3 Ways Governments in Asia can Attract Entrepreneurial Investments

Opinion07.03.2017
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Asia is home to some of the world’s most successful startups and businesses. While most of this success is harbored in Asia’s advanced economies like Singapore, South Korea, and Japan, the region has seen a rise in venture capital investments in the past decade or so. However, with the startup ecosystem and entrepreneurship environment becoming increasingly competitive, investors in the past year have started reassessing their investment strategies. It is of course expected and accepted that the majority of startups fail and investors are taking a step back to ensure that they are investing and partnering with businesses that promise a more sustainable growth rather than the “biggest and most profitable” ideas. Cities in Asia that have been seeing a lot more investments in their startup ecosystem include Manila, Delhi, Bangalore, Mumbai, Shanghai and Beijing.

Support for Technology

Despite 2016 seeing a lot less “unicorns” (venture-backed businesses worth at least $1 billion) than the previous year, venture capital investors are still going strong in their investments, especially in Asia. Throughout Asia, technology has been a strong base for investors interested in putting their money where the returns are most promising. In 2016, China alone saw about 416 investments in their technological sector, followed by manufacturing, real-estate companies, consumer companies, and financial companies respectively. In total, around $72.5 billion was raised last year, up by about 49% in 2015. This trend can also be seen in India, with more investments expected for 2017 despite a slowing down in 2016. For countries that are keen on attracting investments, focusing on strengthening their digital infrastructures, IT, and Research and Development will be crucial.

Focus on Smaller Startups

With the end of the “unicorn era”, Asia’s investments in big startups with big ideas slowed down last year. Emerging markets (especially India and China) were particularly hit by the decline in investment support with hundreds of startups running out of money quickly. Billion-dollar ventures have also been victims of this with investors shying away from investing in billion-dollar ideas. In 2017 it is expected investors would opt out of startups that aim for rapid growth and expansive user bases and opt instead for startups that are keen on long-term sustainability through slow but consistent growth. Smaller startups with smaller ideas often fall into this category. Governments should therefore focus their services and support to smaller scale startups in helping them get set up and channeling investors to these startups.

Assistance in early stages

Emprirical evidence across the world shows that the majority of startups that fail do so in the first few years after they take off. This goes for even those billion-dollar idea ventures. Assisting and supporting small startups at their initial growth stages is therefore crucial. The first few years are often the period where the most impactful decisions have to be made by startups. Governments can support their startup ecosystem in different ways in these early stages whether through knowledge and big data programs, or through tax incentives for investors who invest in smaller startups, or through radically simplifying the bureaucratic procedures of business registration and tax administration. With Singapore leading the way in providing support to their startup ecosystem through various programs and schemes, it would be useful to look to some of the region’s best practices that can be replicated.

2017 will see a shift in investor strategies for startups. Governments in Asia should take note of this shift and adjust their own strategies and schemes for their startup ecosystems. These include focusing more on tech-related industries and smaller startups. By strengthening their tech-related industries, investors would feel more inclined to put their money forward. And with the additional support in helping smaller startups get through their first few years, investors would feel more confident with their investments and these startups would be able to grow their business ideas and better plan for their longer-term growth and sustainability.