Publications

Practices, achievements, and future objectives

Credits

Analysts
Ms April Ong Vano, Head of ESG
Ms Linh Ha, Senior Analyst
Ms Amanda Chan, Analyst

Research
Mr James Tan

Overview

Quest Ventures’ Communication on ESG Progress is a showcase of the firm’s current practices, achievements, and future objectives in enhancing its ESG policy. Environmental stewardship is a core component of Quest Ventures’ investment strategy. The firm actively seeks out and supports startups that prioritise sustainability and address critical environmental challenges. Its social responsibility efforts are centred around creating inclusive and equitable opportunities for all while adhering to global human rights and labour practices. Quest Ventures upholds the highest standards of accountability, transparency, and ethical conduct through its governance framework.

Quest Ventures has engaged with a select number of its portfolio companies to establish a baseline understanding of current practices and intentions to integrate ESG policies. This approach allows the firm to align its strategy and build capacity and knowledge exchange on sustainability. This report includes a showcase of startups that are at the forefront of innovation and impact, addressing critical environmental and social issues. Their successes not only reflect their commitment to sustainability but also demonstrate the potential for positive impact through responsible entrepreneurship.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

As a venture capital firm, we have the unique opportunity and responsibility to influence the next generation of businesses. At Quest Ventures, we recognize that our investment decisions and the guidance we provide to our portfolio companies can have profound and lasting impacts. This ESG Report reflects our dedication to integrating environmental stewardship, social responsibility, and good governance practices across our organisation, as well as aligning our portfolio companies to embrace ESG initiatives.

Since establishing our Logical Framework Approach in 2019, we have gained a better understanding of practical approaches to measuring our ESG progress. By sharing our ESG journey, challenges, and successes, we aim to foster a culture of openness and continuous improvement. We hope this will inspire and inform our stakeholders, partners, and peers in the industry, encouraging a collective movement towards more responsible and impactful investing. We remain steadfast in our pursuit of excellence in ESG and look forward to continuing this journey together, striving to make a meaningful difference in the world.

---

Overview of the firm

Corporate Purpose Statement

Quest Ventures is committed to driving positive change and fostering sustainable development across Asia. The firm’s multi-dimensional ESG strategy pioneers a new standard in venture firms, emphasising support for various social good initiatives. From promoting financial inclusion and gender equality to advancing healthcare and education for all, Quest Ventures strives to create a more equitable society.

The firm’s impact acceleration initiatives encompass advocacy, strategic investments, and partnerships with leading organisations, amplifying the reach and effectiveness of its efforts. By collaborating closely with its venture portfolio and offering world-class benefits to its partners, Quest Ventures catalyses meaningful progress towards shared goals.

Quest Ventures firmly believes that responsible investment goes beyond financial returns, encompassing broader objectives such as environmental sustainability and social responsibility. Through selective participation in global initiatives and proactive measures to address challenges like greenhouse gas emissions, the firm aims to contribute to a more resilient and prosperous future.

Recognising the invaluable contributions of non-profit organisations and charities, Quest Ventures actively supports their endeavours to address pressing social issues. Whether through sponsorship, pro bono board directorships, or in-kind assistance, the firm stands alongside these organisations in their missions to create a better world for all. Quest Ventures’ focus areas include empowering youth, supporting the elderly, and fostering entrepreneurship, reflecting its commitment to driving positive change across generations and communities.

Diversified Portfolio

Quest Ventures manages a diverse portfolio of more than 100 companies across various funds. Its portfolio companies operate in over 150 cities across Asia, and its investments have been instrumental in creating more than 4,400 jobs. The firm’s strategic investments cover a broad range of industries, with a high concentration of companies operating in E-commerce, Software/AI, and FinTech. Quest Ventures’ investment strategy emphasises backing early-stage companies, often providing the first significant investment to help them disrupt their respective industries.

Importance of ESG in Venture Capital

As an investor in early-stage startups, Quest Ventures has an opportunity to integrate ESG policies and practices as portfolio companies begin to shape their businesses. This allows for sustainable business practices to become part of the foundation of positive values, leadership culture, and a mission-driven approach for the startup companies. From the startup industry, technology companies will emerge that scale to have global reach and impact across their value chain, from building their products to widespread use by customers and society at large. Providing capital with a responsible investment approach can significantly contribute to sustainability, solving pressing challenges, and improving lives through innovation and technology. By building a portfolio with ESG factors, a sustainability-themed investing strategy is implemented.

Asia’s potential is ultimately realised in its people. By the end of 2023, Quest Ventures’ portfolio of over 100 venture-backed companies operated in more than 150 cities across Asia, creating employment and advancement opportunities for more than 4,400 employees, while their Enterprise and ESG efforts directly impacted thousands more.

Responsible Investment: Policy and Principles

As signatory to the Principles of Responsible Investment (PRI) supported by the United Nations, Quest Ventures commit to the following where consistent with our fiduciary responsibilities:

Principle 1: Incorporate ESG issues into investment analysis and decision-making processes.
Principle 2: Incorporate ESG issues into our ownership policies and practices.
Principle 3: Seek appropriate disclosure on ESG issues by the entities in which we invest.
Principle 4: Promote acceptance and implementation of the Principles within the investment industry.
Principle 5: Work together to enhance our effectiveness in implementing the Principles.
Principle 6: Report on activities and progress towards implementing the Principles.

On top of the PRI Principles, Quest Ventures adopt a pragmatist philosophy to Responsible Investment, integrating Environmental, Social and Governance (ESG) factors into investment decisions and ownership with the objective of providing better risk-adjusted returns, particularly over the long term. Moreover, the firm upholds the Ten Principles of the UN Global Compact and supports the principles of the Carbon Pricing Leadership Coalition.

---

Environmental Impact & Stewardship

Current Practices and Goals

Quest Ventures integrates investment criteria, improving operational policies, and engaging portfolio companies to adopt sustainability practices. Recognising the increasing importance of ESG considerations in venture capital investments, Quest Ventures develops its capacity to enhance and advocate integration, including training, education, and collaboration with ESG experts and networks.

By adhering to the UN Global Compact and UN Principles for Responsible Investment, Quest Ventures incorporates exclusion and ESG criteria into its decision-making process. The firm will not invest in companies deemed to be in breach of the Principles on human rights, labour, environment, and corruption. It ensures that investments across its portfolio remain responsible and consistent with these Principles, and continues to support entrepreneurs in adopting best practices for ESG integration. Quest Ventures is dedicated to continuous improvement in its environmental practices, regularly reviewing and updating policies to reflect emerging best practices, technological advancements, and evolving stakeholder expectations.

Exclusion List

• Activities or materials deemed illegal under host country laws or regulations or international conventions and agreements
• Cross-border trade in waste and waste products, unless compliant to the Basel Convention and the underlying regulations
• Destruction of High Conservation Value areas
• Forced Labour or Child Labour
• Pornography or Prostitution-related activities
• Production or trade of illegal drugs or narcotics
• Unsustainable agriculture practices, farming and fishing methods
• The development, production or trade of Weapons

Portfolio Engagement

The majority of Quest portfolio companies surveyed for the report do take into consideration environmental implications of their business operations to a certain extent or have expressed interest to learn more about it. However, the degree to which each implements environmental responsibilities varies from company to company. While the actions taken are generally limited to date due to the lack of resources as the nature of early stage startups, there are signs of efforts to enact environmental factors in their operations.

---

Social Responsibility & Impact

Social Responsibility Policy

Human Rights and Labor Practices

• Respect for Human Rights: Ensure that all portfolio companies adhere to international human rights standards, such as the UN Guiding Principles on Business and Human Rights.
• Fair Labor Practices: Promote fair labour practices, including fair wages, reasonable working hours, and the right to collective bargaining.
• No Forced or Child Labour: Prohibit the use of forced labour, child labour, and any other forms of modern slavery in the operations of portfolio companies.

Health and Safety

• Safe Working Conditions: Ensure that all portfolio companies provide safe and healthy working conditions for their employees, adhering to relevant health and safety regulations and standards.
• Employee Well-being: Promote employee well-being through wellness programs, mental health support, and work-life balance initiatives.

Diversity, Equity, and Inclusion (DEI) initiatives

Inclusive Workplace: Foster inclusive workplace by promoting diversity in terms of gender, race, ethnicity, age, disability, and sexual orientation.

Equal Opportunity: Ensure equal opportunity in hiring, promotion, and compensation practices across all portfolio companies.

DEI Training: Provide diversity, equity, and inclusion training for employees and portfolio companies.

---

Community Engagement & Partnerships

Local Community Support: Encourage employees and portfolio companies to engage with and support local communities through initiatives such as job creation, local sourcing, and community development projects.

Philanthropy and Volunteering: Promote corporate philanthropy and employee volunteering programs to support social causes and community initiatives.

Social Impact Accelerator: Quest Ventures, in partnership with the Singapore Centre for Social Enterprise (raiSE), launched the Social Impact Accelerator which aimed to support budding impactful startups by providing financial and non-financial support to help them improve their competencies and gain access to regional and global markets. Through the acceleration program, startups companies have collectively pitched to over 200 investors, corporates, government organisations, and other stakeholders across Asia. Some companies have also successfully raised their next funding round within a few months and gained footholds in markets such as Australia, Malaysia, Indonesia, and Vietnam.

Social Impact Catalyst: Quest Ventures supports the Social Impact Catalyst, a non-profit organisation, across Southeast Asia. The firm believes in the value of developing the skills and mindsets of Asia’s youth. Through practical projects and experiences, youths are empowered to use their talent and skills for the community. The young men and women are ready to be catalysts for positive change in the future.

---

Portfolio Engagement

Quest Ventures portfolio companies have made significant progress with their social responsibility efforts, implementing internal practices and policies that reflect their commitment to social responsibility and fostering an inclusive workplace.

Internal practices

• Benchmarking with industry remuneration, implementing flexible working hours and hybrid remote work arrangement.
• Complying with the Singapore’s Ministry of Manpower employment requirements and pro-hiring of seniors.
• Introducing permanent hybrid work arrangements, bizSafe best practices and well-being program.
• Having company policies and HR guidelines in place to ensure fair wages, benefits to employees in accordance with the law.
• Providing fair remuneration and fostering an inclusive and empowering work environment.
• Implementing a hiring process that promotes diversity and inclusion.
• Conducting an annual employee satisfaction survey to gather feedback and making adjustments based on the input received.

Community initiatives

• Donating usable devices to the B40 community regularly.
• Donating food when natural disasters hit within the local region.
• Working with beneficiaries and NGOs, hosting groups for educational activities.
• Tree planting, building capacity/capability for non-profits.

---

Governance Principles and Practices

Current Practices

Quest Ventures believes that strong governance is the foundation of sustainable success. Its governance principles and practices are designed to promote accountability, transparency, and ethical behaviour across all levels of the organisation. Quest Ventures is committed to upholding the highest standards of governance to ensure that its operations align with its values and the interests of its stakeholders.

At Quest Ventures, the Compliance Manual serves as the cornerstone of its governance practices, outlining the ethical standards and expectations for all employees. It provides clear guidelines for decision-making and behaviour, ensuring that all actions align with the company’s core values. Some of its key components include the Code of Ethics and Professional Conduct, Confidentiality, Data Privacy and Protection, Prohibited Market Conduct and Insider Trading, Anti-Bribery and Corruption, Anti-Money Laundering and Countering the Financing of Terrorism, Whistleblower Policy, and Complaints Handling.

By adhering to these guidelines, Quest Ventures ensures that all employees operate within a robust governance framework that promotes ethical behaviour, compliance with laws and regulations, and a culture of integrity and accountability.

Portfolio Engagement

Almost 90% of the respondents from the Quest portfolio conduct regular reporting to their Boards, highlighting their commitment to maintaining transparency and strong governance practices. However, the integration of specific ESG-related commitments into these reports remains limited at this stage of startup development. Most companies have yet to incorporate commitments related to sustainable development, human rights, or climate change into their regular reporting frameworks. While there is awareness of these critical issues, the formalisation and systematic integration into business practices are still evolving.

This ongoing effort reflects the dynamic nature of ESG practices within the portfolio, underscoring both the progress made and the potential for further development. As these companies continue to mature, greater integration of sustainable development, human rights, and climate-related commitments is anticipated, reinforcing their dedication to long-term sustainability and ethical business practices.

---

Startups Showcase

Carousell

• Carousell is the leading multi-category, multi-brand platform for secondhand e-commerce in Greater Southeast Asia. Their online marketplace simplifies the process of buying and selling preloved items.
• Carousell published their own Circular Economy Impact Report in 2023.
• Carousell’s users avoided 116,577 tonnes of carbon emissions in 2022, the equivalent to 5.3 million trees absorbing CO2 per year.

ERTH

• ERTH is a provider of e-waste recycling services. They collect and recycle electronic waste from households and businesses through freelance gig economy workers, providing clients with convenient, fast, and good value for recyclable electronics.
• Through ERTH’s e-waste recycling initiatives, 1,500,000 kg of e-waste was successfully diverted away from landfills and the informal sector.

PackAge+

• PackAge+ creates sustainable packaging from recycled plastic bottles and glass, enabling businesses to ship products with lower CO2 emissions. This waterproof packaging can be reused over 50 times, saving at least 1.25kg of CO2 per use.
• “We track every step in the manufacturing process of recyclable packaging. We actively develop relevant software products and collaborate with related institutions to ensure that the reduced carbon emissions comply with the 14067 standards.”

Ion Mobility

• Ion Mobility designs, engineers and manufactures next-generation smart electric motorcycles and charging and energy storage solutions.
• Their vision is to lead the region’s transition towards a low-carbon economy across Southeast Asia.
• Ion Mobility’s flagship ION M1-S electric motorbike features:
  • 150 km range
  • 4.3 kWh capacity
  • Charge up to 100% in 3.5 hours
  • Top speed of 105 km/h
  • 26 litres of under the seat storage

GajiGesa

• Gajigesa is a financial wellness application intended to improve the financial security of employees. The application encourages employees to participate in economic activities which enable them to become financially independent.
• GajiGesa’s Earned Wage Access (EWA) allows employees to access funds during emergencies, providing them with peace of mind and increased financial security.

Cerebra AI

• Cerebra AI is an early stroke detection software. The company uses generative AI to detect acute ischemic stroke within 5 minutes using non-contrast CT, enabling hospitals to quickly diagnose and treat stroke patients in the critical time window.
• CerebraAI Heatmap uses Generative AI to quickly analyse Non-contrast CT (NCCT) cases, identifying areas and potential abnormalities within brain tissues.

Dolbom Dream

• Dolbom Dream is the manufacturer of a smart vest intended for people with developmental disabilities. The vest utilises deep touch pressure therapy to help them alleviate stress and anxiety through artificial intelligence-controlled air pressure.
• Ergonomically designed with Deep Touch Pressure effect, the smart vest provides psychological comfort through the feeling of being hugged by automatically inflating air when the wearer feels anxious or in a stressful situation.

