Generative artificial intelligence startups may be in their early days in Southeast Asia, but they remain a solid investment opportunity – and fiscally prudent too.
That’s according to the ASEAN GenAI Startup Report 2024 by GenAI Fund, a venture capital firm that focuses on the region’s AI startups. The report said the startups’ low valuations compared to peers in the US is why they present an attractive chance.
Based on a survey of 250 startups, the report said about half of the companies are bootstrapped or backed by angel investors, while 41% have secured pre-seed or seed funding.
Why does this matter?
The region’s top six markets — Singapore, Indonesia, Vietnam, Malaysia, Thailand and the Philippines — are all racing to become AI hubs.
In the US, Gen AI startups usually enjoy a 60% valuation premium thanks to high demand and oversubscribed funding rounds. But in Southeast Asia, these startups don’t have this premium, presenting investment opportunities at a “discount” and low risk.
With falling costs in the cloud and large language model sectors, margins are improving, making investments in Gen AI companies less risky. The survey shows many young Gen AI startups are monetizing early: 39% generate recurring revenue, 23% through paid proof of concepts, and 16% are already profitable.
Gen AI stats and trends
- Singapore is leading the pack, and is home to 44% of GenAI startups, followed by Vietnam (27%) and Indonesia (13%).
- 92% of GenAI startups in the region are business –to business, with a focus on productivity and business solutions (26%), reflecting the region’s need for AI-driven operational and business efficiency.
- Startups rely on giant cloud providers like Amazon’s AWS 67% usage, Google Cloud Platform (47%), and Microsoft’s Azure (41%), while model providers OpenAI (76% usage) and Anthropic (31%) provide crucial AI capabilities.
Road ahead
Gen AI startups in the region face challenges such as slow tech onboarding, poorly executed proofs of concept and tight cash flow amid a lack of funding.
But as the sector matures, the report expects over 50% year-on-year growth in funding, fueled by increased VC familiarity with AI.
The report predicts five Gen AI or AI IPOs in the next two years, with a few already in the works. It also observes a rising interest in mergers and acquisitions, as companies and private-equity firms are eager to scoop up Gen AI startups to boost their AI capabilities.
Projections
The region is poised for rapid change in the next 18 months, with each country finding its niche.
- Singapore will remain a top hub but may see its market share drop from 44% to 35%-40%, as it taps into remote talent.
- Vietnam’s share of startups is expected to rise from 27% to 35%, while Indonesia, with its large population, is poised for a major B2C Gen AI boom.
- Thailand is likely to increasing its share from 7% to 12%-15%, while Malaysia aims to grow from 6% to over 10%, becoming an AI infrastructure hub with significant Big Tech investments.
- The Philippines may be slower to generate startups but is leveraging its strong business process outsourcing industry to innovate in Gen AI.
