Carmen Yuen of Vertex Venture gives a factual breakdown of six key markets in the Southeast Asian region, from the support their governments give to startups to the local talent pool

Globally, 2021 was marked by a gold rush, with startup funding more than doubling that of the previous year. By contrast, 2022 was marked by a funding winter, with early-stage startups in Southeast Asia seeing an overall decline in deals during the first nine months of the year. 

In 2023, there is much to be seen about how startups will fare, and whether we’re on the cusp of a new era of venture capital (VC) investments, especially in Southeast Asia which has gained immense interest. 

Having operated for close to four decades in the region, we’d like to think we’ve got a good grasp of what makes the region tick. For startups looking to expand into or across the Southeast Asian region, here are useful insights to know and consider about six of its markets: Singapore, Malaysia, Thailand, Indonesia, Vietnam and the Philippines. 

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Above Photo: Tomatoskin/Getty Images

With a population of 5.6 million people and one of the highest GDP per capita (PPP) in Southeast Asia of US$131,580 in 2022, Singapore is positioned as a leader in the region’s VC activity and as a major hub for Southeast Asian startups.

Funding environment: Singapore is one of the region’s most open economies. Besides being home to more than 200 venture capital funds, the country is also the regional headquarters of some of the world’s biggest financial institutions. Multinational corporations have been eager for a slice of the startup ecosystem pie, offering the local community guidance, technological support and access to their networks.

Government attitude: The startup ecosystem is supported by a government that favours innovation and enterprise. Government agencies such as Enterprise Singapore (ESG) and the Economic Development Board (EDB) work together to support Singapore-based entrepreneurs and take innovation to the next level through measures such as grants, private investment matching programmes, tax incentives and encouraging financial institutions to set up innovation hubs in Singapore. A robust framework for intellectual property protection also exists to help ventures maintain their competitiveness on a global scale. According to the Institute for Management Development World Competitiveness Ranking 2022, Singapore ranks third globally.

Entrepreneurial community: Many incubators, accelerators and VCs actively lead local community activities to maintain the spirit of innovation. This includes summits and conferences attended by thousands of business leaders from all over the world to discuss trends, developments and future projections.

Talent pool: Singapore’s education system, which is said to be at the top of global education rankings according to the OECD in 2016, is geared towards Stem and has led to the manifestation of a deeply technical talent pool. Singapore also ranks highly on the 2022 IMD World Talent Ranking as a destination for global talents.

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Above Photo: Fadil Aziz/Getty Images

With a population of around 273 million people and a GDP (PPP) of US$14,534 as of 2022, Indonesia has the largest economy in Southeast Asia, contributing 40 percent of the region’s GDP. Its large population also represents an enormous opportunity for startups to reach critical mass and large-scale market adoption.

Funding environment: Indonesia is steadily making its presence known due to the emerging trends in its fundraising scene. Financial support from local VCs has led to the production of multiple unicorns in a short period—a total of 14 as of 2021, which is more than any other Southeast Asian market. Notably, capital investment into Indonesian tech companies between 2020 and 2021 reached a historic high of US$3.4 billion.

Government attitude: The Indonesian government is supportive of new ventures and is consistently encouraging local companies to list on the Indonesia Stock Exchange (IDX). In 2020, the Omnibus Law was passed to streamline the country’s complex regulatory environment and increase funding opportunities for businesses. 

Entrepreneurial community: Organisations in Indonesia such as Startup Grind Jakarta connect and allow founders to learn from each other through events. Multiple entrepreneurship development programmes (incubators and accelerators) exist, providing access to education and mentorship in various aspects of entrepreneurship. Events such as Nexticorn provide startups with the opportunity to pitch to investors.  

Talent pool: Many Indonesian employers continue to struggle with a shortage of talent, especially software developers. Nonetheless, Indonesia has a large labour pool, with around 2 million Indonesians entering the labour market annually. And due to low startup costs, many entrepreneurs are setting up their businesses in Indonesia.

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Photo: Martin Puddy/Getty Images
Above Photo: Martin Puddy/Getty Images

Thailand is known to be ranked first globally for mobile banking and financial services penetration. In 2023, its digital payments sector is projected to see US$34.82 billion in total transaction value. The Thailand startup ecosystem is nascent but unique, due to the prevalence of corporate VCs.

Funding environment: The Thai government regularly provides grants for SMEs, while a national platform called Startup Thailand provides support and encourages the creation and growth of startups in the country. 

Government attitude: The Thai cabinet is supportive of startups and recently approved income tax exemptions for investments in Thai startups. Tax incentives are also provided to 12 different sectors in the form of direct investments and VC investments. Through the National Innovation Agency, Thailand also launched its Innovation Thailand campaign, expressing a will for the country to become a global hub to nurture and launch innovations. This campaign is part of a wider long-term strategic move by  Thailand to become a developed economy within the next 20 years.

Entrepreneurial community: As the startup scene continues to grow at an explosive rate, co-working spaces and networking events are prolific here. Big corporations such as Microsoft are also giving back to the startup community through initiatives that provide technological support, help businesses scale and more.

Talent pool: There is a diverse pool of local and foreign talents residing within the country.

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Photo: Martin Puddy/Getty Images
Above Photo: Martin Puddy/Getty Images

With a population of around 32 million people with a GDP (PPP) of US$32,901 as of 2022, Malaysia has one of the most advanced banking systems in Southeast Asia. The population is conversant in multiple languages—Malay, Chinese, Tamil and English—and is a top choice for foreign companies seeking to relocate their operations to the region. There has been a strong government push for local startups via funding local partners and programmes, such as the Penjana programme.