Vulcan Augmetics

• Vulcan Augmetics delivers AI-powered and affordable prosthetics solutions for emerging markets. They developed the world’s first multi-grip myoelectric hand for amputees.
• The Vulcan Myoelectric Multi-Grip Hand offers 3 adjustable thumb positions, 06 practical grip options, and 360-degree wrist rotation. With its intuitive control through EMG technology, the Vulcan hand adapts to the user’s unique muscle signals in just 1 minute.
• Vulcan Augmetics actively takes action to reduce their carbon emissions by lowering the number of clinic visits per user, which cuts carbon through travel costs.

---

Journey Forward

Looking ahead, Quest Ventures is committed to further advancing its ESG initiatives and taking steps forward to reach its sustainability goals. The firm will continue to collaborate with leading organisations and experts to leverage their knowledge and best practices. Quest Ventures will advocate for responsible investment and aspire to be leaders and partners for the investment community to follow. The firm strives to create value and positive change for its investors, entrepreneurs, and the broader startup community. Together, Quest Ventures aims to build a more sustainable and equitable future.

An approach to solving Hunger

Credits

Analysts
Mr Melvin Liam, YLP Analyst

Research
Mr James Tan

Overview

With almost 8 billion hungry customers with a constant appetite for consumption, there is no larger market than the market for food1. With USD$39.3 billion2 invested by venture capitalists globally in 2021, food tech startups are quickly gaining traction.

As food security continues to be a problem in many regions of the world and the consequences of our environmentally damaging behavior catch up with us, entrepreneurs are finding ways to improve the sustainability, accessibility and ethicality of the ways we produce, store and transport food. Given the urgency of world hunger and that most innovative food companies aim specifically to become scalable and replicable, venture capital is well poised to accelerate the development of foodtech.

The problem of hunger is a multifaceted one. In the current period, it is of utmost importance that we feed the 820 million3 who go hungry every day. In the impending future, the consequences of human activities are catching up to us, with increased extreme weather events, loss of arable land, water scarcity and political instability causing food insecurity in areas once lush with food.

This report seeks to survey promising new fields and technologies that private sector investment can support in order to seek the dual goals of alleviating world hunger and achieving profitable returns.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

History has a way of repeating itself. Having avoided (and failed to avoid) famines several times in key junctures in the history of the world, scientists and investors are now at yet another inflection point. With massive amounts of investment capital going into all parts of the value chain for food, there is never a better time for the world to guarantee its food security.

Challenges exist. From taste to nutrition, from supply chain to markets, there are innovators and policy makers looking and testing for new efficiencies.

There will be many failures along the way, but if history is any guide, humanity will finance, create, and consume new sources of food.

---

Reducing Hunger

Reducing Hunger Now

Lack of sufficient food causes 25,000 deaths a day4 and the undernourishment of 690 million people5, the stunting of growth in 21.3% of children6 and costs the world at least hundreds of billions of dollars yearly in healthcare costs (USD160B in just the USA alone7).

While an obvious solution seems to be improving how we produce food, the fact is that the world has long been able to produce more than sufficient food for everyone, with this 2012 paper from the Journal of Sustainable Agriculture titled “We Already Grow Enough Food for 10 Billion People … and Still Can’t End Hunger”8. In it, the authors state that “Hunger is caused by poverty and inequality, not scarcity.”

Unfortunately, poverty is not an issue solvable by the private sector alone. First because the scale of poverty is immense relative to the possible impact of job creation and lending that can be done. Second because the poor are by necessity not ideal customers, even for goods and services that can help them out of poverty. One cannot expect profit-driven corporations to act without the promise of profitability. Lastly, some of the issues that plague the poor are due to a lack of public goods, known by economists as goods that are non-excludable and nondepletable. Essentially, to ask a firm to provide such goods is to ask it to suffer all the costs and share the benefits, a tough ask for profit-driven organisations.

To illustrate this, let us return to the premise that we already produce sufficient food for everyone indicates two possible solutions. First, the improvement of supply chains and logistics so that food can reach those who need it the most. Second, to increase production of food where people are starving.

When considering the issue of transporting food to poor rural areas, the issue is classically “chicken-and-egg” in nature. There is a lack of transport infrastructure, such as roads and ports, in these areas. The difficulty of transporting food to these areas drives up costs, which are unaffordable for the hungry and the poor. But any company that would stand to gain from building roads there (e.g. food logistics companies) is unlikely to build a road that its competitors can also use. Simultaneously, the lack of accessibility means reduced trade, job opportunities, and access to education and healthcare, all factors which keep individuals mired in poverty. Low incomes lead to low purchasing power, meaning that companies are unlikely to want to invest in these areas anyways.

However, this is not to say that the private sector cannot alleviate the problem of hunger and act in a way that is aligned with its profit motives.

One solution is to help the 500 million small farm households9 in the world that make up a large portion of both the world’s poor and the hungry. By providing them with goods and services that improve their businesses, corporations can play an active role in alleviating both poverty and hunger. These farms are of such small scale that they are mostly subsistence in nature, unable to provide sufficient food for the families let alone enough for sale. Helping these small farmers is crucial because the food they would produce helps not just their families, but also the world. Small farmers operate just 12% of all farmland, but produce 35% of the world’s food10.

By directly increasing food production in the exact areas which experience poverty and hunger, we can bypass the need for expensive infrastructure and supply chains, thereby reducing food wastage in transit and emissions created from feeding our hungry.

Reducing Hunger in the Future – Importance of Food Innovation

Since the invention of agriculture, humanity has never stopped improving upon the methods by which we produce, store and transport food; from irrigation and the wheel, to factories and preservatives and more recently, lab-grown meat. Alas, recent phenomena have reminded even the developed world that we are still far from a post-scarcity economy.

Climate change has caused changes in global temperatures11 and precipitation patterns12, increased frequency of extreme weather events13, and even encouraged the spread of once less common crop diseases14. To make matters worse, our methods of food production themselves contribute significantly to climate change15.

Political instability has caused countless price fluctuations and food shortages, with the worst cases resulting in famine, whether they be trade disputes16 or armed conflict17,18,19.

We have also long been aware that the Earth contains only finite resources; the precious land, labour and capital with which we produce food. Thomas Robert Malthus’ in An Essay on the Principle of Population, famously describes what is now known as the Malthusian trap: humanity’s exponentially growing population needs far outpacing our linearly increasing capacity for food production20. With current production capabilities and population growth data, it is estimated that we will need to increase our amount of farmland by twice the landmass of India, or on the whole, a total land usage of 70% of the Earth’s habitable land21 by 2050.

On the other end of the wealth spectrum, there is also rising demand for environmentally friendly or ethically produced food from the increasingly affluent population. The current size of the global ethical food market is USD542B and is expected to reach USD742B by 202522. Examples of such lifestyle practices, widely known as environmentally sustainable food consumption (ESFC), include increasing consumption of plant-based23, insect-based foods24, seasonal products25 and in some cases, buying locally produced26 and/or organically produced food27, as well as a conscious decision to reduce meat consumption28.

The cumulative effect of the supply shocks, a rising demand backed by a steadily growing population, as well as to a smaller but non-negligible extent: the rising appetite for high-carbon footprint meat due to rising incomes in developing nations29, places humanity between a rock and a hard place.

And yet, humanity has managed to overcome these issues before. Malthus’ prediction did not account for the invention of pesticides, machines, refrigeration, and other technical advances that have improved how we produce, store and transport food. Crucially, he overlooked a factor of production which modern economists have recognised: Entrepreneurship.

---

Survey of Existing Frameworks

Frameworks to solve the world hunger crisis and other sustainability issues with our current food production, storage and transportation systems offer a hint of the gaps which startups can turn into market opportunities, and in turn such information can be used as an evaluation tool for VCs. If a new technology or business model aligns itself well to promising solutions to long-standing global problems, its potential to scale, reach untapped markets or underserved communities will be immense.

---

Investing in Nutrition – World Bank

This investment framework was created by the World Bank30 in collaboration with Results for Development Institute, and 1,000 Days, with support from the Bill & Melinda Gates Foundation. It aims to be a guide for investment needed to help the world reach the global 2030 nutrition targets, of which we are not on track to achieve any of the six.

The six nutrition targets are:
Reduce Stunting
Reduce Anaemia
Reduce Low Birth Weight
Reduce Overweight
Increase Exclusive Breastfeeding
Reduce Wasting

This paper lays out an investment framework to reach these global nutrition targets:

1. Global action is urgently needed to tackle the pervasive problem of malnutrition.
2. Reaching the targets to reduce stunting among children and anaemia in women, increase exclusive breastfeeding rates, and mitigate the impact of wasting will require an average annual investment of $7 billion over the next 10 years. This is in addition to the $3.9 billion the world currently spends on nutrition annually.
3. To catalyse progress toward the global nutrition targets, priority should be given to a set of the most cost-effective actions which can be scaled up immediately. Financing this more limited set of actions will require an additional annual investment of just over $2 billion for the next 10 years. The majority of this annual investment would come from country governments and donors, $1.4 billion and $650 million, respectively, while innovative financing mechanisms and households fund the remaining gap.
4. When combined with other health and poverty reduction efforts, this priority investment can yield significant returns: an estimated 2.2 million lives can be saved and there will be 50 million fewer cases of stunting in 2025 compared to in 2015. 
5. Achieving the targets is within reach if all partners work together to immediately step up in investments in nutrition.

---

Investing in Nutrition – Evaluation

Though this report is targeted to public investment, and aimed at saving lives and improving health outcomes rather than financial return or potential exit of a company, there are overlapping important criteria to consider. 

1. Cost-effectiveness: considering poverty is a large cause of lack of access to food, solutions cannot be inaccessible to low income households. Additionally, the food manufacturing industry tends to be a price-competitive arena where keeping cost low is vital.
2. Scalability: solutions that cannot be implemented in the magnitude of millions should be considered dead on arrival, as they have both low impact on solving malnutrition and hunger, as well as lack financial viability in the food industry.

The framework also recommends that “financing is front-loaded in… low-income and lower middle-income countries to help catalyse greater domestic investment and scale … quickly”. 

This recommendation is applicable to startups and VCs looking for opportunities in the foodtech or agritech sector as well. A focus on affordable food solutions in low-income regions are attractive for public sector investment, contracts as well as grants. 

For example, Nigerian agritech startup Releaf raised 4.2m in its seed round last year, of which 1.5m was in grants from The Challenge Fund for Youth Employment (CFYE) and the United States Agency for International Development31. Demand for such solutions in lower income nations is great, to the extent that Tolaram, a conglomerate with majority of its operations in Africa, invested in Singapore-based Shandi, an alt-protein startup, last year32. 

However, as Tolaram’s own New Business Development Manager, Avinash Aswandi, said, operating in such regions requires “overcoming challenges with setting up robust supply chain, manufacturing and distribution models for scale, and navigating political and economic risks” and that “more work is needed to ensure the cost-effectiveness of existing spending on nutrition, address implementation bottlenecks and knowledge gaps”33, indicating some common issues with operating in low-income countries. Many lack infrastructure for supply chains, such as ports and roads, causing bottlenecks in distribution. Many are embroiled in domestic or regional political instability, causing significant risk to both the possible operations and the customer base. Thus, the benefits and costs of the location of market entry must be carefully considered for foodtech and agritech startups. 

---

FAST – JP Morgan

FAST or the Food and Agriculture Sustainability Transition34 is a framework for a global strategy that advises corporations on the opportunities available in the ESG space, and specifically the food and agriculture sector. Section 2 however, directly addresses the role VCs can play.

The Private Sector Has a Critical Role In Establishing a FAST Standard

This section of the FAST framework underlines the growing importance of sustainability to the private sector. It focuses on the fact that stakeholders, like institutional shareholders, investor activists, and consumers are beginning to prioritise ESG factors in their decision making. As a result, companies are committing to net-zero promises, ESG reporting is becoming standardised, and those that can demonstrate sustainable growth are receiving a premium in their valuation. The latter is due to such companies being “viewed as inherently having attractive long-term fundamentals supporting the business, comparable to how the market used to view value investing” (Pg 11). 

It also suggests “Venture Investments in Emerging Technologies”, saying that transition-focused businesses provide diversification and a “robust pipeline of M&A opportunities and learning synergies”. They can also help the corporation achieve its own ESG goals, such as reducing emissions or repurposing by-products.

Driving a Realignment of Capital Flows and Stakeholder Priorities

Here JP Morgan outlines the current lack of private investment into food and agriculture. In 2021, almost 50% of all VC investment into “Climate tech” categories went to electric vehicle (EVs) startups. For the food sector specifically, 2020 was the first year that upstream technologies raised more VC money than downstream technologies. Upstream technologies are more critical in addressing food demand and sustainability issues, but remain underfunded, with their estimate of the food and agriculture space being 5-7 years behind the EV market in both total transaction value and average deal size. 

They highlight the importance of sovereign wealth funds as well as public policy to support food and agriculture startups, and their assistance and investment tends to be “consistent with underlying food security concerns in their home markets”. 

Finally, it emphasises the importance of realising “all climate solutions are interconnected as a system and, combined together, have the greatest impact” (Pg 16). More substantially, combining sustainable energy production with sustainable food production will greatly reduce the quantum of emissions.

Promising Strategies and Solutions

JP Morgan highlights the solutions that it finds promising. These strategies can be classified into 4 categories:

1. Alternative proteins
   • Plant-based
   • Cultivated
   • Precision fermentation
   • Biomass fermentation
2. Enhanced Farming Practices
   • Controlled environment 
   • Agricultural biotech 
   • Precision agriculture technologies (PAT)
   • Boosting pasture productivity (fertilisation of pasture, rotational grazing, feed quality and veterinary care)
   • Reduce Enteric fermentation (reduce gaseous emissions from ruminant livestock)
   • Improve crop breeding 
   • Improve rice cultivation
3. Decreasing Food Waste
   • Packing innovation and coatings
   • Upcycled food
4. Accelerated Development of Carbon Markets
   • Carbon offsets
   • Can encourage carbon sequestration through regenerative agriculture practices

Making Food and Agriculture Environmental Sustainability a Foreign and Domestic Policy Priority

This section pertains entirely to their recommendations to the US government, and are thus not suited to either a private sector or a global approach.

FAST by JP Morgan – Evaluation

This report reaffirms that the importance of sustainability is beginning to achieve mainstream status amongst various stakeholders in industry and finance. As we align to new standards of measuring sustainability and emissions, there will also be a clearer premium paid for companies and services that excel in those standards. Additionally, by recommending that corporations engage the services of or acquire ‘transition-based’ companies, there is an implied opportunity for startups to exit via strategic acquisitions that bestow upon the new parent company a competitive advantage, particularly as carbon credits become more common.

Its mention of vested interest by sovereign wealth funds and governments means that VCs and startups can possibly base market entry decisions on the public policy environment. Notably, “Europe is already ahead of the global curve on transitioning businesses to sustainable practices and Asia has a significant incentive to reduce reliance on the rest of the world for food supply”. Countries that face food security issues are inherently more likely to support companies that solve those issues for them, providing not just a welcoming customer base, but also possibilities for government cooperation in the form of grants, investment and even favourable tax policy.

---

World Resources Institute 

This framework aims to feed 10 billion people by 2050 sustainably. This means closing three gaps:

1. A 56 percent food gap between crop calories produced in 2010 and those needed in 2050 under “business as usual” growth;
2. A 593 million-hectare land gap (an area nearly twice the size of India) between global agricultural land area in 2010 and expected agricultural expansion by 2050; and
3. An 11-gigaton GHG mitigation gap between expected agricultural emissions in 2050 and the target level needed to hold global warming below 2oC (3.6°F), the level necessary for preventing the worst climate impacts.

