We see hundreds Southeast Asian startups every batch. While the most interesting startups are ones that surprise us because they are doing something we have not seen in a new way, there are a few areas that we think could use a lot more attention and innovation for this region. In digging into this, I decided to tap the collective wisdom of over 100+ Iterative founders and venture partners from Southeast Asia. I specifically asked what the top three problems were with their businesses and personal lives that they would pay for. This post is inspired in large part by their responses.
There are four trends that stood out to me:
- Personal finance for the rising middle class
- Vast majority of business spend will be on people
- The search for acquisition channels never end
- Consumers have money, want convenience
This is our "Request for Startups" this month—if you're a founder in the region working in one of these areas, we would love to chat! You can apply here for our next batch in February.
Personal Finance For The Rising Middle Class
Southeast Asia's middle class, which stands at 135M today, is projected to double this decade. With rapidly rising incomes, consumers are looking for ways to better manage their money and when it comes to this area, there is a surprisingly large gap between software that exists today in the region versus in other markets. That is likely to change very quickly.
Some interesting directions:
- Banking—Let's start with basic banking. Opening a personal account today could take months or even years in some markets. The amount of KYC, paper pushing, offline processes, signatories, etc that are required does not match the speed and online nature of transacting today. It is not going to take long for neo-banks to win here. It is just that painful.
- Spending—Now that disposable income is available, consumers want to spend, but to also understand their spending. There are a few 'Mint for SEA' apps now, but we have a long way to go before one is convenient enough to see massive adoption since the bank integrations, vendor integrations, etc are still lacking. As more spending moves digital, maybe the winner here will be one that can track digital native spending as well (subscriptions, buy-now-pay-later loans, etc) as offline spending.
- Insurance—Insurance in the majority of markets here still have not gone digital. Most people still have to walk into brokerage offices. There is a wide open space for every company to move their insurance processes online, and to collect and underwrite using proprietary data. Beyond common insurance products, we might even see specialty insurance specific to Asia.
- Investments—Now that you can more readily invest into stocks, real estate, crypto, art, etc at the tap of a finger, easy wealth management or some form of more automated finance will be in vogue in the next decade. There are enough investment vehicles, sponsors, etc specific to Asia to warrant a different product for the region. This area will be exciting to watch.
- Estate—Taking care of the family and the elderly are among top priorities for Asians. At the same time finances in Asian households are the least transparent aspect of family life. When grandparents/parents pass, there is often a scramble to figure everything out in their estate. Many things get lost in the confusion. A service that could safe guard bank accounts, insurance, property, overseas/business accounts, and even social media accounts, crypto keys, etc. would solve this pain point.
- For kids—A little out of the box but you take any of the above and apply "for kids": investments for kids, insurance for kids, etc. The amount that Asian parents are willing to spend on their kids is staggering and financial education is one of the top categories they want to pass on. Could be something interesting here.
Vast Majority of Business Spend Will Be On People
80% (!) of founders that responded had some HR challenges as their top problem that they would pay someone to solve. People problems tend to be harder for founders to get into mainly because they are very different from "tech" problems. So this is by far one of the most painful (and lucrative) spaces to innovate in. In Southeast Asia this pain point is elevated since team sizes here can go up to 12+ people almost immediately after the pre-seed stage.
Some interesting directions:
- Recruiting—By far the most painful task any company has to take on. Willingness to pay is off the charts. What are interesting new approaches to recruiting beyond highly curated job boards and third party recruiting/BPO's? Can we innovate with communities, better incentivized referral mechanisms, normalizing laid off lists, workforce retraining or EIR (entrepreneur in residence) programs?
- Remote—Remote working has changed everything, and it is even more pronounced in Southeast Asia, since it is a heterogenous collection of countries with different cultures, religions, and values. A software or service that helps managers convey care for their team mates when casual interactions over lunches do not happen anymore, and for employees to stay aligned is very much needed. There is a lot of space to explore here and it is not clear what product yet will resonate.
- Management training & executive coaching—A lot of first time founders and managers struggle to lead, align their teams, deal with burnout and imposter syndrome, give and receive feedback, etc. Asians have the unique need to "outgrow Asian values" of being conflict-avoidant and be biased towards passivity. How do we take a usually very personalized, expensive service (US$1000+ per hour on average) and give it to the masses?
- Business English (or Chinese) - A very specific problem, but worth mentioning as a lot of business is still done in English or Chinese and the majority of employees don't have the level of proficiency to collaborate, let alone land business deals. A specialized service here would sell well to companies at every size and stage.
- Payroll, compliance, and back office - There are some US firms that are starting to do this now, but it is still incredibly expensive because it was not built for non-US headquartered companies in mind. All the "boring" back office stuff is still a major headache for companies. How can we better streamline localized payroll, satisfy local filing and reporting requirements, deal with visa issues, remit money back/forth between countries, and even process for crypto. Much more to be improved here.
The Search for Acquisition Channels Never Ends
Between 15-30% of business spend is likely in search of better acquisition channels (marketing, sales enablement, product experiments, business development, etc) and that will never stop. Businesses built to help these teams optimize their processes have a high chance to capture very sustainable revenue.
Some interesting directions:
- Digital personal onboarding—Onboarding flows continue to be a large focus for many tech companies and consume a lot of their time. Instead of only relying on product teams, can we build tools to better enable sales or account managers provide above-and-beyond onboarding experiences for clients? Personalized onboarding differentiates companies, and provides valuable customer insights to startups.
