The Asian continent has turned itself into a global powerhouse for investment that can compete with the best of western markets. Economic and business expansion thanks in part to digital innovation, excellent infrastructure, and a continuously developing workforce has helped the region reach new heights. These foundations were some of the key components that encouraged venture capitalists to continue investing in Asia, even amidst a catastrophic global pandemic.
According to Crunchbase data, investments in Asia reached record highs in 2021 with funding totalling $165.1 billion for the year. This represented 50% growth from the previous year when funding peaked at $110.2 billion. But who are the key players, which industries are driving this surge in venture capital, and what does the future hold for the region? Read on as we break it all down in the following article.
In order, China, India, Israel, Indonesia, Singapore, South Korea, and Vietnam received the most investment in Asia throughout 2021. However, China fuelled nearly half of the continent’s overall investment dollars with $78.5 billion in funding. With the largest population in the world (over 1.4 billion), China has the human, capital, and natural resources in place to be a leading growth hub across many industries.
India, which has the world’s second largest population (over 1.3 billion), was second with $37.6 billion in investment, reflecting good growth from the previous year. Even so, the total investment was just 48% of China’s total, which shows the Southeast Asian nation’s economic power. However, neighbouring countries in the region that are at earlier stages of economic development can also benefit from China and India’s growth through better trade and investment opportunities.
In 2021, Asia accounted for 40% of all unicorns worldwide — second only behind North America — and numerous startups in the region are making a global impact. Asean (The Association of Southeast Asian Nations) ‘super apps’, for example, are disrupting traditional markets with platforms like Grab leading the way. The Chinese-style platforms give consumers access to multiple on-demand products and services that are seamlessly integrated with digital payments and an e-wallet. By allowing people to socialise, buy, and spend more online — all from the same platform — these super apps are the new gateway to burgeoning, highly engaged consumer groups.
There are also many less prominent but high potential startups like CogSmart in Japan that are breaking new ground in neuroscience and medicine to deliver worldwide brain solutions. This 2019 startup is on a mission to decrease dementia incidence and extend healthy life expectancy (HALE) in the coming super-aged society. Companies like this are intriguing investment prospects with the current global spotlight on medical research and development.
But aside from the more recent startup boom, the success of other established companies in the region is proving to be another major attraction for venture capitalists. While North America has the highest number of unicorns in the world, Asia leads the way with the highest total market valuation. Two key players in ANT Group and ByteDance have propelled Asia to the top.
Innovative technology provider, ANT Group owns China's largest digital payment platform, Alipay, which serves more than 1 billion users and 80 million merchants. Then there’s Internet technology megacompany, ByteDance, which is behind social media sensation TikTok — the fastest growing social app in the world with over 1 billion monthly active users.
The digital economy is expected to reach $1 trillion by 2030 in Southeast Asia alone and with COVID-19 creating even greater demand for new digital services throughout the continent, startups are finding ways to leverage advancements in technology to cater to changing needs. Venture capitalists are seeing this and channelling more funding into the region as a result.
A few key industries are driving Asia’s investment explosion. Below are some of the region’s leading tech ecosystems.
Many tech literate countries in Asia are trending closer to cashless societies. From digital insurance to online loans and credit cards, fintech startups are offering a quickly expanding suite of virtual financial services. The plethora of options that are increasingly becoming available coupled with more engaging marketing campaigns to generate greater public interest, has led to higher fintech adoption among both individual consumers and businesses.
While e-commerce companies still ponder expanding into financial services in western markets, Asian companies are increasingly establishing their presence in the industry. In Asia, there’s a general recognition that social media is a pathway to online shopping thanks to the power of network recommendations and peer-to-peer influences. E-commerce companies are tapping into this by delivering direct, streamlined user journeys that seamlessly transition from community to Internet commerce.
Next generation technologies such as 5G are helping to increase the use of AI across many sectors in Asia. Countries like Japan, China, and Singapore are some of the leaders in AI adoption not only on the content, but in the world. It’s driving advancements in everything from robots to cars and medicine, and having a huge impact on the sum of investment dollars that are being pumped into the region.
The ever growing popularity of gaming is being fuelled by the rise of niche segments like eSports. Soaring viewership on platforms like YouTube and Twitch has gained the attention of advertisers and venture capitalists alike. With an expected 8.5% CAGR between 2022 and 2027 in Southeast Asia alone, the developments in infrastructure and surging investments in the gaming market, point to some incredible growth opportunities in both the short and long term.
Late in 2020 amidst the global COVID-19 pandemic, 15 countries in the Asia-Pacific region signed the Regional Comprehensive Economic Partnership (RCEP) agreement, opening the largest free trade bloc in the world. With the worst of the pandemic already behind us, the region now stands to establish itself as a leader in the global supply chain while continuing to benefit from the existing trade partnerships and shaping the future of the global economy.
Some investors might have trepidations of future volatility in the region. However, many companies now have added resilience with improved business structures and processes after a difficult few years. With widespread digitisation, growing economies, and rising spending power among Asian populations, investors are identifying excellent opportunities to drive sustainable ROI.