World Resources Institute35

It utilises 3 pathways, in which there are 22 solutions

1. Reduce Growth In Demand for Food and Other Agricultural Products (Demand-side solutions)
   • Reduce food loss and waste
   • Shift to healthier, more sustainable diets
   • Avoid competition from bioenergy for food crops and land
   • Achieve replacement-level fertility rates
2. Increase Food Production Without Expanding Agricultural Land (Supply-side solutions)
   • Increase livestock and pasture productivity
   • Improve crop breeding
   • Improve soil and water management
   • Plant existing cropland more frequently
   • Adapt to climate change (breeding crops to cope, establishing water conservation systems, changing production systems)
3. Protect and Restore Natural Ecosystems and Limit Agricultural Land-Shifting
   • Link productivity gains with protection of natural ecosystems (as a measure of /KPI for financial incentives like low interest rate credit)
   • Limit inevitable cropland expansion to lands with low environmental opportunity costs
   • Reforest agricultural lands with little intensification potential
   • Conserve and restore peatlands
4. Increase Fish Supply
   • Improve wild fisheries management
   • Improve productivity and environmental performance of aquaculture
5. Reduce Greenhouse Gas Emissions from Agricultural Production
   • Reduce enteric fermentation through new technologies
   • Reduce emissions through improved manure management
   • Reduce emissions from manure left on pasture
   • Reduce emissions from fertilisers by increasing nitrogen use efficiency
   • Adopt emissions-reducing rice management and varieties
   • Increase agricultural energy efficiency and shift to non-fossil energy sources
   • Implement realistic options to sequester carbon in soils

The report also references the FAO or Food and Agriculture Organisation of the United Nations, stating the 4 main pillars of food security.

And that in addition to these four, experts have long argued for a fifth: sustainability, “which is ensured only if food production and consumption patterns do not deplete natural resources or the ability of the agricultural system to provide sufficient food for future generations”.

World Resources Institute – Evaluation

This report extensively covers solutions from multiple aspects, and is focussed on utilising existing proven solutions due to its practical and comprehensive call to action. It outlines the bare minimum that must be done for humanity to survive past 2050.

But from a venture capital perspective, one must believe in the possibility of technological advancement, and the ability of entrepreneurs to do more. For example, the report does not mention alternative proteins, though that would resolve issues 2.1 (Livestock productivity) and 5.1 (enteric fermentation), remove the need for animal feed in 5.6 (agricultural energy efficiency), and can be achieved in tandem with 1.2 (Shift to healthier, more sustainable diets).

This framework can thus be used to evaluate companies by categorising the impacts of their proposed solutions, thereby giving us a metric of the possible breadth of their impact. The five pillars approach can become a tool for VCs or other investors to target specific pillars.

---

Food and Agriculture ROSI Framework – NYU Stern

Food and Agriculture ROSI  (Return on Sustainable Investment) is NYU’s framework to identify “sustainability strategies and their related agricultural practices” and “develops monetization frameworks to demonstrate the financial benefits of those sustainability investments in the industry”. It focuses on possible practices that incumbent players can incorporate in order to become more sustainable, and outlines the sustainability strategies below.

Its principle framework is Mapping, or the categorising of strategies on two axes:

1. Stage of supply chain it can be implemented in
2. Aspect of strategy it targets

e.g. Food Waste Management and Circularity

NYU ROSI Framework – Evaluation

Such a categorisation method is useful in identifying both corporations’ possible usage of a solution provided by a startup and how comprehensively a startup targets a specific problem.

By exploring where a startup’s solution could be utilised in an existing supply chain, we gain a better understanding of its product-market fit, possible serviceable addressable market, customer acquisition routes, LTV, and potential exit strategies.

While the scope of a startup is not an indicator of its success, that information combined with knowledge of the entire supply chain could indicate potential expansion opportunities and augment competition analysis, since if other existing companies provide solutions that are in a different space, they can be complementary rather than substitutional.

---

Categorisation of Foodtech/Agritech

The foodtech and agritech sectors are not a homogeneous space. Companies exist across different verticals and at different stages of the food supply chain. For the purposes of VC investments, the categorisation used by the World Resources Institute is not appropriate as its goal is not profitability, and a majority of scalable monetizable solutions are supply-side where a solution can be sold, as opposed to the demand-side solutions such as reduction of consumption. Instead, the JP Morgan FAST framework’s categorisation of Food Production, Decreasing Food Waste, and Accelerated Development of Carbon Markets (or carbon offsets) is more applicable to a private investment context.

The categorisation used must also inform the analysis of a company’s product or service. NYU’s ROSI framework is then also unsuitable, as foodtech and agritech companies frequently provide goods and services that cover multiple strategies to solve food sustainability issues. But its use of categorising by stage of food production is informative, as Foodtech companies tend to vary by stage of food production they target, with some focusing on just production or retail and others providing end-to-end services. As mentioned in the evaluation of the ROSI framework, this would provide information on possible competition and expansion of product offerings in adjacent spaces. 

Startups should be categorised by 

• Stage of supply chain
• Vertical

Stages of Food Supply Chain

Utilising the ROSI framework from NYU Stern, we begin with 5 stages: On-farm, manufacturing/processing, distribution and retail/food service

However, given the rise in scientific advancement in improving the inputs to agriculture, such as GMO crops, bioengineered pesticides, and feed that reduces enteric fermentation, we feel the need to add a pre-farm or “pre-production” stage37.  This category would also include any firms providing inputs to farms or manufacturing plants, to distinguish it from firms that use their technological or business model advantages to operate their own farms.

1. Pre-Production
2. On-farm
3. Manufacturing/Processing
4. Distribution
5. Retail/Food Service

Foodtech/ Agritech Vertical

Adopting the categorisation used in the FAST framework by JP Morgan, we decide to combine the alternative proteins and enhanced farming practices verticals into one: Food Production. This is because many analyses apply to technologies under both the alternative protein/farming practices groups due to the fact that they intend to create a more sustainable, scalable way to feed humanity, and both are clearly different from methods which focus on the reduction of food waste. The accelerated development of carbon markets which the FAST framework mentions is a key global strategy to create a more sustainable world, but they are not of interest in this report.

First, the field of agricultural finance and marketplaces has been rife with activity in the past few years, with Indonesia’s Tanihub, a B2C produce marketplace securing their $65.5 million Series B, and Kenyan Agri-finance startup, Apollo Agriculture raising $40 million for their series B. These companies enable small independent farmers to lower customer acquisition costs and obtain cheaper financing or insurance respectively. These will be added under a new category titled “Helping small farmers”.

As for alternative proteins, insect-based protein has been overlooked in favour of plant-based or cultivated protein, but present a possible alternative as they require simpler processes to obtain and can offer a more protein (most legumes and cereals are sources of incomplete proteins). 

In the Enhanced Farming practices category, we have also removed improved crop breeding and rice cultivation as these are not monetizable endeavours or at least ones easily adopted as a business model by startups.

Under the category of reduction of food waste, we have also added the goal of increasing awareness of food waste as a vertical, where companies such as Goodr, a B2B that helps businesses get tax deductions for donation of surplus food38. Additionally, food logistics has many areas of improvement with regards to wastage, which many startups are attempting to solve.

---

Food Supply Chain Considerations

Farm

Firms in the food pre-production stage are B2B, selling products and services that augment the farming process to farms or manufacturers. These can be farm inputs such as feed and fertiliser, as well as bioengineered seeds or livestock. They can also be selling hardware such as IoT harvesting or livestock health monitoring, or providing physical spaces for farming live hydroponic or vertical farming lots, or marketplaces for farming inputs. 

Some firms in this stage can also be farmers themselves utilising the technologically advanced methods or innovative business models they develop.

With full-scale in-lab protein production still a ways to go and plant crops still being necessary, farms are here to stay. Firms that offer innovative farming solutions are B2B, while firms that do the farming themselves can also be DTC if they choose to provide an end-to-end service, though many farmers choose to work with wholesalers 

In this stage, it is important to consider the applicability and replicability of solutions to a wide variety of crops. Research into the unit economics of their customers (i.e.food producers) is also crucial to consider what businesses can afford their solutions. Both these factors provide a better understanding of the firms’ TAM, SAM and SOM.

Confirming a realistic SOM is important, as farmers or food manufacturers have different priorities in their business and different levels of profitability and scales of production. For example, until sustainability goals are fully aligned with profit incentives via carbon taxes and credits, most farmers would be unlikely to spend more to reduce enteric fermentation, meaning the true addressable market is perhaps limited to farmers who market their meat as environmentally friendly, or live in jurisdictions where carbon taxes are enforced, such that their unit economics is improved by the introduction of the presumably more expensive feed. Similarly, farming equipment startups can represent high CAPEX which might only be accessible to large farms39, which limits their potential customers as five of every six farms in the world are smaller than two hectares and they collectively produce a third of the world’s food40.

Interviewing prospective as well as existing customers is one way of confirming these assertions, though it is likely that many early stage startups are pre-revenue and lack LOIs from potential customers.  

When considering firms that sell equipment to farms, low LTV is still a concern due to these products mostly being capital for production rather than a direct input and could have low purchase frequency. Many technology hardware companies get around this by implementing Hardware as a Service models adapted from software companies’ SaaS models, by providing long-term payment plans in exchange for frequent maintenance and software upgrades. 

However, this may prove untenable. Deere & Company, the world’s largest agriculture machinery manufacturer and the creator of the first commercially successful mechanised steel plough in 1837, has been embroiled in lawsuits regarding farmers’ right to repair41 . Companies that seek to increase customer LTV via high margins basic ancillary services like maintenance and repairs might see pushback from farmers who are accustomed to fixing their own machinery42, though more software-based technology might be more immune to this. 

In the case that the firm operates the farm, a large concern is the low value density of products produced and low LTV of individual customers. DTC models might circumvent this by giving the firm the ability to sell produce in season, in varieties of their choosing, at a scale they prefer, and with greater control over pricing and production practices43 , thus improving unit economics by allowing farmers to capture a larger proportion of the final consumer dollars, thereby increasing revenues. However, the firm then takes on the associated risks and costs of marketing and sales. 

In guiding the growth of the firm, funds have to monitor competing firms and their metrics, such as retention rate of customers in comparison to that of their competitors as the firm matures. While B2B customers tend to have a higher long-term retention rate (especially if product is a key input such as fertiliser or feed), foodtech and agritech are fast moving fields where competitors can gain a technical advantage quickly. As such, the firm must be focussed on both customer acquisition and R&D. If the firm is still pre-revenue and R&D focussed, it should begin talks with potential customers, seeking LOIs or even trials to secure a pipeline of business. 

Manufacturing/Processing

In this stage, companies either utilise raw ingredients to create finished products, whether they be plant or meat produce from farms or biochemical serums and cells from labs. Foodtech companies that are in this stage are namely alternative protein manufacturers, using plants, fungi, cells or bacteria and yeast for their products. There are also firms trying to reduce the waste at this stage, from reducing the amount of non-biodegradable packaging to utilising or repurposing food waste. Companies can be both B2B and B2C, as they decide between being able to capture a larger revenue share with a D2C model, or the cost-savings and stability associated with selling ingredients to other manufacturers, or both.

Funds should take a close look at the cost basis (COGS) of products by firms in this stage of the food production supply chain. While plant-based alternative proteins utilise relatively low-cost raw ingredients, the production processes required to make plant matter taste and look like meat are by no means cheap. Beyond Meat, the world’s largest meat-like plant based burger reportedly managed to reduce their cost basis of a pound of alternative meat from USD4.50 in 2019 to USD3.50 in 202044 using both intense cost-cutting measures and economies of scale, giving them a price of USD7.79 in 2022. Meanwhile, the price of a pound of beef in the average US grocery store is USD4.91645. The costs associated with other meat alternative production methods will be discussed in greater detail in section 6.2.1.2.

Firms that utilise waste from other food manufacturers should logically have a low cost of raw materials, and while some could have complex processes to turn inedible food waste (such as seeds or husks) into edible products such as Regrained which turns beer byproducts into pasta, snacks and baking mixes, others have simpler methods, such as Wtrmln Wtr turning aesthetically undesirable watermelons from farms into juice. While simpler production methods are less costly, they also do not provide the defensible revenue and barriers to entry that a patented, technically advanced process would. A more complex process is also typically necessary for the conversion of inedible (not just unattractive, and thus cheaper) “waste” into edible food. 

Additionally, while such waste products might be widely available and cheap at the moment, the upcycled food space is becoming increasingly crowded. Increased demand for such waste products might steadily erode the cost advantage, crowding out smaller startups in the long run. Firms must have access to a sustainable and secure supply of their inputs.

In direct food manufacturing and processing, the crucial metric to observe is scale and unit economics. Most companies using novel technologies have incurred significant costs in R&D that have to be recouped. But using high prices to do so, as is done in the pharmaceutical industry, is untenable in a price sensitive market like food. Regardless of the supposed health or environmental benefits, consumers will not be willing to pay significant premiums on a commonly consumed product, barring a marketing shift, such as what Starbucks did to coffee. 

If the majority of cost is fixed, their proof of concept must incorporate future expected maintenance or capital replacement costs, unless cost of capital machinery is low. If the  majority of cost is variable, they must have plans to reduce cost of inputs, whether via R&D or bulk purchasing and renegotiating purchasing contracts.

There are also companies who intend to focus solely on the research of food manufacturing technologies, and then to licence their technology to existing food manufacturing companies. This strategy takes advantage of larger firm’s existing scale and possibly overlapping machinery. Nevertheless, they must have an idea of the costs involved in order to pitch their production methods or products to possible licensees.  

A company must have an understanding of how many returning customers they must retain to support a scale of production that would be profitable in the long run. Are their customers wholesalers, distributors or direct consumers? Wholesalers and distributors have minimum order requirements, and upcharge their bulk purchases to retailers. Selling products to them allows you to gain access to multiple retail revenue streams, from supermarkets to restaurants. Direct to consumer models require significantly more marketing and knowledge of the industry, but allow for higher selling prices. Considering that the latter will be covered in the retail segment, we will discuss the former here.

Wholesalers and distributors generally use two pricing strategies46. The first is absorption pricing, where all costs, including their own profit margins are included into the final price. This means that manufacturers should discuss the final prices that end consumers will see, and not just the price at which the product is sold to the middle man. The second is differentiated pricing, which is calculated in response to demand. This is preferable as the wholesaler will do their own research, and possibly provide feedback on demand and willingness to pay to the manufacturer, allowing the company to get a better understanding of what scale and thus cost level they must achieve. 

Distribution

In the distribution stage, startups are generally not attempting to get into the distribution or wholesale businesses themselves. However, they need to have an understanding of the business in order to offer themselves as service providers to these companies. They have to comprehend what factors drive the distributor’s bottom line and top line. For VCs, it is crucial that such startups are at least in talks to sign PoC agreements with distributors or wholesalers to prove their product-market fit. 

