Vast untapped opportunities await venture capitalists (VCs) and start-ups in South-east Asia, according to a report by venture firm Jungle Ventures.
Investors tend to underestimate the potential of the region, which is seen as a small, non-homogenous market with myriad languages, currencies and cultures, as well as limited merger and acquisition activity, said Jungle Ventures investment analyst Alice Besomi.
South-east Asia's start-up scene is frequently overshadowed by its larger neighbours India and China, the report found. VC funding in the region added up to US$1.6 billion (S$2.2 billion) last year, less than a quarter of the US$6.4 billion start-ups in India received.
This is despite the fact that South-east Asia is doing better than India when it comes to key ingredients for good start-up and VC ecosystems, Jungle Ventures said. These include infrastructure, Internet access, mobile and social media usage, as well as credit and debit card availability.
In addition, all the South-east Asian countries rank higher than India when it comes to ease of doing business, and some do better than China, the report noted.
While several infrastructure challenges remain in the region - such as complex supply chains, fragmented ecosystems and low penetration of credit cards - these "represent opportunities for localised solutions to bridge the gap", added Ms Besomi.
Sectors with strong prospects in the region include travel, retail, financial services and business-to- business commerce and trade, Jungle Ventures said.
Mr Amit Anand, the firm's founder and managing partner, said Singapore has a role to play in helping the region realise its growth potential. "There is a global talent pool interested in Asia and it finds Singapore a great base to invest and operate in."
Start-ups and VCs agreed that the development of the region's ecosystem is gaining pace.
Wavemaker Partners managing partner Paul Santos said that talking about South-east Asia's potential in terms of "buzzwords like e-commerce or marketplaces or fintech (would be) selling it short".
"We can end up with an ecosystem of start-ups doing the same things," he added. Mr Santos noted that most VCs in South-east Asia have a preference for consumer-facing companies, given the region's attractive demographics.
But about 80 per cent of Wavemaker's investments in the region over the last three years have been in business-to-business start-ups.
These tend to have more global rather than just regional potential, he said, adding: "We have seen how some high-growth, high-burn business-to-consumer start-ups are now facing more scrutiny as they attempt to raise larger rounds."
Mr Gyorgy Lajtai, managing director and co-founder of social media and predictive analytics firm Lynx Analytics, said the number of niche technology firms in the region has grown over the past five years.
"When we started Lynx Analytics five years ago, big data analysis was only starting to pick up in the region. Today, big data and graph data analysis is widely understood by businesses and investors. We have seen vast growth and feel we are here at the right time," he said.