Raising capital for a startup has traditionally been one of the most difficult parts of getting the idea off the ground, but circumstances have greatly changed recently, and many Asian startups have become billion-dollar success stories.

In just four years, Xiaomi, China's largest smartphone vendor, became the world's most valuable technology startup with a valuation of more than $46 billion (41.3 billon euros) in December.

"Given Asia's high GDP growth and rapidly growing market size, it was natural for investors to look at China and other parts of Asia as places to invest," says Raman Chitkara, who leads the global technology practice at PricewaterhouseCoopers.

A Xiaomi smartphone on display at a trade exhibition. In just four years, China's largest smartphone vendor has become the world's most valuable technology startup, with a valuation of more than $46 billion in December 2014. AFP

"They see the power of Asia - rapidly growing markets, rising new middle class, and growing urbanization - as accelerators for growth and high valuations. There is an entrepreneurial culture in Asia, particularly in China and India, and startups present a certain level of excitement, with the goal to make an impact on society.

"That, plus the potential for economic prosperity by building large-scale value over a short period of time, attracts people to start a business."

Zhongguancun district in Beijing alone gave birth to 49 startups daily last year. The State Administration for Industry and Commerce says nearly 3 million people set up their own businesses for the first time in the nine months from March last year, after China reduced the threshold for those who want to register a business.

Premier Li Keqiang has promised to provide various forms of government support, including funding and office space for startup companies.

At present, China has more than 1,600 technology incubators and hosts more than 1,000 entities investing in startups, with total venture capital exceeding 350 billion yuan ($56 billion; 50 billion euros).

Early this year the government decided to set up a new national venture capital fund to help startups and promising entrepreneurs. The $6.5 billion fund will be used to support seed-stage technology startups in the country.

Peng T. Ong, founder of Match.com, the pioneering online dating service set up 20 years ago, recalls his tough days of searching for an investor for his startup business.

"It was harder then," says Ong, who now runs Monk's Hill Ventures, a venture capital firm in Singapore that invests in technology startups in Asia.

"But things have changed dramatically. With more business successes, huge Internet penetration and more mobile telephones, the Asian startup scene is altogether different now."

Flipkart, India's largest retailer by sales, has a success story similar to that of Xiaomi. Now valued at $15 billion, it was started by two friends a few years ago with about $6,000 saved from their earnings.

Ma Rui, partner for China at the seed fund and accelerator 500 Startups, says the spectacular success of Internet-based businesses is fueling startup growth.

"Tech entrepreneurship is one of the few ways a talented young person with few resources and dollars can create something that impacts millions of people in a fairly short amount of time."

Tax incentives offered by governments are also fueling the startup boom.

Successful private enterprises are jumping on the bandwagon by developing incubation centers and investing in a growing number of tech startups in the region.

The Internet giant Tencent is building a center for technology startups in Chongqing, Southwest China, in partnership with the municipal government. It plans to develop 25 such ideas incubators across the country.

In April, Alibaba group announced it would set up a startup incubator for mobile Internet and mobile commerce in the southern Indian city of Bangalore, and Google has launched its startup incubator Campus Seoul in South Korea.

In India, startups have received some huge investments lately. Based on data compiled by a startup news website, YourStory, in the first quarter of this year, with 147 deals concluded between January and March, Indian startups raised $1.7 billion, registering a 300 percent growth year-on-year. In the first quarter of last year alone, startups in the country raised close to $450 million. A total of 300 deals were closed last year.

Kris Gopalakrishnan, co-founder of Infosys, one of India's biggest IT companies, says most of the investments from global investors or venture capitalists are happening at the seed stage.

"Angel funding typically happens locally," says Gopalakrishnan, who is also chief mentor of Startup Village, a technology business incubator in the southern state of Kerala.

Startups are typically woven more tightly into the local fabric with deeper knowledge of the domestic markets, fewer language barriers and cultural hurdles. They are thus often better placed to provide huge returns to investors.

The prospects for localized startups have begun to change, as more venture capitalists have turned their attention toward funding regional investments.

Justin Hall, principal of Golden Gate Ventures of Singapore, says there is now more venture capital in the Asia-Pacific region than at "any other time in recent memory".

"It has had a tremendous catalyzing effect on the formation of new startups, from Singapore to Indonesia."

Apart from capital, the capacity of investors to help grow their selected investments with other value-added services and expertise has also accelerated the growth of startups.

Technology is not the only sector attracting startups, with significant private equity and venture capital activity elsewhere.

Although China continues to skew more toward technology, noteworthy investments and deal volumes across the telecommunications industry and, to a lesser extent, entertainment and media are also shaping up.

During the first quarter of this year, India's banking and financial sector attracted nearly $900 million in 14 deals, knocking IT and IT-enabled services from the top spot in the country.

However, Hall says it is the technology startups that are pulling forward the overall startup ecosystem. Startup ecosystems and technology have become synonymous in places such as Indonesia, Singapore and Thailand, he says.

"We've seen that invariably the most successful ones, regardless of industry, are those that incorporate or rely on technology in ways that have not yet been considered."

However, e-commerce and marketplace startups dominate the list of Southeast Asia's biggest funding rounds. In terms of the number of venture capital transactions, Singapore leads the region with 39 deals in the last quarter.

Indonesia and Malaysia roughly doubled the number of venture capital deals in the first quarter of this year to 24 and 13, respectively, says Techlist, an online platform for investors to track startups in Asia.

Dmitry Levit, a partner with Digital Media Partners, a venture capital firm in Singapore, says Southeast Asia's macroeconomic conditions have been right for a while with the arrival of functional payment systems, basic e-commerce infrastructure and advertising technology components.

"More digital business models became possible, and entrepreneurs around the region responded with a veritable exposition of activity and company building. This, in turn, attracted a substantial amount of venture financing focused predominantly on Singapore and Indonesia. But it is spreading slowly into markets like Thailand, Malaysia and the Philippines."

However, according to data from Digital Media Partners, the startup ecosystem in Southeast Asian countries, except Singapore, is severely underinvested compared with China and India.

Startups in the region have yet to grow to a scale that would draw the attention of global players, Levit says. In contrast, startups in Australia, though relatively silent, have attracted a lot of attention from investors.

Rick Baker, managing director of Blackbird Ventures, says: "We've now proved that you can create global leading software and Internet businesses from Australia, with breakout companies such as Atlassian, Campaign Monitor, Envato, Aconex, Freelancer, OzForex and Halfbrick Studios leading the way."

Ong of Monk's Hill Ventures says that the issue of undersupply of capital and value-added services for early-stage companies and startups is beginning to be dealt with across the region.

"With angel investors supporting at seed stage, and a new breed of venture capital firms backing scalable ideas, the region should witness a deluge of funds for startups to cheer."

krishna@chinadailyapac.com

(China Daily European Weekly 06/12/2015 page6)