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Business trends

Asian startups thirsty for foreign investment

Hungry for big returns, institutional investors are showing interest

Indonesian startup iGrow helps local underemployed farmers produce organic food along with sustainable matching them with interested investors.   © iGrow

TOKYO -- Asian startups are calling on their governments to open up to foreign investment as a means to accelerate expansion and generate further interest in their markets among potential investors.

Young companies in places ranging from Vietnam to Taiwan, South Korea to Indonesia, told the Nikkei Asian Review they needed foreign investors to provide the capital and access that would help them grow. Most of the two dozen interviewed expressed a desire for clearer and easier rules to attract outside investors.

"It should be easier for foreign investors to invest in our sector," said Jocelyn Chung, global strategic marketing director at KKday, a Taipei-based online travel agency. The government needs to support startups by "improving the investment environment," as well as "deregulating labor policy and cultivating local talent," she said.

Andreas Senjaya, CEO of iGrow Resources Indonesia, a service that matches investors with agricultural projects, said: "Foreign investors have difficulties in joining and investing in our platform" due to onerous regulations.

Linh Pham, founder of Vietnamese logistics startup Logivan Technologies, stressed that "foreign investment generates interest and enthusiasm in an industry, so that makes it easier for people to hear about what we are doing."

Private-equity investment in Asia rose 27% on the year to $166 billion in 2018, according to the Hong Kong-based Centre for Asia Private Equity Research, which says there have been "more investments in late-stage tech startups than before."

Within that pool, foreign investment in Southeast Asian startups has also accelerated, said Nobuaki Kitagawa, managing director of CyberAgent Capital in Shanghai. "Domestic venture capital [funds] tend to be small and less familiar with new information technology. Therefore, startups want foreign investors who have a big funding scale and are accustomed to investing in technology."

A survey last year by startup-focused news provider Tech in Asia showed a sharp rise in foreign startup funding by investors from Japan and China between 2016 and 2017. But young Asian companies still face significant hurdles attracting money from abroad, with many countries imposing tighter restrictions, such as limitations on foreign ownership.

Buzzvil, a South Korean advertiser that lets companies reach potential customers on their mobile phone lockscreens, noted the importance of foreign investment, saying it helped startups "take risks on the global stage with new ideas."

Evoware's co-founder David Christian agreed that it was hard for domestic investors to match the scale of foreign funders. "We are trying to solve one of the world's biggest problems and we need very big investment for that," he said. The Indonesian startup develops eco-friendly products, such as edible seaweed packaging as an alternative to plastic.

The private equity-market has boomed over the last few years, as investors look for higher returns in a low interest rate environment. "A lot of money is coming from institutional investors," said James Riney, head of 500 Startups Japan, a specialist in seed-stage funding. Especially in Japan, with companies such as Mercari and Raksul holding successful initial public offerings last year, "more institutional investors are looking at startups in order to gain good returns," Riney added.

Along with funding, startups face difficulties in finding enough qualified people.

Viva Republica, the South Korean company behind the financial services app Toss, said the biggest challenge to its business is "hiring people, including skilled engineers."

According to a report by consultancy Korn Ferry, the technology sector worldwide will have 4.3 million more available positions than workers by 2030, possibly costing China more than $40 billion in lost revenue. Japan will be short 280,000 workers in the sector by 2020. India is the only country in Asia with a surplus of tech workers, the report said.

CyberAgent Capital's Kitagawa said the problem is especially acute in Southeast Asia, where "there has yet to be a global scale IT company."

Nikkei staff writers across Asia contributed to this article.

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