The trends driving Asia’s start-up boom in 2022, from digitalisation to carbon cutting

With an abundance of capital and talent, Asia’s growing tech hubs are luring investors away from Silicon Valley
Start-ups seeking to solve global issues such as climate change, ageing-related illnesses and supply-chain bottlenecks will offer solid opportunities

Colleen K. Howe

Published: 5:15pm, 18 Jan 2022

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Uber, Airbnb and WhatsApp: all were founded in the wake of the last economic crisis in 2008. This time, could the next economic dynamos come out of Asia? After a slew of successful start-ups in 2021, momentum is gathering in the region.

As the dust settles from the economic disruption of the past two years, attention will shift towards technologies that promise a more resilient, sustainable and healthy future. While country and economy-level dynamics shape start-up markets, three broad trends offer a key to understanding the industry’s future.

The first is an abundance of capital, with more money flowing to start-ups than ever before. Total funding hit a record US$621 billion in 2021, according to research consultancy CB Insights. Asia, for its part, had more deals last year than any other – over a third of the global total.

Low interest rates over the past year have made venture capital relatively cheap. That might change if rates rise this year, but there will still be capital available as players from private equity to Wall Street pile into the venture world. Venture capital is also looking like a good bet because there is so much value and talent to be unlocked outside Silicon Valley.

That brings us to the second trend: the beginnings of a geographical shift. AS US firms flee Silicon Valley for less expensive locales like Miami and Austin, start-up hubs are developing in South and Southeast Asia. This is clear from the geographic distribution of early funding rounds.

In 2019, 18 per cent of the Asia-based start-ups that received Series A funding in 2021 were in Beijing, but in 2021 only 10 per cent were, according to company database Crunchbase. Overall, the percentage of Series A rounds in Asia going to companies in China, South Korea and Japan fell, but the proportion in India, Indonesia, Vietnam and Singapore rose.

There are a few reasons for this. One is the rapid growth expected in South and Southeast Asia and the emergence of a prosperous middle class. Another is that the pandemic has made virtual communication a daily event, facilitating connections between financiers and start-ups further afield.

The third trend is a changing labour market. The pandemic triggered a rise in unemployment in South and Southeast Asia, potentially pushing some people into entrepreneurship. A similar phenomenon occurred after the global financial crisis.

Meanwhile, disillusionment with traditional career paths and empty promises of economic stability – a feeling epitomised by the “lying flat” movement – has made others reconsider how they spend their time.

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Change is coming in the industries that are being funded, too. Consumer technology companies in areas like fintech and ride hailing will continue to be engines of growth. But we will also see many start-ups in fields that promise to solve the big problems of the future. That is especially the case in China, where anti-monopoly regulations are pushing big funders to focus on social initiatives.

One aim is to democratise the digital world, distributing power away from just a few big companies. The vision of democratising everything from finance to the creator economy, and of making experiences available to anyone, anywhere in the world, has set the tech world abuzz over blockchain technologies and the metaverse.

If taken too far, however, the push towards all-encompassing digitalisation could trigger a backlash by consumers nostalgic for the experiences of the analogue world.

Resilience is another investor mantra for 2022. That means building companies that are equipped to combat the next big economic disruption, which many investors reckon will be climate change. If 2021 was the year sustainability made headlines, 2022 will be the year investors bet on the technologies and business models needed to cut carbon emissions.

Yet with pandemic-induced supply chain bottlenecks still plaguing the global economy, improvements to logistics and transport systems are also crucial for building a more resilient economy.

This could be good news for Hong Kong, where e-commerce, supply chain management and logistics make up the second-largest category of start-ups after fintech. The city has the potential to become a logistics innovation hub if it reopens to the world.

A container ship sails out of the Kwai Tsing Terminals in Hong Kong. The city is one of the world’s leading transshipment hubs and a key player in global logistics. Photo: EPA-EFE

Unsurprisingly, venture capitalists are also focused on medtech. But the interest reflects both pandemic-driven trends in digital medicine and developments that have been years in the making, from machine learning to programmable medicines, that aim to tackle tough issues like ageing and cancer.

Finally, look for more activity in “strategic” sectors. Last quarter, semiconductor, aerospace and defence companies featured among the biggest global deals in early funding rounds. Both China and the US are wielding industrial policy to build up these industries within national borders.

While protectionism risks stifling innovation, there may be economic benefits from a greater focus on core science and technology. Chinese leaders, at least, think that apps and video games have been a distraction that has fomented inequality, rather than sustainable growth.

In Hong Kong, one thing just about everyone can agree on is the need to revitalise the local economy. As a financial centre and gateway to mainland China for international investors, the city can benefit from current trends by leveraging its fintech and logistics ecosystems and the budding health care and AI research clusters.

There are a host of political and regulatory factors to be reckoned with. But emerging industries hold promise for Hong Kong and other growing start-up hubs in Asia.

Colleen K. Howe is a programme associate at the Asia Business Council

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