For example, in countries where supply chains are unsophisticated and for example, have warehouses that lack cold chain facilities, it would seem hasty to incorporate IoT trackers and sensors to ensure produce is being kept at a suitable temperature. Meanwhile, startups creating warehouse robots could target food distributors in areas seeing rising labour costs threaten their bottom line.   

Most startups involved in this stage of the food supply chain are logistics innovators: involved in packing, processing, storage, tracking or delivery of food from producers to retailers or consumers. Many are attempting to reduce waste and spoilage in the supply chain, thus improving food safety, efficiency and profitability of distribution. Therefore, the issues plaguing distributors and wholesalers will be discussed in further detail in section 6.3.1 and especially 6.3.2.

Retail/Food Service 

In this stage we have startups that are involved only with retail, such as innovative marketplace solutions, as well as those that are DTC farmers, manufacturers or distributors. The former is discussed in further detail in sections 6.1.1 for small farmers in rural areas, and 6.3.4 for marketplaces that attempt to sell food “rescued” from waste. 

Retail is a business heavily dependent on public image and marketing, especially in a price sensitive market. With the rise of different technologies in foodtech, food is becoming less of a commodity and more of a brand. If a customer is interested in a specific product, such as alternative proteins, the question is not just of location of production, as it is with traditional food items, or that of technology, whether it be plant or cell based, but that of which brand. Impossible Foods or Beyond Meat?

To a certain extent, the choice is based on the variety of offerings. After all, product proliferation has been a successful market strategy for consumer goods, and especially food, for a long time. Think of Coca Cola and beverages, or Kellogg’s and cereal. If someone is seeking a specific product, say alternative pork, then they would have to go to Impossible Foods rather than Beyond Meat. And if the product is satisfactory, then when the consumer is about to purchase a more widely available product offered by multiple companies, they would be more likely to go to Impossible again. Formally, this means that a firm with larger variety saturates the product space and minimises unmet demand47. Additionally, having a wide variety of offerings makes it difficult for new startups to compete48.

However, the key thing to note here is that the “brandification” of the consumer packaged foods vertical is a double-edged sword. If a farmer produced a bad batch of produce, no consumer would be able to identify and avoid their produce again because supermarkets or restaurants do not display their sources. But a brand with the same issue can find it difficult to shed their bad reputation. Nevertheless, to manufacturers, a brand offers an opportunity to capture loyalty and a price premium, and to customers, it represents a level of quality that saves them a great deal of search time49. A strong brand can become the key to obtaining customer retention that will support the scaling of a company. 

Another benefit of being directly consumer facing is the possible collection of data. This is particularly viable as many direct to consumer food manufacturers and distributors have online platforms. Providing the option to create an account with them allows companies to profile customers and personalise their experiences. Data collected can then be used to forecast future demand, resulting in more accurate ordering of inventory, reduction of waste and spoilage, and a more appropriate scale of production that can be varied according to the forecasts. 

When working with consumers directly, companies have to be certain that their products will be a hit. Even with the commercial success of Impossible Foods and Beyond Meat, there are already staunch critics who took their opinions online, casting further doubt and distaste towards alternative proteins. Their collaborations with food giants such as Burger King and KFC mean little if consumers do not have favourable views of them. The difficulty of selling direct to consumer means that there are no PoC or prototype agreements. Startups must work with those in industry, such as chefs and commercial food providers, to ensure that their products are satisfactory before launch. 

---

Solutions by Industry Vertical

As elaborated in Section 2, there are two main food issues the world has to contend with. The first is hunger now, and the second is hunger in the future. Hunger today can only be reduced if we assist small farmers, many of whom are exactly those that suffer from lack of food security due to their small scale of farming providing only subsistence-levels of food production. Preventing humanity from going hungry in the future can only be done if we stop producing food now at the expense of our environment, and the future generations.

Assisting Small Farmers

Conventionally, larger corporations are viewed as more productive and efficient, able to reap the benefits of economies of scale to reduce or eliminate redundancies. However, the opposite seems to be true in farming. “Smallholdings” or farms mostly of size smaller than 2 hectares, represent 84% of all farms worldwide and only operate about 12% of all agricultural land. Yet, these small farms are accountable for 35% of the world’s food supply50 , and still have considerable catch-up growth to capture in terms of farming knowledge and technology usage. 

While it is untenable for private sector investment to directly tackle poverty, it is possible for companies to find mutually beneficial, sustainable opportunities in developing areas by providing ways to break out of the poverty cycle to underserved communities. Many farmers are stuck in poverty due to living hand to mouth relying on subsistence farming. Without any surplus production, their lives and livelihoods are entirely vulnerable to climate variability and the appearance of pests, and they are unable to utilise profit gained from sale of surplus goods to improve their production processes or to tide over bad harvests. The FAO states that in 2015, over 2 billion people live on subsistence farming51 on farms known as “smallholdings”, farms mostly of size smaller than 2 hectares. 

What companies have to understand is that these millions to billions of smallholder farms are essentially small businesses, and as the FAO states “smallholders operate their farms as entrepreneurs operate their firms, or at least they try”52. They raise capital and try to invest in equipment like a bicycle or a spade, decide what to plant and what inputs to use and how. However, these small businesses face a multitude of issues.

First, they mostly operate in economic environments with dysfunctional informal markets. Second, there are considerable physical limitations with the average smallholder family taking more than 11 mins to reach a paved road, and those in countries like Nicaragua having an average distance of 48km away from a paved road. Third, their lack of starting capital means their farms are not as productive as they can be; the typical European farm uses 130kg of fertiliser per hectare, while the average Ethiopian farmer uses just 20kg53 . This can be very harmful to smallholders, especially in Sub-Saharan Africa where soil fertility is declining due to the cultivation of cereals without the addition of fertilisers, leading to a collapse of their basis for food production.

Startups have begun to realise the myriad of opportunities this presents. Many have begun microfinance operations, allowing farmers to have the capital to purchase transportation, fertiliser and other equipment, or to tide over bad seasons. Others have started marketplaces, increasing access for farmers to both purchase inputs and sell outputs, formalising markets and streamlining their decision-making processes.

Marketplaces

According to BlueWeave Consulting, the total value of the global digital farming market is expected to reach $10.2 billion by 202554. These platforms, known as agribusiness marketplaces or agriculture trading platforms. They typically provide not just a marketplace but also other software tools.

Marketplaces allow for several benefits.

On the supply side, farmers can more easily source inputs and equipment that make their land more productive. A formal online marketplace increases visibility, meaning suppliers of such inputs now have to compete on price, possibly reducing cost of inputs for the farmer. They gain access to a wider range of possible inputs, from fertilisers to pesticides, and with contractual agreements, can be more certain of future costs and be protected from temporary market fluctuations. 

On the demand side, farmers can use online marketplaces to study demand and make better production decisions, connect with buyers, arrange deliveries and finalise transactions. A centralised marketplace can reap economies of scale to utilise more secure payment systems and engage lawyers to create legally binding contracts, thereby reducing legal and transactional risks, increasing certainty of revenue for farmers. Marketplaces can go even further, adding logistics and fulfilment services, creating one stop shops for farmers, reducing barriers to market entry and complication, as well as increasing supply chain transparency for end consumers.

Examples of such startups are Africa’s Maano – Virtual Farmers Market that connects farmers to buyers while providing real-time commodity prices, France’s Agriconomie that sells farming supplies from tractor parts to seed varieties, and India’s Agrostar that has fulfilment centres and last-mile delivery networks, as well as recently raised USD70M in its Series D round55. 

However, such solutions face 2 critical barriers.

Firstly, the countries where farmers suffer from a lack of a formal, well-functioning marketplace tend to also be countries with low levels of digital penetration and literacy, let alone digital literacy. In 2022, around 4 out of 10 people in Africa had internet access with only 3 countries having over 70% internet penetration56, while Southeast Asian countries generally had over 70% internet penetration rate, except for Myanmar, Laos and Timor-Leste57.  In regions where computers and internet connection are scarce, it is difficult to implement platform based solutions like marketplaces which rely on both buyers and sellers having access to the internet. The lack of digital penetration unfortunately suffers the same problems as poor physical infrastructure: local governments do not have the resources to improve the situation and individuals in the area lack the purchasing power for the private sector to justify investment. 

Second, farming is a traditional industry with long hours and lots of work, meaning adding technology that they have to learn how to use is unsurprisingly viewed as a hassle or a risky endeavour. A study interviewing 100 farmers in Vietnam, Indonesia and Myanmar found that it consistently took at least 3 years for a farmer who is already using online chat groups to begin “active discovery”, to venture outside their existing social group to find new transaction partners, new technologies, production methods, etc58. We can thus foresee that the time to develop such digital competencies would require an even longer runway in regions that still lack internet access. 

Nevertheless, as internet access widens and mobile phone usage increases, online marketplaces offer farmers a democratised platform for sales and sourcing of goods, increasing the stability of their businesses and helping to move the food from where it is produced to where people need it the most. In the meantime, agribusiness marketplaces can sink their roots into areas where farmers are already comfortable using such social technology in their daily lives, building the necessary logistical expertise to scale once the opportunity presents itself. 

Loans and Financing 

As the International Fund for Agricultural Development (IFAD) states “What characterises the poorest is not only their very small income but also the irregularity of this income.” Smallholders are the most vulnerable to sudden supply shocks (weather and pestilence), and would only see income during harvests or not at all (in cases of absolute subsistence farming). Microfinance for less wealthy individuals in developing countries have shown concrete evidence that having access to credit substantially increases their quality of life, smoothing over difficult times, helping them build assets to afford school fees, improve homes and afford medical care. The same can be done and has been done for agriculture.

While such microloans were initially unpopular due to the preconceived notion that the poor would not be creditworthy, most studies have shown they display higher rates of repayment than conventional borrowers, with repayment rates as high as 98% in some institutions59. This makes such business models win-win solutions, allowing lenders to invest in a reliable debt product that is highly diversified away from financial markets and borrowers to have access to funds that let them plan for the long term.

The microfinance sphere has been around for decades since Muhammed Yunus from Grameen Bank founded the industry, and it has matured considerably, expanding into savings deposits, remittances, money transfers and microloans outside working capital loans, such as housing finance and education loans60.  While initially, many loans had to be supported by donations, a few MFIs (Micro-Finance Institutions) began charging low fees and interest rates that could be afforded by borrowers, allowing such loans to be self-sufficient. By the mid-1990s, MFIs were commercialised and profitable61. 

Now, with the growth of fintech, technology enabled microfinance has become even more capable of being self-sufficient. On a simpler level, digital banking and the proliferation of mobile phones have allowed MFIs to access a much larger group of people, without requiring physical banks or agents on the ground, reduced application and processing times, and increased visibility for the borrowers62. On a more complex level, developments such as credit scoring algorithms are circumventing the lack of formal borrowing history that most unbanked adults have in order to provide them with credit63. 

Companies that utilise such AI-powered algorithms rely on alternative sources of data. Mumbai-based CASHe uses social behaviour and data points like smartphone metadata, social media footprint and career. Bengaluru’s SmartCoin Financials uses AI to digitalise processes such as delinquency prediction, fraud detection, and KYC, as well as using smartphone data and digital footprint for customer onboarding and verification64. In Latin America, Quipu Market is a marketplace that allows entrepreneurs to publish product catalogues and record transactions, then using that data to assess credit worthiness. 

However, similar to online marketplace solutions, such companies are heavily reliant on digital penetration to grow, meaning that no method of short of buying phones and internet plans for rural farmers will allow startups to inorganically acquire new customers in rural areas (which will likely exceed any VCs’ allowable CAC – customer acquisition cost). Fintech startups can perhaps develop capabilities in traditional methods of financing where potential customers are more averse to utilising technology, or conduct trials with select farmers and then use their feedback to convince other farmers. 

Insurance

According to the Asian Development Bank, “Agricultural incomes are subject to substantial covariate shocks”, relating to how most risks faced by farms are also correlated with the weather, and are thus undiversifiable. This means that farmers are likely to “rationally underinvest in inputs and thus slow down the Agricultural Transformation”65. In order to encourage smallholders to invest more into the long-term productivity of their farms, risk ownership in this field must be restructured. However, if the risk moves to agricultural banks, “ it will lead to an under-provision of credit due to the difficulty of hedging this large covariate shock for any but the largest and best diversified banks”.

Consider an agricultural insurance policy for a certain region that pays out in the event of crop destruction. As a singular disastrous weather event would mean paying out every insured party in the region, this policy is not diversified and thus untenable, and undermines the basis of insurance, which is that idiosyncratic, non-covariate risks can be diversified over a large population. 

As improvements in measuring global environmental conditions improved, index insurance emerged as an innovative way to provide insurance policies. It is a policy that pays out for loss of typically working capital on the basis of a predetermined index hitting certain levels (e.g. rainfall levels).  The index measures deviations from the normal level of parameters such as rainfall, temperature, earthquake magnitude, wind speed, crop yield, or livestock mortality rates66. The cost of administering such policies are low, typically not requiring insurance claims assessors as the basis of the payout is entirely objective and based on data67, making it worthwhile for insurance companies to cover such a large number of farms with low margins. The insurance company also would not suffer from moral hazard or adverse selection, as “the object against which insurance is written is beyond the control of the insured party”68. 

The largest issue faced by insurtech companies in the microinsurance space is lack of demand. A report from the Society of Actuaries states “ It is not uncommon to hear of microinsurance programs spending over a year building a back-end technological platform, only to realise in the first month of sales that there is no customer demand”. In Vietnam, both the government and private insurers have offered agricultural insurance for the past 30 years, and yet very few of their 8.6 million farmers are insured70. Their National Agriculture Insurance Pilot Program (NAIPP) found that lack of farmer awareness and trust were the main reasons for the low take-up of insurance options, despite the substantial government subsidies. 

Insurtech companies thus suffer the double whammy of being pushed away due to lack of familiarity with technology as well as general distrust towards insurance.  One possible strategy to combat this is for insurtech companies to partner with existing MFIs that already have an existing customer base, thus leveraging the existing goodwill and customer relationships to acquire customers. 

For example, one company in this space is Kenya’s Pula, which has more than 5m farmers insured in over 16 countries and raised $6m in 2021. It works with states and multilateral organisations such as the World Food Programme, the Central Bank of Nigeria and the Zambian and Kenyan governments, as well as development agencies, financial providers, commodity buyers, aggregators and mobile network operators, showing that partnerships with existing, trusted service providers allows for wider customer outreach. US’ Stable, which raised $46.5m in 2021, utilises AI to reference agricultural price indices across 70 countries to accurately price insurance premiums, and works with the Agricultural Commodity Exchange for Africa, as well as food businesses in the US71. Luxembourg based IBISA, which raised about $1.7m in their 2021 seed round, provides weather-index based insurance to smallholder farmers in the Philippines and India72. 

Insurtech companies are continuing to develop innovative methods to price premiums at scale, making products that would otherwise be unprofitable viable for sale to smallholder farmers at affordable prices, whether it be index based insurance policies, picture-based insurance (PBI)73 , or inserting RFID microchips into livestock74. Agricultural insurance is a field that offers tremendous opportunities due to having a large unserved market – less than 20% of smallholder farmers have insurance75,  and technological improvements allowing greater scale and lower premiums and screening costs.

