The Philippines and Malaysia’s startup ecosystems are emerging as lesser-known hot spots in Southeast Asia for investors seeking solid returns from young tech companies, according to a senior executive with a leading venture capital firm in the region.
In an interview with Nikkei Asia, Vishal Harnal, global managing partner of 500 Global, said the Philippines is “at an inflection point” for growth, while Malaysia is the region’s “unsung hero.” Grab, one of the largest tech companies in the region was founded in Malaysia before relocating its headquarters to the city-state.
After investing in regional tech companies like Grab, and Indonesian e-commerce giant Bukalapak, Harnal said 500 Global will be putting more capital into these two markets, following the appointment of three new regional partners, including a former executive of Malaysia’s sovereign wealth fund, Khazanah Nasional Berhad.
Founded in 2010, the Silicon Valley-headquartered venture capital firm, which has $2.7 billion in assets under management, has funded more than 340 startups in Southeast Asia over the last decade. The company now counts more than 50 team members across the region.
To tap further into the region’s growth potential, 500 Global announced last week the appointment of Martin cu, former head of the Philippines branch of Singapore-based logistics unicorn Ninja Van, as one of its new partners. Cu will oversee 500 Global’s investments based in Manila.
“It was a very purposeful decision because we felt that we needed senior representations from seasoned operators and investors on the ground to build up our presence in the Philippines,” Harnal said.
Harnal noted the country is seeing growing “sophistication of technical tech talent” and entrepreneurs. Another tailwind is the lower cost of the internet which had been relatively high compared with other Southeast Asian countries. This change is giving wider access to technology to the Philippines’ young English-speaking population
Yet, of the total $15.82 billion in startup equity funding raised in Southeast Asia last year, companies in the Philippines and Malaysia accounted for just 3.9% and 3.3%, respectively, according to DealStreetAsia data. Singapore-headquartered companies captured the largest slice, at 61.9% of the total, followed by Indonesia at 23.8% and Vietnam at 4.5%.
Nevertheless, Harnal said he is also focused on the Malaysian tech industry, since startups “that have defined the Southeast Asian landscape really started as Malaysian companies,” referring to Grab, which was founded in Kuala Lumpur in 2012 as MyTeksi.
500 Global also named as a partner Shahril Ibrahim, former director of investments and head of Khazanah Americas, under Malaysia’s sovereign wealth fund.
“Now that we’ve cemented a reputation, and expertise doing early-stage investing over the years, we’re now doubling down on moving up the stack and building out our growth capabilities in Southeast Asia to better serve founders and their needs as they evolve over time in the market,” Harnal said.
500 Global’s commitment in the region, however, comes at a time when fundraising for startups has been slowing, following a surge during the COVID-19 pandemic. Last year, Southeast Asian startups raised a total of $17.79 billion in equity and debt funding, down 31% from the previous year, on the back of worsening economic conditions, according to DealStreetAsia.
Harnal said 500 Global had also slowed its investment in regional startups in 2021 and through the first part of 2022. “We felt it was overheating and the price didn’t make sense,” he said.
“But now, in 2023, we saw [startups’] valuations start to rationalize again,” he said. “Because we were more circumspect about deploying capital over the last few years, we’re able to now go in with a lot of firepower and invest a lot more actively and aggressively into companies.