#Asia ECID 2016: Tech startups in SE Asia will not experience a nuclear winter

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On day one of Echelon Indonesia 2016, Venturra Capital’s Stefan Jung sought to allay investment fears, and debunk some startup myths

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It was a rough start for the tech ecosystem this year. With Asia-based startups such as Tripda and Passport Asia toppling one after another; one might be inclined to think that once optimistic outlook of Asia startups is drawing to a close.

But don’t fret, said Stefan Jung, Co-Founder and Managing Partner of Venturra Capital. “There won’t be a nuclear winter for Southeast Asian startups,” he boldly declared, at day one of the Echelon Indonesia 2016.

During his half-hour presentation, Jung sought to allay the doom and gloom forecasts of the Southeast Asian tech ecosystem, gave an insight into VC behaviour in the region, and also debunked some startup myths.

Startup funding is reaching new levels in Southeast Asia

Jung cited strong GDP growth and high mobile penetration in the region as two of the key factors behind the increase in investment in startups and various technologies in Southeast Asia.

In 2015, VC funding in Asia reached nearly US$40 billion. The number of seed funding deals in Southeast Asia continued its sharp increase – in 2015 there were slightly less than 200, in 2016, it hit 229. There were also more late stage investments in matured startups, including – Lazada, Zalora, Garena, Grab and Go-Jek. Jung also said the number of new VC funds for Southeast Asia are increasing.

With regards to burn rates, Southeast Asia-based startups face less of a problem than those in Silicon Valley, he said. In Silicon Valley, a lot of money is spent on excessive (or extravagances) such as fancy offices and other frivolous things.

Startups in Southeast Asia are much more conservative. The average burn rate for a Southeast Asia-based startup is between US$100,000 to US$150,000 per month. Jung said that this is very healthy.

Also Read: New US$150M fund for SEA led by Stefan Jung, John Riady and Rudy Ramawy

There will be no nuclear winter for Southeast Asian startups but…

But for the rest of the global tech ecosystem, funding is being tightened in some areas.

Jung said that late stage investments are currently slowing down in countries such as China and India, and completely halted in the US. Also, private market valuations in startups are struggling to match up to public valuations. To be put simply, valuation multiples have gone down.

“As financing flow sputters, the percentage of down rounds is up,” he said.

But this is commonplace, he explained. Markets work in cycles, sometimes investors overshoot the valuation.

Of course, some startups would also stagnant or collapse before they can hit their Series B or later rounds, but that is just natural selection, Jung said.

The myth: I should expand internationally as soon as I can

Don’t run before you learn how to walk, as the saying goes. Founders need to understand their business in-depth before scaling. If you don’t understand the metrics, you shouldn’t think of expanding; focus your resources on the domestic market first.

“You need to think about your organisation’s capabilities…whether you possess the leadership skills to bring your startup to different markets,” said Jung.

“Market knowledge is also very important…you need to understand the nuances of different markets,” he added. For example if you are thinking of bring your e-commerce startup to a market with poor logistic services, that would become a problem.

At the end of the day, Founders need to consider the breadth of their leadership team and not spread them too thin.

“It’s about understanding the economics of business.”

Also Read: ‘Winter is coming’ to Asia, says Jon Russell

The myth: The tech ecosystem in Southeast Asia is not ready

Having lived in Indonesia for five years, Jung said that tech ecosystem in Southeast Asia is vibrant and booming.

There are accelerators and incubators launching in many markets in Southeast Asia. There are more co-working spaces; bigger entrepreneur hubs; new players tackling vertical such as payments and logistics.

In other words, the tech ecosystem in Southeast Asia has all the elements it needs to flourish now [if it isn’t already is].

Quality of the revenue is paramount

Founders — especially if you are in e-commerce — you would do yourself a favour by paying close attention to this paragraph; it may break or make your business.

Investors are more focussed on the quality of the revenue now. The days of handing out excessive vouchers to boost customer growth are over.

That’s not to say customer growth isn’t important, but whether they return (or what is now as ‘repurchase rate’). If your customer was initially motivated to make a purchase because of a voucher, but subsequently never return: that’s a red flag. Investors also want to see how much transactions it would take for the business to break even.

To sum it up: Growth metrics are now more sophisticated – while valuations were previously based on user growth, now it is more dependent on net revenue growth.

Conclusion

So now that you know winter isn’t coming to the tech ecosystem in Southeast Asia, aspiring entrepreneurs should take the plunge and execute their plans now.

Jung ended off with this quote:

“Now is the time — Everybody can dream, just don’t dream too long, so you don’t miss the ride of your life.”

The post ECID 2016: Tech startups in SE Asia will not experience a nuclear winter appeared first on e27.

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