Funding environment: Funding for startups is sourced from both government agencies and through bilateral agreements with other countries, such as Singapore. Specifically, RM1.3 billion of the 2022 budget has been allocated to support startups and entrepreneurs. Total VC funding between 2017 and 2021 reached US$6.6 billion, US$2.1 billion more than the global average of $4.5 billion in the same period. Malaysia has multiple bilateral agreements with Singapore, which enables Malaysian entrepreneurs to enter Singapore pitching events, accelerators and co-working spaces, allowing Malaysia-based ventures to acquire funding and scale with ease.

Government attitude: In 2021, the government launched a ten-year roadmap until 2030, titled Malaysia Startup Ecosystem Roadmap, which provides incentives to private and public investors and support to budding local startups to develop and scale.

Entrepreneurial community: Multiple startup communities online exist to grow the entrepreneurial community in Malaysia, such as FinTech Malaysia, which has more than 10,000 members and which actively organises events for entrepreneurs,  leaders in finance and investors.

Talent pool: Due to Malaysia’s educational system, the talent pool is highly literate, tertiary educated and multilingual. Combined with the government’s push for technological innovations, Malaysia is becoming one of the region’s up-and-coming startup hubs.

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Above Photo: Gonzalo Azumendi/Getty Images

Expected to have half its population be middle class by 2035, Vietnam currently has a population of approximately 97 million people with a GDP (PPP) of US$12,880 as of 2022. The population is hardworking and hungry to make a better life for themselves. And while its VC industry is relatively young, the country has grown to be known as a reliable source of software development talent. The country’s nascent internet economy also hit US$21 billion in 2021 and is starting to draw much interest from international investors. 

Funding environment: The local government has established multiple funds at both the state and provincial or city levels to encourage and support startups. It is also currently collaborating with banks and other countries to further fund and grow the startup scene. VC investments into local startups rose from US$425 million in 2019 to US$815 million in 2020. Between 2020 and 2022, the amount reached nearly US$2 billion. According to reports, investors are expected to pour US$5 billion into the country's startup market over the next two years.

Government attitude: As evident by the number of funds created to support entrepreneurs, the Vietnamese government is currently competing with Indonesia and Singapore to become the next hub for startups. In 2018, a law on supporting SMEs was passed aimed at grooming startups in fields such as technology transfer and investments. 

Entrepreneurial community: Startup Grind Ho Chi Minh City regularly gathers entrepreneurs together for fireside chats and networking events. Many startups from rural communities are also benefiting from NGOs, such as UNDP, with programmes that facilitate community startups. 

Talent pool: Vietnam still struggles with a talent shortage due to the government’s insufficient investments in creating a skilled talent pool. But its heavy involvement in Stem and IT education over the past 15 years, and the country’s lower labour costs have helped Vietnam grow into one of the region’s key hubs for talents in software development and R&D.

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The Philippines

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Above Photo: James Strachan/Getty Images

The Philippines has seen astonishing growth in the startup and investor ecosystems. The country, which has a population of about 109 million people and a GDP (PPP) of US$10,236 as of 2022, is the second-fastest growing economy in the region. Its GDP growth reached 8.3 percent in the first quarter of 2022, surpassing pre-pandemic levels.

Rapid digitalisation by a relatively young population amid the pandemic has highlighted the important role that tech-based startups play in ensuring low-income families and communities are included through fintech and payment solutions. This is the country to keep a close eye on if you want to know what moves the Gen Z and Gen Alpha demographics. 

Funding environment: The funds raised by Philippine startups grew nearly 1,000 times between 2019 and 2021, rising from US$152 million to US$1.03 billion, according to reports. The country’s fintech, media and entertainment startups saw the largest funding growth in 2021, followed by their peers in e-commerce and blockchain technology. As of 2022, the value of the startup ecosystem in the Philippines has reached US$2 billion, the country’s Department of Trade and Industry reported.

Government attitude: There are multiple government agencies assisting startups through joint initiatives such as The digitalstartupsPH programme, which aims to simultaneously support the local startup community and boost the country’s digital presence. 

Entrepreneurial community: The startup ecosystem is seeing the rise of more angel investor networks, accelerators, incubators and venture capitalists. 

Talent pool: The Philippines has a large population of young people and strong English speakers. Combined with its low cost of living, the local labour pool is particularly attractive to startups in the region. or even local start-ups to set up shop and go global.

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The state of VC investment in Southeast Asia has been largely positive lately. Singapore and Indonesia remain the top destinations for deals in the region. Of the US$7.0 billion invested in YTD Aug 2022, 59 percent and 26 percent were invested in Singaporean and Indonesian ventures respectively.  Overall, median deal sizes grew slightly in comparison to the amount of capital invested in 2021, even amid the decline of the capital market. As such, the region’s vibrant VC investment environment presents an exciting opportunity for all—from innovators to investors to institutions. 

Carmen Yuen is a General Partner at Vertex Ventures Southeast Asia and India. Her role entails leading investments and helping portfolio founders to grow their companies into regional and global champions. As a Board Member, she also works closely with founders on the companies' strategies including fundraising, recruitment and market penetration.

Carmen has served many years in Singapore’s government-backed venture capital initiatives including EDB Investments and Spring SEEDS Capital before joining Vertex Ventures in 2014.

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