Being a startup means believing in your dreams, and Southeast Asia needs dreamers, say incubators.
500 Startups, for one, is keen to sell hope to the growing communities of startups in Southeast Asia, and is willing to back that up with real money.
When I spoke with its founder, Dave McClure, in Jakarta a couple of months ago, he said the accelerator’s plan for the region starts with “throwing some money” at startups, simply to get the ball rolling.
“It has to start with the ability to write some checks. It gets people off the ground. That’s the problem with other investors—they’re not willing to throw money away,” he said with a laugh.
“But really, a better way to spend a million bucks is to invest in 20 companies at 50 grand each. We’d probably emerge with three wins out of that.
“That isn’t even the main success of it though; the process of investing in 20 companies gives people the chance to believe in themselves, and creates an ecosystem where people believe in something,” he said.
McClure is on a march to conquer the world. 500 Startups has dedicated about 20 percent of its capital to international companies, and this year set up shop in China and Southeast Asia. This follows last year’s expanded coverage to include India, Japan and Latin America.
His interests in revving up the startup community, of course will mean that 500 Startups’ relatively early presence in these markets will allow it to enjoy the first fruit.
For Southeast Asia’s startup scene, which he says trails behind that of Western markets and other emerging markets like Mexico, that first step needs to start with more money being up for grabs.
He highlighted Startup Chile as an example. In 2010, the Chilean government set up an incubator program that offered startups $40,000, office space and industry support in exchange for them moving to Santiago for six months to build their companies. The program has launched its seventh intake, and according to reports, 37 percent of the applicants in this latest round were local, up from 10 percent in the first round.
“We’re in the movie business—we’re selling dreams.” – Dave McClure
This boost to the local ecosystem cost its government about $10 million a year, spread out over 200 companies. “That’s cheap, for changing the brand of your entire country,” said McClure.
“In Silicon Valley, there’s such a strong belief system that it’s possible to be the next Yahoo, YouTube, Google. People don’t question that belief, and that cycle is self-sustaining.
“People in Asia, on the other hand, need cheerleaders. That’s what incubators should be doing here. We’re in the movie business—we’re selling dreams,” he said.
Reza Behnam, AdzCentral founder and CEO said, of his experience raising funding as an Asian startup, that many investors in the region still shy away from technology investments. “Tech venture investments are relatively new here. There seems to be a lot of expertise in Singapore for more traditional, mature types of companies. This cycle needs to mature in order for investors to feel more open to the higher initial risk,” he said.
Hugh Mason, co-founder and CEO at incubator JFDI Asia said the ecosystem in the region is at the point of maturity where startups are keen, but need to be taught the basics of getting organized and pitching their ideas.
“I believe you can probe, sense and respond to how the market responds to your idea, and there’s a process by which you can teach people to be entrepreneurs,” he said.
“It’s not about the MBA-style business plans, it’s about being able to tell a plausible story around your idea, backed up by evidence. But once a business reaches Series A, it needs to change its culture to fit into the kind of standardized box that a venture capitalist expects,” said Mason.
Eventually, as more successful entrepreneurs return to the community, startups shouldn’t need to go through Entrepreneur 101 anymore. “Right now, it’s harder to find investment-ready startups here. There is a lot of tacit knowledge in the air in places like Silicon Valley about how to make businesses work, and all that is teachable if we can get the right clusters of people together in a community,” he said.
JFDI just closed applications for its second program for 2013, and 317 startups applied to it. The incubator has accelerated 20 startups in the last year-and-a-half, with eight closing funding, raising $3.2 million between them.