a fashion and lifestyle marketplace is a prime example. Other noteworthy sites include muslimarket, a muslim apparel site, as well as Qlapa, which focuses on handmade products.
From an investor perspective, 500 Startups in reigning in Asia, with more than 200 rounds, including investments in Singapore and Indonesia. Japan based East Ventures follows, with capital investments in Indonesia and China. Aside from those, we have groups of the richest Asian families banding together and investing on startups as well. Sinar Mas group and the Ayala Corporation head these strategies.
Chinese tech giants Alibaba and Didi Chuxing have been active as well, investing in Tokopedia and Grab respectively among other deals.Despite the rage of startups, commercial giants are still not secure in Asia which leaves a lot of potential candidates (and investors) competing for the top spot.
So how are we doing so far?
In conclusion, considering all statistics, it’s safe to say that Asia is holding our own, if not rapidly improving, in terms of startup funding. This is made all the more significant by the fact that it’s not because there are many small deals being spread among large populations. All in all, we have some serious investors who are willing to throw large investments into worthy causes like Haptik. That is something we as Asians should be proud of, and we should aim to get our startup companies developing into large stable companies.