Sustainable Food Production

At its core, food production startups seek to solve one issue: inefficient production of calories. The FCR or Feed Conversion Ratio measures the ratio of the calories an animal eats to the calories it provides when eaten. 

• Chickens – 2x-5x
• Pigs – 4x-9x
• Cows – 6x-25x76

This calculation also does not account for the large quantities of land usage that is required for livestock, let alone humane livestock conditions (free-range/cage-free).

Nor does it account for water usage.

Many startups are involved in the creation or application of novel methods that increase the productivity of these inputs, whether they be feed, land or water, or circumvent the issue of livestock all together. These methods are without a doubt more efficient than traditional farming methods, but they still face many issues in implementation.

Alternative Proteins

Several barriers stand in the way of alternative protein being the default option. 

1. Nutrition
2. Cost
3. Taste

Barriers 

Nutrition

Protein alternatives are not a new concept, and was first implemented by the Chinese Han Dynasty (206 BC–220 AD) with soybeans, giving us tofu. Its use as a meat substitute was recorded in the 10th century, when the spread of Buddhism gave rise to vegetarianism in China. But as more people began to move away from meat for health reasons and into plant-based proteins, many products lacked the necessary amino acids to be considered “complete” proteins such as the seed proteins of common commodity crops like rice, wheat and corn (though soy is considered “almost” complete). Additionally, to make such products more palatable, many meat alternatives have unhealthy levels of salt79 and higher levels of carbohydrates and sugars than meat80. Fortunately, as will be elaborated in the later section, most cutting-edge alternative protein solutions have managed to create realistic meat alternatives with complete proteins, at the cost of having to use additives to improve its taste.

Cost

Studies have shown that consumers tend to be price sensitive when purchasing meat81 and with meat alternatives commanding a hefty price premium over meat in most areas, the barrier to customer acquisition is very much related to price.

Alternative protein companies know this, and in 2021, Impossible Foods announced its second price reduction within a year to $9.32/lb, a 20% drop83, while Beyond Meat is aiming to achieve price parity in at least one category by 2024. 

On an industry level, Blue Horizon and BCG released a report estimating the time of price parity for different alternative protein types in 2021.

As of 2022, global food prices have risen, causing the price gap to narrow. Whether this is a boon or bane for meat alternatives is yet to be determined, as higher prices for everything else could also tighten overall expenditure on food, as well as make consumers more price sensitive. Regardless, companies must have a clear avenue to price parity with conventional meat products in order to truly have any sustainable impact, since its value is in replacing existing products rather than having any environmental benefit in and of itself. Additionally, it would be difficult to envision a solution to world hunger supported by alternative protein with costs that consumers in the developed world cannot stomach.

Taste

According to a study conducted by the Good Food Institute with Mindlab, they found that taste was the main primary motivator among consumers for purchasing decisions, beating out price85. Achieving taste parity is the ultimate goal of meat alternative companies. Getting a consumer to try their product is comparatively easy due to the low initial price barrier, but achieving retention is harder. This is further exacerbated by the brandification of the vertical, in stark contrast to the commodity-based traditional meat industry which typically uses private labels or unbranded products86. As a result, brand image and reputation is crucial. A customer becomes much less likely to make a repeat purchase if their first taste is unappetising. 

However, there is more to consumer tastes than just flavour and texture. Many of the innovative products in this space are creating foods that simply have never existed, meaning they do not satisfy a current consumer need (aside from those who care about sustainability or ethics). While it is true that the world has a large-scale hunger crisis that requires a less environmentally-taxing method of food production, the initial cost of these experimental foods are too high to bear by the individuals who need it the most. This means that successful companies must be attractive to the developed world first in order to develop an acceptable level of economies of scale. With that in mind, products that are attempting to take the place of existing ingredients in existing food products, such as burgers or flour, are easier sells than convincing the world to embrace new and strange food products.

Vertical-specific Developments

Plant-based Protein

Plant-based protein is currently the most popular alternative protein on the market, with options like the aforementioned tofu or tempeh having existed for centuries. However, such products have traditionally failed to convert consumers away from meat, and instead achieved popularity as complementary ingredients in many regions. Entrepreneurs began to realise that a true alternative protein would have to take the place of meat in existing dishes, and thus replicate the taste and texture of meat, rather than simply being a nutritional substitute.

In order to achieve taste parity, companies have experimented with various methods, the most popular of which being extrusion, where a mixture of plant protein pulses (e.g. lentils, soy, chickpea) are fed into a metal barrel where it is sheared and mixed by two rotating screws while being heated by steam surrounding the cylinder. This is what allows newer products like that of Beyond Meat and Impossible Foods to achieve the desired muscle fibre-like texture87. Each company alters the multiple process variables to produce their own proprietary product, requiring considerable R&D, not to mention the high capital cost of purchasing or even building extruders. 

In 2020, the Good Foods Institute estimated the size of the plant-based protein market to be USD1.4B. With USD466M and USD230M in revenue for Beyond Meat88 and Impossible Foods89 respectively, these 2 companies occupy 49.7% of the market. However, this does not mean that there is no room for competition, as the current plant-based protein market is only 1.4% of the total retail meat market, meaning that startups have the opportunity to expand the overall market by capturing new customers.

Investment into plant-based food companies skyrocketed after 2019, when Beyond Meat IPO’ed at a 1.5 billion dollar valuation. The slight drop from 2020 to 2021 cannot be attributed to global headwinds, as funding for both cultivated and fermented meat alternatives rose significantly from 2020 to 2021, indicating possible crowding of the alternative protein sector. 

Plant-based protein has been deemed by many to have overcome both barriers in nutrition as well as taste. However, as many studies have pointed out, most products have high levels of sodium, which can cause health implications such as heart disease91. The addition of salt is unfortunately necessary to mimic the taste of meat. While flavour and texture are subjective, many products have become the subject of media scrutiny due to their realistic qualities. Notably, in 2019, Burger King Sweden created a menu item where customers would have a 50-50 chance of getting a meat burger or a plant-based one, and 44% of customers could not correctly identify if they were consuming real meat. Its largest barrier is therefore cost. Unless governments begin to halt traditional meat farming subsidies – which could mean a true price of USD30 per pound of beef92 – or force producers to internalise the environmental costs of agriculture via taxes, companies have to conduct further R&D or reap the benefits of economies of scale to continue pushing prices down to that of conventional meat.  

Insect-based Protein

Insects have been part of many human diets for a while, most notably that of the Thais, whose country has more than 20,000 large-scale and small backyard insect farms operating across the country93. The main issue is that individuals find eating whole insects difficult to stomach, as food consumer researcher Giovanni Sagari says “We associate insects with everything but food. I mean with dirt, danger, with something disgusting, with something that makes us feel sick”. According to the European Consumer Association, only 10% of Europeans would be willing to replace meat with insects94. As a solution, most insect-based protein startups are grinding insects into powder to be used as ingredients.

The reason why insects are an attractive source of protein is that they are more efficient at converting their food into protein. According to the Food and Agriculture Organisation of the United Nations, crickets need six times less feed than cattle, four times less than sheep and two times less than pigs95. They also require an eighth of the land94, and 95% less water96. This is due to the fact they reach maturity quicker, and are cold-blooded, not requiring energy to maintain body temperatures. 

Nutritionally, crickets, the most popular edible insect, are almost 70% protein by dry volume97. Additionally, farming them does not require antibiotics, and because insects are so genetically dissimilar from humans, there is no risk of viral outbreak – in contrast to consuming mammals98. 

The insect-based protein market is small, with estimates of USD153M99 to USD303M100 in 2021. The key players are mainly selling insects as animal feed (fish) rather than consumer products. Aspire Food Group is one company expanding towards the market for human food, building a $90m production facility that will produce 10,000 tons of crickets a year, utilising IoT from Telus for precise farming conditions.

Because insects can be eaten whole with minimal processing, or in powdered form, they do not require complex machinery or processes, greatly saving on capital expenditure. Costs are thus mostly concentrated at the farming stage rather than at food manufacturing or retail. While it seems financially expensive to set up cricket farms, this is mainly due to the need for R&D. There are very few cricket feed suppliers, and little is publicly known about their ideal conditions for growth. There is lack of scale as it is a nascent industry, indicating available gains in economies of scale. Larger companies like Aspire are using IoT, but startups like Sens101 also have full-time R&D teams and are attempting to innovate using new farming methods like vertical farming. 

The largest barrier to scale is taste. Even with insect powder that lacks discernible taste, it is difficult to imagine consumers would purchase powder just to sprinkle into existing foods, and that such a use case would create sufficient demand for insect-based protein. Companies are trying to create replacement products such as flour, protein bars and protein shakes, but it remains to be seen whether this will catch on.

Cultivated Protein

Cultivated protein, also known as animal cell based proteins, are the result of growing animal cells in a nutrient-rich media in bioreactors102. Until recently, the media utilised foetal bovine serum (FBS),  a byproduct of harvesting cattle for the meatpacking industry. Until the recent boom in the search for alternative proteins, its use has been limited to academic research due to its prohibitive cost. However, the harvesting of FBS is deemed by many to be incredibly unethical, typically by way of cardiac puncture of foetuses without anaesthetic harvested from slaughtered pregnant cows. As a result, many are deeply invested in the search for a media without the use of animal products. 

In 2019, Mosa Meats succeeded in producing cultivated meat without the use of FBS, and published this paper103 in 2022 in Nature Food, creating a patented cell feed formulation. Given the exorbitant cost of FBS (USD400-900 a litre and a single burger patty took 50 L of serum), this new process managed to reduce the cost of media by 80x (cost of a single patty dropped from 330k for their first burger in 2013 to a projected USD10 in 2021)104,105. 

The cultured meat vertical has exploded in recent years, with over USD1.4B secured in 2021106 according to GFI, showing significant growth from past years as can be seen in the chart below. 

The fast rise in funding for alternative protein is reflective of the advantages that it provides if it is viable. A product with cultivated meat and fat is likely to be the most faithful reproduction of its unsustainable alternative in both taste and texture. If the final product can be done without FBS, it is also entirely ethical. In terms of nutrition, it would have the exact benefits of meat, without the risk of viruses, antibiotics or microplastic accumulation. It would also have no environmental requirements or be dependent on specific vegetable crops, and thus could be produced anywhere as long as the media and cells were available. 

In order to become a possible solution to world hunger, or a commercially viable product, 99 companies in 2022108 are racing to lower costs of production via further R&D and scale-up efforts. In addition to companies trying to directly produce meat, there are also those which are focussed solely on producing cheaper and more ethical media, such as biftek109.

Fermentation

Fermentation refers to a specific metabolic pathway used to generate energy in the absence of oxygen. In the alternative protein industry, fermentation is largely utilised in 3 ways110. 

1. Traditional fermentation utilises intact live microorganisms, creating products such as yoghurt, cheese and tempeh. 
2. Biomass fermentation uses the microbes to efficiently produce large quantities of protein, with the biomass itself becoming the consumable product. Examples of this are Quorn’s and Meati’s use of filamentous fungi. 
3. Lastly, precision fermentation uses microbial hosts as “cell factories” for producing specific ingredients, and are thus used at much lower levels than biomass fermentation. The microbes help improve the taste, texture and/or nutritional qualities of plant-based or cultivated meat. Examples include Perfect Day’s dairy proteins, Clara Foods’ egg proteins, and Impossible Foods’ heme protein.

The reason for using microbes is the same as insects in that they are more efficient at converting calories into protein than mammals or birds. Microbial proteins also benefit from being far-removed from humans genetically, and thus there is less risk of viral transmission. There are less ethical concerns, as most individuals are not particularly worried about the breeding, living conditions and death of bacteria or fungi. Finally, it is much more environmentally friendly, with one estimate from Nature stating that replacing 20% of beef consumption with microbial protein by 2050 would result in a 56% reduction in annual deforestation and associated carbon dioxide emissions111.

A significant advantage of using fermentation is that like cultivated proteins, there is virtually unlimited potential for variety, especially when coupled with biological synthesis capabilities in precision fermentation applications. There are a myriad of existing microbial species, meaning immense opportunities for novel alternative protein solutions, as well as ingredients that would augment existing or other protein products, such as creating specialised types of fat to enhance the taste of cultivated meat. This also means that fermentation is not necessarily a direct competitor to cell cultivation, and can be a complementary product should cultivated protein become the dominant choice in the future. 

Microbial Fermentation also experienced a large rise in funding in 2021, showing a similar growing interest in the field. GFI also conducted a state of the industry report, finding that in 2020, 51 companies focussed primarily on fermentation for alternative proteins, 21 of which use biomass fermentation and 23 use precision fermentation.

Similar to cultivated meat, a large barrier faced by fermented protein is cost, with few companies having publicly available products that they can already produce at scale. Its major cost driver is feedstock, which provides the nutrients to support these microorganisms’ growth. At present, the majority of fermentation relies on refined sugar114, as it has a long validated use in multiple uses of fermentation. 

However, the issue of feedstock is not as severe as that of cultivated meat’s issue with FBS, as sugar feedstock is sufficiently cheap and relatively abundant. The problem comes only with potential future scale-up, which would probably require diversification away from sugar. Companies are experimenting with waste products or agro-industrial byproducts, with GFI noting 3F Bio and Mycorena in Sweden using sustainable feedstock. Other startups, including Air Protein, leverage gaseous feedstocks, deriving energy from chemical reactions involving hydrogen, methane, or carbon dioxide gas. In addition, because there are such a variety of microorganisms, companies are also able to tap into a diverse range of unconventional feedstock.

There are also challenges in scalability, as increasing production when dealing with microbes is not straightforward. “Very large scale systems tend to be highly heterogeneous with several gradients (oxygen, food, shear,…) and, thus, require robust and tolerating cells”115.

Lastly, companies face issues with branding and product image, as consumers do not yet have a good understanding of modern fermentation processes. Perfect Day’s cofounder Ryan Pandya says “Because this is the first time in the history of dairy that actual cow’s milk proteins have been produced in something other than a cow, there’s understandable confusion”116. This confusion acts as a barrier to public acceptance, especially as microbes and fungi are not particularly enticing words when it comes to food. It remains to be seen how both brands and the industry vertical as a whole will be viewed, but a marketing push must occur to improve public perception of fermented protein117. 

Enhanced Farming Practices

Regardless of which alternative sustainable source of protein is used in the future, it is also clear that we have to improve the ways we produce food crops, as they are still instrumental inputs in plant-based, insect-based, cultivated and fermented proteins. In this sense, reducing the carbon footprint, water usage or land usage of traditional farming provides the dual effects of creating more environmentally friendly food as well as reducing the environmental cost of secondary protein production. 

Additionally, enhanced farming practices increases the productivity of its inputs, generating more food per gallon of water and acre of land, hopefully decreasing food costs by way of increasing supply, providing more inclusive access to food.

The last crucial need for enhanced farming practices is food security. By making crops and livestock more resilient to extreme weather events and pestilence, or in some cases even completely immune to environmental conditions, we enable the replicability of such food production systems anywhere in the world. Food supply chains will no longer be tied down by geographical restrictions, reducing the need for long distance shipments of food that can only be grown in certain locations. Decreasing reliance on foreign sources of food means that access to food will no longer be subject to geopolitical tensions and strife, as well as extreme climate conditions.

