CVC SEA and Emerging Markets

Introduction

Many high-growth potential businesses have relied on funding from sources, such as venture capitalists, to provide capital during early-stage development. In countries where economies are more developed, like the United Kingdom and the United States of America, venture capital has helped develop numerous high-growth corporations. Many deduce that venture capital is an essential component in promoting the economic growth of a region.  Because of this conclusion, many venture capitalists have reached into countries with emerging economies and established their own venture capital industries.

However, many firms in emerging economies are unaware of institutional stability, a concept that reduces uncertainty and risk while enhancing success in new ventures.  Institutional stability adds additional risks for new businesses in emerging economies on top of the other dangers most new firms encounter.  These additional risks include:

  • Domiciled in unpredictable and volatile environments
  • Uncertain property rights
  • Underdeveloped markets for goods and capitals

Many venture capitalists have turned to network connections to substitute for the weak formal institutions in emerging economies to overcome these risks. In countries such as those in East Asia, network connections have become essential in venture capital by offering protection from government interference and providing alternatives to formal establishments, such as the market for corporate control and the rule of law.

Report: 2019 Was a Record Year for VC Funding in Emerging Markets –

EMPEA, a New York-based nonprofit global industry association for private capital in emerging markets, reported that 2019 set records for venture capital investments in many emerging economies, such as Africa, Southeast Asia, and Latin America.

In their report, EMPEA stated that venture capital had more than doubled in emerging markets and saw an increase in venture dollars raised in every emerging market tracked, except for China.

Southeast Asian Startups Gain Global Venture Capital Spotlight

Southeast Asian markets have recently garnered the attention of venture capitalists worldwide. Within the first few months of 2020, venture capitalists collected more than $2 billion from startups in these markets, while investments in Southeast Asian emerging businesses amounted to more than $8.5 billion.  

What Startups in Southeast Asia Need to Know About Corporate Venture Capital 

Corporate venture capital refers to the funds given to small, innovative companies. It is considered one of the rapidly-growing sources of capital.  Startups in Southeast Asia countries have difficulty raising funds for their firms and, therefore, turn to corporate venture capital as a significant fundraising source.  Despite the problem, Southeast Asian fundraising for money has become more accessible and faster to obtain for startup companies.

Forbes has stated that corporate venture capital has experienced a 100% growth in 2018, representing 23% of all investments by venture capital firms. Despite concerns regarding the COVID-19 pandemic, corporate venture capital continues to be a powerful strategy for fundraising in Southeast Asia.

Recently, the World Bank reported that Southeast Asian countries’ economies are expected to be deeply impacted by the COVID-19 pandemic.  They stated that countries that rely on tourism could see a downfall in their gross domestic product. However, the rise of startups and capital within these countries can soften the pandemic’s impact on the economy.

Corporations have been using corporate venture capital to combat the potential financial hardships that arise after the COVID-19 pandemic and to continue attracting consumers and investors to keep growing.  Despite the uncertainty in the market brought about by the pandemic, corporate venture capital can continue to help startups grow and maintain a stable position within the market.

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