Technology Startups Ecosystem and Investment Trends in APAC
By Jayanth Kolla, Partner, Convergence Catalyst
Jayanth Kolla, Partner, Convergence Catalyst
In recent years, Asia has witnessed rapid emergence of digital technology startups and venture capital (VC) backed investments. According to CB Insights data, USD 106 billion has been invested in over 5,000 deals between 2012 and H1, 2017. The key sectors of focus and growth in APAC include Mobile, Consumer Internet, E—Commerce, Fintech, Ride Hailing (cab and bike hailing & sharing), Media, and Games.
Asia: A Mobile-First Market
Asia, and in particular, China, India and South-East Asia, are rapidly transitioning from low-wage, low-tech manufacturing and services powerhouses to more technologically sophisticated markets. And, this recent trend can be attributed to the rise of Mobile and Internet adoption in Asia. China, India, and Southeast Asia are three of the largest mobile internet and smartphone markets in the world. There are over 700 mn, 350 mn and close to 300 mn mobile internet users in each of these markets respectively. Smartphones are a primary catalyst behind Asia’s digital growth, connecting millions, launching social networks at scale, and spurring e-commerce and large-scale digital transactions. The smartphone has become the first and primary computing device for an average Asian consumer. It truly is a mobile-first region. This mobile-first market and consumer dynamics and the economy has resulted in the evolution of multiple apps-within-an-app model in Asia.
Different Markets in APAC Are At Different Stages of Maturity
Purely based on digital technologies adoption, growth trajectories, investment trends, market dynamics, and consumer behavior, APAC can be classified as five key market segments:
1. Japan and Korea: These are two most advanced markets for digital technologies adoption, not just in Asia, but even globally. Both these markets have similar dynamics of being first to launch technologies, proprietary standards and versions for their own markets, catering to domestic demand. And, domestic corporate giants are the big investors in the technology startup ecosystem in these markets. The technology startups in both these markets focus on entertainment, media, gaming, and mobile consumer internet, while the deep technology focused startups get acquired by domestic technology giants. However, Japanese and Korean technology startups tend to lack the agility to pivot (when required), and expand globally, which hinders their growth beyond a certain point.
2. China: China is fast evolving to be the technology and investment powerhouse to beat.
The mobile-first market in asia and consumer dynamics and the economy has resulted in the evolution of multiple apps-within-an-app model in asia
3. India: India is currently transitioning through to the second phase of technology startups based innovation and investments cycle. There is an ongoing consolidation of the first phase consumer internet and mobile startups, and emergence of first generation, VC investments-backed technology giants – Flipkart and PayTm. Innovation and entrepreneurship in India is slowly shifting towards middle-India to tap the potential 300 mn to 500 mn mobile-first consumer segment, and move from high value-low volume transactions based digital economy to high volume-low value transactions economy.
4. South-East Asia (SEA): Currently, SEA (6 major countries including Singapore, Indonesia, Malaysia, Philippines, Thailand and Vietnam), from a technology startups innovation, VC investments and growth opportunities perspective, is exactly where India was five years ago. The current internet economy of this region is USD 50 billion in size and is expected to grow to USD 200 billion by 2025, with significant room for growth in terms of mobile adoption. There exists tremendous opportunity for growth and investor returns in this market for the next few years. Online Media, Ride Sharing, E-Commerce, and Fintech are going to be the key focus areas for this market. This region could potentially witness an investment of USD 40 to 50 billion over the next 10 years. And, we are witnessing both US and Asia based VC firms and Chinese technology giants such as BAT trio eagerly investing in this market.
5. Australia and New Zealand (ANZ): The technology innovation, startup ecosystem and VC investments in ANZ markets, especially in consumer internet, are still at a nascent stage. With Amazon and Uber recently entering these markets, the scenario is expected to change very quickly. ANZ currently is highly Enterprise Tech and SaaS driven market and the innovation in these markets, similar to western countries is focused in and emerges out of universities.
The Unique Characteristics of Each APAC Market Will Require Independent Strategies
With significant focus on platformization and mobile payments across various countries, each market in APAC has a different leader and approach. While in China, WeChat – primarily, a mobile IM – has evolved into a platform catering to ride-sharing, local delivery, and eventually evolving into a mobile payments platform, in Indonesia, Go-Jek – primarily, a bike taxi hailing app – has evolved into mobile payments and mobile-first lifestyle platform. In India, PayTm, which started as Mobile Commerce company and later delved into payments is now a platform of choice for various mobile-first lifestyle activities of digital consumers.
Two of the world’s biggest economies – China and Japan, and two of the fastest growing economies – India (USD 2.1 Tn GDP, growing at 8 percent) and SEA (USD 2.5 Tn GDP, growing at 5 percent) belong to Asia. And, with technology-led innovation coming out of this region with rapid pace and confidence trying to cater to both local and global markets, the world cannot afford to ignore or take this region lightly anymore.
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