Agricultural Biotechnology

The field of agricultural biotechnology is not a new one, with the cultivation of high-yielding varieties (HYV) starting in classical plant breeding where early farmers simply selected plants with particular desirable characteristics and “employed these as progenitors for subsequent generations, resulting in an accumulation of valuable traits over time”118. 

In the modern era, agricultural biotechnology has grown in both breadth and depth, utilising gene editing techniques to precisely add desirable traits and remove undesirable ones, creating vaccines for crop and livestock diseases and harnessing the power of microbes to rehabilitate soil and protect crops from pathogens119. 

In the field of gene editing, progress in using CRISPR/Cas molecular scissors allow scientists to modify genetic information to improve yield, increase robustness to pests, disease and extreme climatic conditions. Research is being done to even remove genes that are responsible for the creation of certain parts of the plant, especially parts that are not crucial to agriculture (not edible)120. 

Prominent companies in this field include Caribou Biosciences, whose cofounder Jennifer Doudna received the Nobel Prize in Chemistry in 2020 for her work in CRISPR and is working with animal genetics company Genus to produce virus resistant pigs121.  Cibus is a “seed and trait”company that developed their own patent-protected gene editing platform RTDS or Rapid Trait Development System, which the EU referenced as one of few safe gene editing technologies. The novel seed and trait business model is one where companies develop and commercialise “gene edited Crop Protection Traits”122; traits can then be licensed to seed firms or the company can release these traits through their own varieties123. 

Biotechnology derived vaccines are safer than traditional (live-attenuated or viral-vectored) vaccines, as mRNA is non-infectious and poses no danger for DNA integration124. As widely proven in the SARS-CoV-2 vaccines, it is also effective. mRNA vaccines have been used in animals, with promising results in combating rabies, Zika and influenza125 . What is even more exciting is that RNA vaccines allow the prospect of plant vaccines, as while plants do not have adaptive immune systems like animals, researchers from the Institute of Biochemistry and Biotechnology in Germany found that RNA introduced into plants protected those plants from viruses126. However, these are not technically vaccines, and the RNA will only be effective until it biodegrades. 

Additionally, RNA can be used to improve agriculture in ways other than vaccines. RNA can be used in pesticides, since RNA degrades quickly in the environment and is extremely targeted, meaning that pesticides can be designed towards specific insects without risk of hurting those that are beneficial to the crops and humans. One startup in this field is GreenLight Biosciences, which closed a $102m Series D in 2020 and opened a large scale facility in New York in 2021 to mass produce RNA to kill the Colorado potato beetle and the Varroa destructor mite, which destroys beehives127. 

However, public opinion of genetically modified food or inputs is generally negative. A 2016 study by the Pew Research Centre found that 39% of Americans believe GMO foods are worse for one’s health, compared to only 10% who believe that GMO is good for one’s health128.

As a result, demand for such foods might not be strong unless there is sufficient public awareness and education regarding the health of GM foods.

Issues with costs are up for debate, as one Harvard study claims that developing a new GMO plant costs USD136m on average130. However, this study in the International Journal of Biotechnology estimates costs to be around USD1.4m to 1.6m131, which would make development of GM crops much more affordable by small startups. After development, production of the GM seeds is scalable, though at much higher prices than conventional seeds – BT corn for example costs $114 per acre to plant, as opposed to $65 per acre for conventional corn seeds.

However, a possible issue is that these favourable traits do not necessarily work forever. Infamously, the rootworm that the Bt corn was designed to fight off grew resistant to the gene132. Research found that a way to prevent this was to rotate the usage of Bt corn with other crops, so that the rootworms would not have the sustained exposure that allowed them to evolve. Regardless, such pest or virus related shortfalls have to be considered. Similarly, crops that may be able to survive a greater variability in temperature are still likely to perish in extreme weather conditions, and cannot be considered as the only solution to achieve food resilience.

Precision Agriculture (PA) Technologies 

Precision Agriculture Technology refers to the use of technology that allows for the conditions of agriculture to be varied and measured in such a granular way that data can be collected for the purposes of optimising crop productivity and resource use. It can increase crop yield and decrease wastage of inputs, allowing food production to become more efficient, and for farmers’ businesses to become more profitable. It would also prevent overuse of pesticides or underuse of fertiliser and soil degradation.

The main technologies involved are IoT or internet of things, where multiple sensors allow farmers to monitor a wide range of conditions and metrics, creating a way to study long term patterns and gain better visibility of the possible risks and decisions they need to make. The collection of vast amounts of data also makes the use of AI viable in aiding the decision making process. 

In the PA space, there are companies that produce IoT devices, such as sensors and drones, as well as software companies and those that directly use these technologies to produce food. One example is India’s Fasal, which has raised USD4m in pre-Series A funding, has helped farmers save 9 billion gallons of water, reduced pesticide expenditure by around 60%, and increased yields across 40,000+ acres of farmland133. Another involved in livestock is Bangladesh’s Stellapp, which digitalises the entire dairy supply chain, from IoT monitoring for cows to cold chain logistics. In 2021, it raised USD18m in a Series C to follow its 14m Series B round in 2018. There is also potential for general IoT companies to enter the agritech space. IoT developer platform unicorn Helium, has become a standard for which other company’s sensors can utilise for connectivity, including agriculture, with companies like Lonestar, Infisense and Lark Alert building compatible sensors on their platform. 

The main issue with most such solutions are cost (high initial cost), and farmers’ lack of education and expertise.

The high cost is a barrier for most farmers seeing as how purchasing sufficient sensors for large swathes of land can be prohibitive. Lux Research found that most farmers are very sensitive to changes in price and costs, especially with low commodity prices. For example, for corn, only farmers with over 2500 acres in land could afford to spend capital on sensors. However, when it comes to higher value density items such as premium grapes for wine making, farmers are more willing to make such expensive purchases, with the farm-size threshold sitting at 50 acres134. 

Additionally, there are also PA improvements that are not as costly to implement as sensors. New Zealand’s Biolumic studies plant phenotypes to determine specific “Light Signal Recipe”s that enable crops to grow at increased rates and even reduce pesticide use, just by installing lights in the fields. They recently raised USD13.5m in their Series B in 2022135. Nevertheless, what are considered affordable technologies in most developed nations are still out of reach for most of the smallholder farmers in developing countries.

Due to IoT being a new developing technology, many farmers are unfamiliar with its utility in the agricultural setting. This effect is compounded by the cost, causing risk-averse farmers to be wary of adopting sensor technology in their work. This study on the rationality of decision-making behaviour among US dairy farmers found that the largest barrier to the adoption of sensor technologies “were being unfamiliar with available technologies, expecting an undesirable cost-benefit ratio, and being provided with too much information without clear relevance for management”136. Additionally, studies have found that the majority of benefits from PA technology can be “realized only when the necessary skills and data are available”137. Hence, startups must provide demonstrable improvements in yield in order to convince potential customers, as well as simple, clear information and possibly education and training sessions so that farmers can truly utilise PA to its full potential. 

Controlled Environment 

Controlled Environment Agriculture refers to a system of agriculture where plants are grown in controlled environments to optimise horticultural practices. While not necessarily the case, these are typically used in conjunction with precision agriculture technologies such that the temperature, humidity and other related factors can be monitored and then altered. Similarly, this sector contains both startups that provide specific inputs or services for controlled environment farms, as well as those that aim to own the full tech stack and vertical, from the farming units to retail. 

The first controlled environment farms were greenhouses, providing protection from pests without using pesticides, as well as wind and frost. However, greenhouses still relied on natural sunlight, and are typically using only soil instead of hydroponics or aeroponics. 

The next wave of innovation in controlled environment farms are indoor farming techniques, which are completely enclosed, and typically use technologies such as hydroponics, aeroponics and vertical farming (note that the former two technologies can also be used in greenhouses). The key benefit of these controlled environment farms is their ability to be absolutely immune to environmental conditions. Sunlight that is out of human control can be replaced with UV lights that are tuned to specific frequencies that best suit the crops and can be left on 24/7 for faster growth. Not only are wasteful irrigation systems unnecessary, water condensation can be recollected. Even the composition of the air can be monitored and controlled138. 

Additionally, vertical farms are particularly promising because they offer 2 additional benefits. 

First, it solves the problem of land scarcity by stacking several rows of plants to save horizontal space, making agriculture possible even in dense urban areas. Vertical farming companies have managed to achieve the soil-agriculture yield of 360,000 square metres in just 5500 square metres139, resulting in an almost 99% reduction in land use. This would greatly reduce the amount of land needed to feed our growing population. 

Second, it also reduces the need for transport, as such centres can be built very close to cities that rely heavily on imported food from far flung rural areas or other parts of the world. Food transport currently accounts for 5% of the carbon emissions associated with food consumption140, and the need for complex and long supply chains.

The greatest downside to controlled agriculture is its high costs, both in CapEx and operating costs. Building a sealed environment and then changing the atmosphere requires a significant amount of equipment and energy. According to iFarm, LED lamps (65%), air conditioners (20%) and dehumidifiers (10%) account for 95% of electricity usage, while the remaining devices – pumps, controllers, water purification units – use less than 5%141. This report by an agriculture consultant, ex-CFO of a CPG and investment banker finds the following cost table.

With almost five times the cost of current conventional methods, and no material benefit to the consumer, only those who place a significant importance on sustainability would choose to purchase goods grown with controlled environment methods. What’s more is that the above costs are already accounting for economies of scale, as the vertical farm in question is a 70,000 square foot facility operated by one of the largest vertical farm companies worldwide, Aerofarm of the United States of America, and the hydroponic greenhouse is a 280,000 square foot greenhouse operated by Brightfarms. Both facilities produce in the range of 2 million pounds of produce a year.

In this vertical, the above-mentioned Aerofarm has raised USD100m in their Series E in 2019 and 40m and 35m in their Series D and C rounds prior143. They are an aeroponics-based vertical farmer that has received investment from New Jersey’s Economic Development Authority and the Abu Dhabi Investment Office. BrightFarms is a hydroponics greenhouse farmer that has also raised USD100m in their Series E in 2020, and 55m in their Series D143. 

One new development in this space is growing vegetables in retail spaces. Aerofarm has hinted at the possibility of expanding into this business model, but this is currently being done by Infarm, a company that provides small vertical indoor hydroponics units that can be placed virtually anywhere so that produce can be harvested fresh where the consumers are, further reducing the need to transport food. Infarm has raised USD200m in their Series D, after USD170m and USD100m in their Series C and B rounds respectively, with the Qatar Investment Authority being one of their investors144.

While companies that grow their own produce and sell them to retail like Aerofarm, BrightFarms and Infarm tend to have the higher valuations, there are startups who specialise in a specific part of the techstack or supply chain. Artemis, regarded as the “leading enterprise Cultivation Management Platform (CMP)”, focuses on the software behind indoor farming and the data collection and analysis that helps such farms improve their processes. It was acquired by iUNU, an Agtech company that provides consultancy services, computer vision technology as well as crop insurance and offering financing to controlled environment farms, for an undisclosed amount in 2021145.

As we can see, the controlled environment vertical is one with many opportunities for technological innovation. With its replicability and scalability, it is prime for venture capital investment, especially considering its attractiveness to vested interests such as sovereign wealth funds and governments. While its unit costs might be high due to CapEx, as the cultivation process becomes optimised with data and inputs become cheaper with scale, the benefits of controlled environment agriculture cannot be ignored as land becomes scarcer and climates become less predictable, leading many to believe it is poised to be the farming medium of the future.

Boosting Pasture Productivity

Boosting pasture productivity involves activities such as fertilisation of pastures, rotational grazing, feed quality and veterinary care. Pasture fertilisation results in both greater yield and prevention of soil degradation over time. Rotational grazing prevents overgrazing, which leads to soil erosion and land degradation as well as improperly fed livestock. Livestock require nutrition to grow, and insufficient nutrition or improper feed can cause health issues or sub-optimal growth. Veterinary care is crucial to allow early detection of health issues and quick medical attention in order to prevent livestock mortality, which is both a waste of resources and immoral should disease cause unnecessary suffering to the animal. Animal health is also reportedly the number 1 cause for low milk production in the dairy industry. 

While these may seem like more in line with traditional farming methods that are not suited to monetisation and further innovation, there are in fact startups that are digitising such processes and even integrating them with precision farming devices. 

In the field of rotational grazing, True North Technologies’ Grasshopper146 system utilises a sensor unit, a plate meter and a data visualisation mobile app to allow farmers to determine the readiness of a paddock for grazing, as well as identify poorly performing paddocks for future . Vence is a company that utilises GPS and IoT devices to control livestock movement with audio cues, allowing the farmers to save costs on physical fences and labour for having to move the fences when grazing is to be rotated. 

In the field of feed quality, Pure Cultures is a BioTech company that is developing prebiotics and probiotics using natural supplementation as agricultural laws begin to crack down on chemical use. Insect protein is also gaining popularity as livestock feed, particularly for aquaculture with companies such as InnovaFeed (backed by Temasek in a $140m round)147, Nasekomo and Hexafly using more sustainable methods to increase protein intake for livestock. As a bonus, insects can also be fed food that would otherwise go to waste, making this a circular economy play as well. 

In the field of livestock healthcare, the Netherlands’ Connecterra’s IoT motion sensor and AI algorithm helps dairy farmers monitor the health and well-being of their herds. It allowed farmers to detect issues reportedly 2 days earlier than any symptoms visible to the human eye would appear, resulting in a 50% decrease in antibiotic use148. Connecterra has raised USD8.8m in their 2020 Series B. The US’ Farrpro specialises in creating products for the perfect environment for pigs, with heating and cleaning solutions, activity trackers and a data dashboard to ensure healthy growth and reduce disease. 

As synthetic fertilisers contribute to greenhouse gases, many startups are also innovating to create natural, sustainable fertilisers that can accelerate crop growth and prevent soil degradation.  Pivot Bio uses microbes to create nitrogen, and their fertilisers are already cost competitive with existing products, earning them a US430m Series D round  led by DCVC and Temasek149. 

Clearly, there is still room for productivity and sustainability improvements in traditional agricultural practices. While some may say that the food of the future will no longer be soil-based (and thus require no fertiliser) or no longer use animal meat, it seems that that future is still far from reach. We cannot place all our hopes on a handful of far-off technologies, and such advanced “stop-gap” measures can help us alleviate several pain points in traditional architecture in the meantime. 

Nevertheless, given that certain practices might be overhauled entirely in the future, it is crucial that startups offering such solutions and products be aware that farmers, food producers and investors are also highly cognizant of this. As such, technology that focuses on traditional agriculture cannot be high-cost capital expenditure that would deter forward-looking and risk averse stakeholders. This is a possible reason for the success of Pivot Bio in fundraising and sales despite VCs simultaneously placing faith into vertical farming, hydroponics and aeroponic technologies.

Reduce Enteric Fermentation

Cows are responsible for 40% of the world’s methane emissions150. Considering that methane traps more than 25x more heat than carbon dioxide151, reducing the amount of methane produced is paramount to slowing global warming. However, the world’s demand for beef is only increasing, and the possibility of convincing consumers to stop for the environment is slim. Thus, scientists have found ways to reduce enteric fermentation, the process by which microbes in the digestive tract of ruminants (cows, sheep, goats and buffalo) ferment food and produce methane as a by-product.

