As COVID-19’s economic fallout poses twin threats to lives and livelihoods and affects a wide range of businesses, startups have been left especially vulnerable.

Global venture capital (VC) funding has fallen 20 per cent since December, with a 22 per cent drop in seed-stage funding from January to March alone, revealing declining optimism.

In spite of these circumstances, panellists in a recent Singapore Economic Development Board (EDB) webinar remained surprisingly confident about the startup scene in Southeast Asia (SEA).

The SEA startup scene: Healthy signals in hard times

While the pandemic’s full impact will not be felt until at least Q4 2020, panellists are seeing positive indications across the region.

Ms Carmen Yuen of Vertex Ventures, a VC with a focus on Singapore, India, and Southeast Asia, cites a report describing SEA’s internet technology investments as the most resilient worldwide in the first half of 2020, declining significantly less than the global rate. Deals between US$3–$50 million (S$4–$67 million) and above US$100 million (S$135 million) even increased compared to the second half of 2019.

But nothing reveals investor confidence better than the actions of investors themselves.

Mr Vinnie Lauria of Golden Gate Ventures, a SEA-based investor in internet and mobile startups, is still very active, closing two deals monthly on average. Similarly, Mr Willson Cuaca of East Ventures, rated the most active investor in SEA in 2019, is deploying capital aggressively to close an average of a deal a week while investing more effort to help existing portfolio companies.

These savvy investors see the pandemic as a stress test for startups, revealing the entrepreneurs who are able to go the distance.

“Even though circumstances are very bad, a lot of these companies showcase resilience, resourcefulness, and decisiveness, assuring investors to double down,” says East Ventures’ Mr Cuaca.

Discerning SEA sector opportunities: Post-COVID sustainability is key

In particular, an ability to identify accelerating growth sectors sets the best entrepreneurs apart. Sectors like edtech, e-commerce, and logistics are booming in the region, but will they continue to offer value?

“While COVID-19 is a black swan event, the key is to draw out opportunities that are ‘COVID-only’ time trends and park them aside, while looking at sustained factors that change how consumers interact with retailers and companies,” says EDB’s Mr Alfred Lum.

KooBits, a Singapore-based startup that gamifies educational workbooks and lesson plans, has seen a huge pickup worldwide because of lockdowns. In the same period, Indonesia-based Ruangguru, an online learning edtech startup, saw day-on-day user growth of 7,000 per cent.

Golden Gate’s Mr Lauria is confident that these are not passing fads. In the same way dating apps entered mainstream use over the past decade, the traction gained in the last months will make edtech part of the regular education experience in the region.

Recent disruptions to global supply chains are also renewing interest in biotech innovations that stabilise food supplies. Whether via vertical farming or lab-grown meat and milk, these biotech startups will have a growing role to play, especially for non-agricultural countries such as Singapore.

Vertex’s Ms Yuen believes that companies such as Shiok Meats and TurtleTree Labs should continue to invest in lab-grown products, and prepare to “fly off the starting line when regulations are clear.” 

Three engines to thriving in a disruptive time

The ability to discern high-growth sectors may be a start, but it’s no guarantee of success. For our investors, three qualities are necessary for startups to seize opportunities successfully.

Pivot quickly and creatively

First, growth is reaped by startups that quickly and creatively adapt their strengths to new circumstances.

Indonesian multi-platform media company, IDN Media, responded quickly to the cooking boom during lockdowns, switching their content focus to online cooking classes. They compiled all the content into an app, Yummy, which now receives more than 100 million video views a month, and resulted in the company’s record-breaking Q2 revenue. 

Own your vision

In response to the economic slowdown, regional governments have been quick to step in, matching funds raised by VCs and offering capital grants and mentorship opportunities to startups.

Golden Gate Ventures, an active partner with Singapore IMDA’s SG:D SPARK programme, appreciates the assistance on offer. “SPARK helps startups get clients and court government contracts,” says Mr Lauria. “The government helps to offset salaries to reduce layoffs and pushes banks to offer loans.”

Though these interventions are valued, investors warn against overreliance.

“Government help cannot be there all the time,” explains East Ventures’ Mr Cuaca. “Startups themselves must independently execute their dreams. Talk to your investors, your mentors, your board members, make sure you know what you’re doing, and when aid from the government comes in, this is extra help for you to move forward.”

Build a supportive company culture and seek help from networks

As startups start to feel highly stretched during the pandemic, a supportive company ecosystem is crucial to success.

A supportive culture helps staff feel valued and creates a conducive environment for their best work. For example, Ms Yuen shares how Ms Roshni Mahtani Cheung, founder of theAsianparent, offers free Zoom storytelling sessions to her staff’s children, freeing staff to take calls and focus on work.

When founders themselves need support, the help of investors and board members is essential, and not just with difficult conversations such as cost-cutting.

“A lot of our conversations have been around helping,” says Golden Gate’s Mr Lauria. “We created a huge Wiki knowledge base for our portfolio founders. We started running founder conversations where we get notable CEOs in our portfolio and beyond to help the portfolio through these challenges.”

SEA’s fundamentals continue to offer unrivalled growth potential

With these keys in mind and an awareness of accelerating growth sectors, startups in SEA have little to fear in the months ahead.

“SEA’s fundamentals, for example, in having the world’s fastest-growing internet region and a young and tech-savvy population hungry for new products and services, remain unchanged despite COVID-19. This reinforces the region’s position and attractiveness as a startup hotspot,” explains EDB’s Mr Lum.

Significant opportunities such as the region’s unbanked population and the continued drive in cashless adoption in the Philippines, Vietnam, and Indonesia will also create markets receptive to new tech solutions.

With many needs emerging from the COVID-19 economy, it may just be the perfect time to launch that revolutionary solution that will improve the lives of millions across SEA.