- No code anything—Making it easier to build anything will be valued highly by innovative companies because it is the fastest way to release software and learn. How can we apply no-code fundamentals to every domain: web, mobile, hardware, and maybe even cypto.
- Marketing reporting tools—Facebook, SEM, SEO, Instagram, Tik Tok, TV, radio/podcasts: each has its own quirks and requirements and every business experiments with some subset of these. While all-in-one reporting is the holy grail for marketers, it is unlikely that one company will win and dominate all channels. Services that go deep into optimization and marketing spend re-budgeting for the top few channels would look very interesting.
- Working with influencers—It is no secret that influencers are gaining substantial influence (pun intended) over brands. But companies are still struggling to find, collaborate, and properly incentivize this new workforce. How do we help companies run great influencer campaigns without the need for multiple full-time staff?
- Gift and swag management—Personalized gifts to customers for being loyal or vocal, and maybe gifts to non-customers as well is a largely unexplored space, with high reactivation potential and ROI. Especially relevant during COVID when most things do not happen offline anymore. How can we help businesses better engage with their customers through little moments of delight?
- AP and AR capital management - Sneaking this one in here because businesses are always looking for ways to refactor their capital. Interesting ways to provide loans on accounts payables or upfront payment on accounts receivables helps businesses pour more spending into acquisition growth. This is almost always one of the biggest secret weapons of founders that never gets used because it is just too hard to do.
Consumers Have Money, Want Convenience
The rising middle class will continue to have more money to spend but want things to be convenient. We have all been trained to have entertainment, food, knowledge etc at the tap of a finger and want the same experience for everything else. What are categories of products that are still largely offline and have not kept up with rapid digitalization?
Some interesting directions:
- Medical deliveries—Turns out medical deliveries have different requirements which haven't fully been solved by existing logistics systems. Labs are hazardous, prescriptions require higher standards for safety, theft, and fraud, etc. Many regions can't delivery medicines as reliably or safely as food or other goods.
- Microschools & higher ed—Education is one of the categories with the highest willingness to spend for Asian families, but the category has not grown substantially with the times. How can we unbundle education (trade schools, business education, coding education, etc), re-bundle education (apprenticeships, cohorts, etc), or do things completely differently (gaming, microschools, fully remote, etc) all digital and remote-first?
- Home and garden (and pets!)—More time at home means more time noticing all the things that could be better with your living situation. We have seen a slew of digital vendors pop up in the US (optimized designs/quote processes, online triage, dispatches, etc) for home improvement but have not seen them in Southeast Asia yet. A semi-related category is pets— adoption rates have skyrocketed, but digital services have not followed yet. Startups continue to explore vet products, but have not done enough on food, travel/sitting, insurance, training, etc.
- Dating—Globally, a lot has been done in the dating space (thanks, Tinder), but not enough has been explored when it comes to dating with Eastern sensibilities or dating in remote environments. For the former, if marriages in Asia are the union of two families, can families be a distribution/viral channel? For the latter, what does dating remote-first look like? Can they happen in the meta verse?
- Housing—Being a proptech founder, this is my obligatory nod to how much more we still have to innovate on housing. Many founders in the region are working on iBuying for X, DivvyHomes for Y, etc, but we are not even on par when it comes to the basics: data is non-existent, firms and vendors are largely non-digital, and basic building blocks (title, insurance, digital signing, etc) are not in place. Even basic things like finding a rental, or a commercial unit is hard, let alone navigating the opaque mortgage or insurance systems of each country or slightly more advanced management of personal rental properties oversees. There is a lot here that I will save for a future post.
- More Food Deliveries—While it feels like we are mostly there with food deliveries, a lot of what are in the region today are inspired by Western approaches. But Asia is different: density is extremely high with a lot of people living and working in high rises, cuisines are as diverse as its people, groceries are a block away, helpers and experienced cooks are abundant, farms are sometimes just next door. What would services look like if they were instead designed for groups (a company, a family, a high rise), designed for diversity (or discovery), or designed for proximity (fresher, more farm to table, home cooks, etc). There is still room to explore in the space.
Other Trends
I avoided calling out areas that were not "basic tech infrastructure" in the region because I think founders often over-index on new rather than valuable when deciding what to work on, but two trends unique to the region are worth noting:
- Robotics and manufacturing—Unlike in the US, the amount of things produced in manufacturing processes is staggering and innovation here can be a more easy sell. Think new materials, more efficient machines, automation of any part of process, supply chain management, etc.
- Crypto—The amount of innovation happening in the space is mind blowing: from DeFi to DAOs, to Stables, to NFTs, to new protocols, etc. New design spaces are being explored everyday. Crypto adoption in Vietnam, Thailand, and Philippines are now ranked in the top 15 countries in the world (US is #8), and regulations are still much less cumbersome than developed market counterparts. We'll dedicate another full article on crypto so stay tuned and subscribe to the newsletter for notifications.
I think the takeaway here should be there is A LOT to be built as there are a lot of pains that customers are willing to pay substantial amounts for. It is going to be an exciting decade ahead for Southeast Asia.
End notes:
- If you aren’t working on one of these ideas, you should still apply to Iterative. In the past, the the majority of the ideas we invest in came from the founders and were not things that we had thought about in the past. That will certainly continue to be the case.
- Shoutouts to many Iterative founders for their contributions and inspirations. Notably: Ridwan, Charles, Gab, Ariane, Jan, Adrien, Josh, Nirali, Alvin, Jessy, Kevin, Jit, Eugene, Sim, Liyen, Kishwar, Sam, Justin. I've definitely missed folks given the rapid and quick response for pain points. Much love, thank you!