There are 2 main technologies that target reduction in enteric fermentation: feed strategies and wearables.

Feed strategies refer to innovative feed ingredients that reduces methane emissions from enteric fermentation. These ingredients range from seaweed to garlic and citrus extract. Additionally, an important part of these feed strategies is having to ensure that the taste of the milk or meat produced is not affected by the novel ingredients introduced in their feed, otherwise farmers would be deterred. Mootral, which has raised USD7.6m in a corporate round after 3m in venture capital and 2.4m in equity crowdfunding, promises that its $50 per cow per year feed supplement causes a 38% reduction in methane and no effects on the taste of the cow. Another startup, Symbrosia raised USD7m in a Series A and states that their seaweed-based feed additive can achieve an 80% methane reduction, while costing more at 80c to $1.50 per animal per day152. 

Wearables are smart electronic devices that go over a cow’s nose to filter the methane released and turn it into carbon dioxide, which is at least a relatively better option. This is effective as as much as 95% of methane created from enteric fermentation is released as burps153. The main advantages of wearables are that they can monitor methane emission, and be used in conjunction with feed strategies to further reduce emissions. Monitoring the eventual emissions is important because farmers can then use these numbers to produce carbon credits that can help offset the additional cost of feed or wearables.

One example design, created and manufactured by Zelp154, is placed above cows’ mouths. Once the wearable is in place, a set of fans powered by solar-charged batteries draws up the burps and traps them in a chamber with a methane-absorbing filter. When the filter is full, a chemical reaction turns the methane into carbon dioxide, which is then released into the air.

The main issue with enteric fermentation reduction solutions is that there is simply no business case for them until countries adopt carbon markets, and specifically agricultural carbon markets. Few farmers would be willing to take additional costs and more importantly, additional risk of getting their livestock unwell or having their meat taste different, for no conceivable commercial benefit. Likewise, few consumers are likely to pay extra to share this additional cost burden with farmers if there are no obvious taste or health benefits. Only when the authorities begin to monitor agricultural carbon output and quantify the reduction in greenhouse gas emissions that can be achieved through these solutions will farmers begin to see the merits of these solutions. 

Nevertheless, feed solutions can actually be quite cost-effective, meaning that while they may not present material benefits in the immediate term, they also do not move the needle in terms of cost, making them viable for the sustainability-inclined farmer. For startups, a possible strategy is to qualify for government subsidies, making them a costless alternative to traditional feed for farmers. This is not an outrageous strategy by any means, considering major agricultural countries have long subsidised the livestock industry, with the most recent headliner being Russia’s approval of a $150m subsidy on cattle feed155. 

Decreasing Food Waste

One-third of the world’s food is wasted globally, accounting for 1.3 billion tonnes and approximately $1 trillion per year. That is a number sufficient to feed 2 billion people, or twice the number of undernourished people in the world156. Food waste represents a social cost when we consider the billions we could feed, and an economic cost when we consider the wasted investment, labour and resources that went into uneaten food, representing lost wages for farmers. But the environmental cost is large as well; the WWF estimates that 6-8% of global GHG emissions could have been avoided without food waste, when we consider the energy and water used to grow it, as well as the transportation of uneaten food and the additional GHG emissions while wasted food rots157. 

While many consider food waste as mainly that which consumers have discarded rather than eaten, there are two categories of food waste, according to the Harvard School of Public Health158. 

1. Food “loss” occurs before the food reaches the consumer as a result of issues in the production, storage, processing, and distribution phases.
2. Food “waste” refers to food that is fit for consumption but consciously discarded at the retail or consumption phases.

In developing countries, over 50% of waste occurs at the handling, processing and distribution stages, while in developed countries, more than 50% of waste occurs at stage 2, consumption.

According to the World Food Programme, lack of skills to handle and store harvested crops is one of the biggest challenges smallholder farmers face160. Even in larger habitations with more capable farms, lack of cold storage means rotting produce and poor roads mean less excess food can make it to those who need it. Notably, India loses 30-40% of its produce because retail and wholesalers lack cold storage161. And according to McKinsey, India is not alone, with 40% of all food loss occurring in the post-harvest agricultural supply chain, with numbers being even higher in developing economies in Africa, Asia and Latin America162.

Food wasted at the post-production stages incur a cost for food distributors, while food wasted at harvest incurs a cost for farmers. As a result, solutions to food wastage pre-consumer are inherently revenue generating, meaning that the crucial factor is the cost of implementation. The following solutions: packaging innovations and coatings, upcycling food and logistics innovations all incur some level of cost, and as a result startups in these verticals must understand the unit economics of their customers – how much waste must a solution prevent in order to make the cost tolerable? 

Food wasted at the consumer level is more difficult. There is no monetary benefit to a consumer who has already spent the money to buy the food, and too late realises that the food has spoilt due to improper storage conditions or gone over the expiry date, or they have simply purchased or prepared too much food. It might be possible for business model innovations to somehow monetize reduction of food wastage, but a more conceivable solution is for food upcycling or recycling services to be as convenient and cost-free to the consumer as possible. Otherwise, proper trash disposal habits have to be inculcated, such as in Korea, where in 2005, dumping food in landfill was banned, and in 2013 the government introduced compulsory food waste recycling using special biodegradable bags163.

Packaging Innovation and Coatings

Packaging Innovation and Coatings typically attempt to reduce food wastage after the 3rd stage: processing and packaging, where such packings are used and coatings are applied. These innovations can protect the food, delay ripening, rotting of produce and spoilage of meat. 

Due to the complex supply chains that facilitate the international movement of food from producer to distribution centre to consumer, freshly harvested food can be exposed to the environment for extended periods of time before being on the plate of the end consumer. Additionally, food can be damaged or wasted due to poor handling, such as spillage, stacking and packing force or storing food at improper temperatures and humidities. Packaging innovations can reduce these problems.

For example, Amcor’s Eco-Tite R164 is a PVDC-free and fully recyclable shrink bag, which is designed to maximise shelf-life, maintain food safety and reduce food waste. Amcor is a publicly listed global packaging company, which illustrates the possible exit opportunities and customers that startups in this space can have.The US’ Hazel Technologies165 raised $70m in their Series C in 2021 with a packaging insert that inhibits ethylene, which plants produce as they age, and recently set up an APAC HQ in Singapore with funding from EDBI. Hazel estimates that by Q4 2022, its products will be used with over 5.7m pounds of fresh produce. 

One additional concern is the use of single-use plastics, which harms the environment directly due to its non-biodegradability, as well as indirectly due to having to remove such packaging from the wasted food if the food is to be disposed of properly. The process of removing food waste at an industrial scale can be expensive in terms of money and energy166. Innovation in the fields of reusable and recyclable food packaging is brewing to reduce the prevalence of single-use plastics in our food system. 

Companies that provide such goods or services include Norway’s government-backed Packoorang167, which provides circular, returnable packaging as a service as well as a reusable pallet wrapper, Singapore’s own BarePack168 which offers silicone or steel food containers for food delivery which consumers do not have to wash and can return to 150+ outlets or use their home pick-up services. The UK’s CLUBZERO169 is similar, providing reusable takeaway boxes that can then be returned or picked up for future use. 

One interesting example is Chile’s Algramo170, which attempts to reduce wastage at the consumer level. It sells reusable, refillable, smart packaging with RFID technology and has refill dispensers that recognise the smart packaging. Working with Unilever and Nestlé, Algramo’s technology can be applied not just to food, but any consumer packaged goods. 

Our current state of food supply chains already implement many innovations to combat food waste, from basic packaging to cold chain storages. However, there is room for improvement. For example, “Intelligent Packaging” is defined by the European Food Safety Authority as “materials and articles that monitor the condition of packaged food or the environment surrounding the food”171. These solutions tend to use a multitude of technologies, from sensors to RFID tags. As the largest hurdle is that devices such as IoT sensors are expensive and usually reserved for high value density items, startups aimed at the food logistics sector have to utilise such technology in a very cost-effective manner. 

Examples of products in this space include Innoscentia’s IoT sensor172 that monitors food status and shelf life in a dynamic way. They have partnered with Ynvisible, a dynamic display label startup, to create dynamic expiry date labels for food products, that are also RFID enabled to connect to smartphones and digital systems. This allows producers and distributors to safely store a large number of products without using a static expiry date that comes with a large safety margin, and consumers to more accurately know the real expiry date at purchase.

In order to eliminate the widely used plastic packaging used to protect produce from the environment, food coatings can be sprayed, dipped or brushed on produced to prevent or slow down gaseous diffusion. These also have the additional benefit of not requiring specialised capital machinery or skilled staff to package goods. 

For example, Nabaco’s Natuwrap uses natural polymers and a natural clay nanoparticle that self-assemble into a structure which acts as a barrier to the exit of water and the ingress of oxygen, while only being 1-3 microns thick and adds no taste, odour or change in colour173. Thailand’s Eden Agritech develops similar products that work not just for fresh fruit but cut fruit as well174. 

Such products are not only cost-effective, they are also easily utilised at multiple stages: harvest, post-harvest, distribution and at retail centres. This means that there is a large possible customer base, depending on the customer’s individual supply chain circumstances. If a farmer finds they lose some produce because they have to wait an extended period before delivery to a distributor/packager/consumer, they can apply the coating. The same applies if a distributor realises that they will have excess inventories for longer than usual or a retail supermarket finds their produce sitting unsold.

Food Logistics

Considering that a majority of food waste occurs in between harvest and consumption, improvements in the supply chain are undoubtedly necessary for the reduction of food waste. After all, it is impossible for all food consumption to be limited to one’s local farmer’s markets, or even just domestic production. Complex, international logistics are and will still be necessary for food.

In 2014, a study was done on the Norwegian food supply chain, which is burdened by long travel times due to the existence of many fjords, intermittent road and bridge transportation halts in winter, and the use of ferries175. The study first categorises food into 2 types: products with fixed shelf life and those with age dependent deterioration rates. For example, canned food would be in the former and fresh vegetables in the latter. They also split the stages into in-warehouse, transportation, pre-store rejection, and in-store food waste.

As we can see, most of the food wastage results from the same reasons. The researchers found that in warehouses, low visibility of inventory leads to high safety stock levels to prevent stock outs. This increases the number of fixed shelf-life goods with low remaining shelf life due simply to being unable to clear stock. For products with age dependent deterioration rates, this issue is compounded by the fact that there are no clear expiration dates to use for planning purposes. 

At the pre-store rejection stage, wholesalers or stores do not consider the eventual remaining shelf life of the goods ordered after the goods are placed at temporary waiting areas. They do this because stores tend to lack automated forecasting or inventory systems, and order goods imprecisely. Food then has a reduced shelf life or has deteriorated due to improper conditions and ageing by the time it reaches the store.

In-store food waste is where information about current stock levels and expiry dates are checked manually and forecasts are done based on experience, resulting in the lack of precision in the pre-store rejection stage. 

Inappropriate handling in transportation, as well as in the warehouse stage, refers mainly to when pallets are organised before loading in temporary areas, and during loading in the trucks. In these periods, temperature sensitive goods are placed against the isolated partition panel between 2 temperature zones or against outer walls, exposing products to inappropriate temperature levels. This issue is exacerbated for longer delivery routes.  

Therefore, the researchers have boiled it down to 4 underlying causes: planning decisions, data utilisation, execution of plan and damaged products. 

Looking at the above table, startups can help reduce human error in planning via improved data collection methods such as using RFID or similar trackers, improved data visibility via ERP systems and data dashboards, improving forecast accuracy via use of AI and other data analytics and prevent handling errors using temperature sensors to monitor the condition of the food pallets. 

In the data collection and tracking vertical, there are startups like China’s Maka RFID, which offers RFID smart labels (that can be embedded in objects like cable-ties) for time-sensitive food products and analytics algorithms to reduce spoilage and misplacement by identifying freshness issues in the transportation process. Germany’s Asynos goes against the grain of reusable packaging, and promises a disposable “1c IoT for trillion dollar supply-chain losses”, and provides a complete tech stack to create a digital twin to reduce food loss. 

In a much more specialised niche is Nanolike, a real-time silo monitoring solution that helps to simplify inventory and order management processes for farmers177. The traditional method of checking silo levels is for a worker to climb to the top of each silo and visually estimate how much was left, and forecast when to order more feed. Such an innovation would save them labour and time, and provide valuable data for the farmer to estimate costs and make better planning decisions  as well as to feed producers who can provide automatic replenishment and vendor-managed inventory. This shows that such solutions are not limited to warehouses and distribution centres, but can be useful to any business that has to monitor inventory levels. 

A company that is improving data visibility in the field of food transportation is publicly traded Samsara, which raised 700M in their Series F before their IPO resulting in a greater than $10B valuation in 2021178. They have created a platform for real-time visibility, cold-chain monitoring as well as compliance and driver safety, providing the sensors as well as the data monitoring dashboard to allow distributors to make better decisions in planning and reduce spoilage.  Another is foodlogiq, now a customer of Whole Foods, Chipotle and Five Guys. that provides a supply chain transparency software focussed on food safety, sustainability and traceability. It has achieved a 90% reduction in time to locate tainted food, thus reducing waste during product withdrawals by 30-50%, and has raised $33m in its Series B179.

In the space of improving forecast accuracy, one company, Wasteless, uses an AI pricing engine to dynamically change prices of perishable goods as they near their due dates180. It tracks inventory data and expiry dates, while learning consumer behaviour for that specific store in order to markdown prices in a principled and rigorous manner, much unlike how store managers eyeball stock levels and reduce prices with guesswork. 

The main advantage of such companies is that at large scale logistical operations, it almost always makes fiscal sense to reduce waste. As network availability increases and IoT devices become even cheaper to implement, the sheer amount of data that can be collected in order to increase visibility and better optimise processes makes such solutions very appealing and viable. 

However, the issue with such solutions is that they are not suitable for regions which lack sophisticated supply chains, distributors or wholesalers. Recall that the issue of food wastage in the logistics chain is particularly bad in developing countries, where there is even a lack of refrigeration and road infrastructure, let alone cold chain transportation. This means that where these solutions are needed the most are also the regions which lack the sophistication needed to implement them. Regardless, these solutions would go a long way to reducing food waste in developed countries. 

Upcycled and Recycled Food

Regardless of how we improve the way we package and transport our food, we cannot reduce food wastage to zero. Food wastage can be recycled, whether in the form of compost or more recently, as feedstock for insect farms. They can also be upcycled, by startups using innovative methods to turn undesirable food waste into other food products, or even into other materials.

Due to its relative novelty, there is no single definition of upcycled foods. The Denver-based Upcycled Food Association defines it as “”Upcycled foods use ingredients that otherwise would not have gone to human consumption, are procured and produced using verifiable supply chains, and have a positive impact on the environment.”181

The advantage of such startups is that obtaining the raw material tends to be cost-effective, especially if they can be collected from large food manufacturers and distributors. Some collect the food waste from retail centres or even direct from consumers, which would be more time consuming and more logistically difficult. Food producers and farmers are able to sell more of their product, not just discard those that are aesthetically lacking, and food businesses will be able to create more products from the same ingredients. 

