2024 Industry Outlook

2024 Industry Outlook

The tide has turned in Southeast Asia's digital economy. After a meteoric rise in 2021, private funding for the sector has plunged back to 2017 levels, with H1 2023 seeing a mere $4 billion raised compared to the $27 billion peak. The number of deals has similarly plummeted, from a heady 2,697 in 2021 to a sobering 564 in H1 2023. This funding drought has impacted startups across all stages, from fledgling seed-funded ventures to established E+ players, sending ripples across the region's vibrant tech landscape.

But amidst the ebb, there are signs of resilience. Consumer confidence is gradually returning, and inflation rates are showing signs of easing. A closer look reveals a growing pool of "dry powder" – $15.7 billion in committed capital for 2022 compared to $12.4 billion in 2021 – indicating that while investors are treading cautiously, they remain committed to the region's long-term potential.

This shift in sentiment is leading to a renewed focus on fundamentals. Investors are prioritizing companies that can demonstrate a clear path to profitability, not just flashy growth rates. Efficient customer acquisition engines are taking center stage, with startups that can build loyal customer bases without burning through cash attracting the most interest.

Looking beyond the immediate challenges, We belive these industries stand poised for sustained growth in the years ahead. Here are four promising sectors to watch:

1. Consumer

Our Live Commerce Report identified live commerce as a key driver of consumer sector growth moving forward. TikTok's Tokopedia acquisition validates our predictions, paving the way for local brands and brand enablers to thrive. Live commerce is expected to birth a generation of local brands and brand enablers, leveraging the power of real-time engagement to connect with consumers on a deeper level.

2. Healthcare

Tailwinds are gathering in this critical sector. Government initiatives like Kemenkes regulations on EMR adoption and Satu Sehat, coupled with improved BPJS coverage, are creating a fertile ground for innovative solutions. Additionally, the pandemic has spurred a shift towards preventive care, with investments in managing NCDs like diabetes and weight issues gaining traction.

3. Financial Services

The digital revolution continues to sweep across financial services, with QR-based payments and online payment options becoming increasingly ubiquitous. Lending is the driver of revenue, and B2B lending and embedded financing providers with propositions like faster credit approvals, enhanced customer experience, and data-driven underwriting are well-positioned to capture this growing market.

4. GenAI

The next wave of innovation is expected to be powered by artificial intelligence. Healthcare, legal, financial services, and customer service are just a few of the verticals rife for disruption by localized AI solutions. New entrants can build moats around training underlying language models with proprietary data, creating powerful tools tailored to the specific needs of the Southeast Asian market.

While the current funding landscape may seem bleak, it also presents an opportunity. For startups with solid fundamentals, a clear path to profitability, and a focus on innovation in promising sectors, this is a time to shine. Investors are looking for the next big thing, and those who can navigate the new normal and adapt to the evolving landscape will be the ones who emerge stronger on the other side.

The future of Southeast Asia's digital economy may not be as brightly lit as it once was, but it still holds immense potential. With resilience, innovation, and a focus on value creation, the region's tech ecosystem can weather the storm and continue its journey toward a brighter digital future.