Many low-hanging fruit with simple processing methods have already been picked. WTRMLN WTR, that raised $3.8m in venture funding before exiting via acquisition by another juice company, simply took misshapen and cosmetically imperfect watermelons and turned them into juice182. Matriark Foods has raised 400k and takes farm surplus and fresh-cut remnants and turns them into vegetable stock concentrate. 

Others utilise more complex methods to extract value from what is otherwise discarded. Austria’s Kern Tec processes fruit pits, a completely unavoidable food waste, and turns them into edible products, such as the seeds themselves, food and cosmetic oils, protein powder and baking flour and many more183 Comet Bio from the US, which has raised $22m in its Series C in 2021, uses a proprietary process to turn agricultural leftovers from farms into many different products such as prebiotic dietary fibre, sugar syrup alternatives and livestock feed supplements.

However, when it comes to food products that utilise upcycled waste, there is the possibility that consumers might not view this as particularly appetising. In fact, this study finds that people have a decreased willingness to pay for upcycled food compared to conventional alternatives184, and that that effect decreased with rational messaging, but not with emotional messaging. This means that startups in this vertical can consider diversifying into products that are not directly consumed by humans, such as feed for animals or as ingredients rather than finished food products, or entirely non-food products, and that startups that do create foods for the consumer have to consider marketing the objective health and environmental benefits. 

For example, Germany’s Wood K Plus is experimenting using corn cobs to create lightweight walls, doors and furniture. A Thai company Kokoboard uses waste material from sunflower crops to produce boards from rice straw, peanut shells and rice husks for floors, ceilings and internal walls. Qwstion, a Swiss brand, has created BANANATEX, a durable fabric made from banana plants185.  

Additionally, it is difficult to imagine that individuals would be willing to pay a higher price for goods made from conventionally undesirable or inedible food waste than for the original good itself. However, obtaining said waste or byproducts, on top of the additional logistics and proprietary processing does not come cheap. This could indicate that the profitable products would be high value items that can command high prices or products created with cost-effective processes. 

Marketplaces

Marketplaces attempt to reduce food waste directly at the retail level, by sourcing produce that grocers or F&B businesses would otherwise reject or be unable to sell due to being misshapen, damaged or close to expiry: what is known as “suboptimal” food. The reason for needing a 3rd party platform for these sales is that retailers do not want to be seen selling produce that is aesthetically lacking, or goods nearing the end of their shelf life, and do not want to risk getting customers sick. By positioning themselves as eco-friendly, food waste reducing companies, their customer bases are specifically individuals who do not mind produce that might be misshapen or ugly, and are willing to take the risk of consuming out-of-date foods. 

Such marketplaces have the distinct advantage of aggregating goods that individual farmers and producers might not otherwise be able to sell, and market them towards the exact customer base that would be willing to take them. They also do not suffer from the same worries as conventional food businesses about loss of reputation. 

From a food waste perspective, this is also a better solution than upcycling for foods that are edible and only suffer from aesthetic defects. Upcycling is then perhaps a better solution for food waste that is unavoidable. Financially, this does not require the same amount of capital machinery that upcycling does, thus reducing cost and logistics, while selling goods that are still familiar to the average consumer, rather than derived powders or oils.

One such startup, Misfits Market has rescued more than 170 million pounds of food in 2020 alone, selling anything from vegetables to meat to pantry staples, and raised $425m in their Series C in 2021186. They work directly with farmers and food producers so as to rescue conventionally undesirable foods at the earliest possible time, and offer them to customers at up to 40% off grocery store prices. Another startup, UK’s Too Good To Go also sources from retailers and restaurants. They saved 52 million meals in 2021 alone, raising $45m in the same year187.  

However, the fact is that these “rescued” foods are rejected by wholesalers or retailers for a reason. Consumers are picky with what they buy, and the sustainability-conscious individuals who would pay for goods that no one else wants are by definition a minority. If the mainstream consumer were accepting of aesthetically damaged or soon expiring goods, then savvy wholesalers or retailers would be selling those goods as well.

According to this study188, the greatest consumer barriers to purchasing suboptimal food are “abnormal appearance” and “approaching expiration date”, both of which are what defines suboptimal food in the first place. What is more damning is that “many consumers even remained reluctant to choose SF after tasting fruits with blemished appearance that were objectively optimal in taste”189. This indicates that consumers are not simply unaware of suboptimal food’s qualities (that they still taste identical and are safe to consume), but that the aesthetic quality of produce is inherently desirable. This serves as yet another barrier to such marketplaces. 

Additionally, as it stands right now, the only barrier to entry or moat for these sustainable surplus or food waste marketplaces are that they target a niche market that is undesirable for mainstream retailers. If their marketing is successful in increasing the number of consumers that are willing to pay for “rescued” food and the market becomes large enough, existing food retailers can easily move into the same space and offer the same products. 

In order to improve their moat, suboptimal food marketplace companies have to create a public image of food safety and reliability. If they can convince consumers that they have a QC process that is perhaps more stringent than what mainstream retailers can provide, or that they have first pick of suboptimal food at the wholesale or even farm level, then they would have a strong competitive advantage that existing competitors would have to surmount.

---

Evaluation and Conclusion

This paper aims to elucidate on the current conditions and viability of various innovative technologies and business models that, with private sector support and investment, can scale to solve hunger globally. The analysis done above can be summarised as follows.

Food and agriculture form a key pillar in the support for all human life. As technology advances in all aspects of humanity, entrepreneurship needs to be the guiding force that augments such developments into forces that will benefit mankind at large. This research paper is by no means a definitive rulebook, because the combined potential of human ingenuity and entrepreneurship is boundless.

---

Citations

1. Poinski, M. (2022, February 17). Food Tech saw $39.3B in VC Investments last year, says Pitchbook. Food Dive. Retrieved July 6, 2022, from https://www.fooddive.com/news/food-tech-saw-393b-in-vc-investments-last-year-says-pitchbook/618916/#:~:text=For%20products%2C%20ingredients%20and%20R%26D,adding%20up%20to%20%2414.3%20billion
2. World Bank Open Data. (n.d.). Retrieved July 6, 2022, from https://data.worldbank.org/indicator/SP.POP.TOT
3. World Health Organization. (n.d.). World hunger is still not going down after three years and obesity is still growing – UN report. World Health Organization. Retrieved July 6, 2022, from https://www.who.int/news/item/15-07-2019-world-hunger-is-still-not-going-down-after-three-years-and-obesity-is-still-growing-un-report#:~:text=More%20than%20820%20million%20people%20are%20hungry%20globally&text=This%20underscores%20the%20immense%20challenge,the%20World%20report%20released%20today.
4. United Nations. (n.d.). Losing 25,000 to hunger every day. United Nations. Retrieved July 6, 2022, from https://www.un.org/en/chronicle/article/losing-25000-hunger-every-day
5. World hunger: Key facts and statistics 2022. Action Against Hunger. (2022, April 14). Retrieved July 6, 2022, from https://www.actionagainsthunger.org/world-hunger-facts-statistics#:~:text=About%20690%20million%20people%20globally%20are%20undernourished
6. SDG goal 2: Zero hunger. UNICEF DATA. (2021, February 24). Retrieved July 6, 2022, from https://data.unicef.org/sdgs/goal-2-zero-hunger/#:~:text=Worldwide%2C%20nearly%20half%20of%20all,5.6%20per%20cent%2C%20were%20overweight.
7. $160 billion: The Health Costs of Hunger in America. Hunger Report 2020. Better Nutrition, Better Tomorrow. Bread for the World Institute. (n.d.). Retrieved July 6, 2022, from http://www.hungerreport.org/costofhunger/
8. Holt-Giménez, E., Shattuck, A., Altieri, M. A., Herren, H., & Gliessman, S. (n.d.). We already grow enough food for 10 billion people … and still can’t end … Retrieved July 6, 2022, from https://www.researchgate.net/publication/241746569_We_Already_Grow_Enough_Food_for_10_Billion_People_and_Still_Can’t_End_Hunger
9. worldbank.org/en/news/feature/2016/02/25/a-year-in-the-lives-of-smallholder-farming-families#:~:text=There%20are%20an%20estimated%20500,less%20than%20%242%20a%20day.
10. Marie, A. (2022, May 17). Addressing the digital divide for Smallholder Farmers. ALI Social Impact Review. Retrieved July 8, 2022, from https://www.sir.advancedleadership.harvard.edu/articles/addressing-digital-divide-for-smallholder-farmers
11. Dahlman, R. L. A. N. D. L. A. (n.d.). Climate change: Global temperature. Climate Change: Global Temperature | NOAA Climate.gov. Retrieved July 8, 2022, from https://www.climate.gov/news-features/understanding-climate/climate-change-global-temperature
12. Environmental Protection Agency. (n.d.). EPA. Retrieved July 8, 2022, from https://www.epa.gov/climate-indicators/climate-change-indicators-us-and-global-precipitation
13. Greenough, G., McGeehin, M., Bernard, S. M., Trtanj, J., Riad, J., & Engelberg, D. (2001, May). The potential impacts of climate variability and change on health impacts of extreme weather events in the United States. Environmental health perspectives. Retrieved July 8, 2022, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1240666/
14. Zhou, Y., Shan, Y., Guan, D., Liang, X., Cai, Y., Liu, J., Xie, W., Xue, J., Ma, Z., & Yang, Z. (2020, September 15). Sharing tableware reduces waste generation, emissions and water consumption in China’s takeaway packaging waste dilemma. Nature News. Retrieved July 8, 2022, from https://www.nature.com/articles/s43016-020-00145-0
15. Ritchie, H., & Roser, M. (2020, January 15). Environmental impacts of food production. Our World in Data. Retrieved July 8, 2022, from https://ourworldindata.org/environmental-impacts-of-food
16. Trade wars are huge threats to food security. UNCTAD. (2020, January 22). Retrieved July 8, 2022, from https://unctad.org/news/trade-wars-are-huge-threats-food-security
17. Watts, M. J., & Bohle, H.-G. (n.d.). The space of vulnerability: The causal structure of hunger and famine. Retrieved July 8, 2022, from https://www.researchgate.net/publication/248018431_The_Space_of_Vulnerability_The_Causal_Structure_of_Hunger_and_Famine
18. Messer, E., Cohen, M. J., & Marchione, T. (n.d.). Power-sharing and peacebuilding in Burundi. Retrieved July 8, 2022, from https://medialibrary.uantwerpen.be/oldcontent/container2143/files/DPP%20Burundi/Ethnicit%C3%A9/Partage%20du%20pouvoir/Falch%20and%20Becker%20(2008)%20Power-sharing%20and%20Peacebuilding%20in%20Burundi%20(CSCW%20Paper).pdf
19. Cohen, M. J., & Pinstrup-Andersen , P. (n.d.). Food security and conflict – JSTOR. Retrieved July 8, 2022, from https://www.jstor.org/stable/40971318
20. Malthus, T. R. (n.d.). An essay on the principle of population. Retrieved July 8, 2022, from http://www.esp.org/books/malthus/population/malthus.pdf
21. Cohen, M. J., & Pinstrup-Andersen , P. (n.d.). Food security and conflict – JSTOR. Retrieved July 8, 2022, from https://www.jstor.org/stable/40971318
22. Global $727.86 billion ethical food markets, 2015-2020, 2020-2025F, 2030F. Global $727.86 Billion Ethical Food Markets, 2015-2020, 2020-2025F, 2030F. (2021, May 12). Retrieved July 8, 2022, from https://www.prnewswire.com/news-releases/global-727-86-billion-ethical-food-markets-2015-2020–2020-2025f-2030f-301289793.html
23. Lea, E. J., Crawford, D., & Worsley, A. (2006, February 1). Public views of the benefits and barriers to the consumption of a plant-based diet. Nature News. Retrieved July 8, 2022, from https://www.nature.com/articles/1602387
24. Megido, R. C., Gierts, C., Blecker, C., Brostaux, Y., Haubruge, É., Alabi, T., & Francis, F. (2016, May 6). Consumer acceptance of insect-based alternative meat products in western countries. Food Quality and Preference. Retrieved July 8, 2022, from https://www.sciencedirect.com/science/article/abs/pii/S095032931630091X
25. Macdiarmid, J. (n.d.). Seasonality and dietary requirements: Will eating seasonal food … Retrieved July 8, 2022, from https://www.researchgate.net/publication/263970775_Seasonality_and_dietary_requirements_Will_eating_seasonal_food_contribute_to_health_and_environmental_sustainability
26. James MacGregor, B. V. (n.d.). “fair miles”? the concept of “food miles” through a sustainable development lens. Publications Library. Retrieved July 8, 2022, from https://pubs.iied.org/11064iied
27. Hughner, R. S., McDonagh, P., Prothero, A., Shultz, C. J., & Stanton, J. (2007). Who are organic food consumers? A compilation and review of why People Purchase Organic Food. Journal of Consumer Behaviour, 6(2-3), 94–110. https://doi.org/10.1002/cb.210
28. Hoek, A. C., Luning, P. A., Stafleu, A., & de Graaf, C. (2004). Food-related lifestyle and health attitudes of Dutch vegetarians, non-vegetarian consumers of meat substitutes, and meat consumers. Appetite, 42(3), 265–272. https://doi.org/10.1016/j.appet.2003.12.003
29. Delgado, C. L. (2003). Rising consumption of meat and milk in developing countries has created a new Food Revolution. The Journal of Nutrition, 133(11). https://doi.org/10.1093/jn/133.11.3907s
30. Investing in nutrition – 1,000 days. (n.d.). Retrieved July 11, 2022, from https://thousanddays.org/wp-content/uploads/Investing-in-Nutrition-The-Foundation-for-Development.pdf
31. Kene-Okafor, T. (2021, September 16). Nigerian agritech startup Releaf secures $4.2M to scale its food processing technology – TechCrunch. TechCrunch. Retrieved from techcrunch.com/2021/09/15/nigerian-agritech-startup-releaf-secures-4-2m-to-scale-its-food-processing-technology/
32. Tolaram-led funding raises over US$700,000 for food-tech startup Shandi. Businesstimes.com.sg. (n.d.). Retrieved July 11, 2022, from https://www.businesstimes.com.sg/companies-markets/tolaram-led-funding-raises-over-us700000-for-food-tech-startup-shandi
33. Neo, P. (2021, September 7). From noodles to alt protein: Tolaram signals new asia approach after decades of African domination. foodnavigator. Retrieved July 11, 2022, from https://www.foodnavigator-asia.com/Article/2021/09/07/From-noodles-to-alt-protein-Tolaram-signals-new-Asia-approach-after-decades-of-African-domination
34. Establishing a framework for Food and agriculture sustainability … (n.d.). Retrieved July 11, 2022, from https://www.jpmorgan.com/content/dam/jpm/cib/complex/content/investment-banking/center-for-carbon-transition/Establishing_a_Framework_for_Food_and_Agriculture_Sustainability_Transition.pdf
35. Waite , R., Hanson, C., Ranganathan, J., & Dumas, P. (n.d.). Creating a Sustainable Food Future. Retrieved July 11, 2022, from https://files.wri.org/d8/s3fs-public/wrr-food-full-report.pdf
36. Food and Agriculture Sustainability Strategies Framework. NYU Stern. (n.d.). Retrieved July 11, 2022, from https://www.stern.nyu.edu/experience-stern/about/departments-centers-initiatives/centers-of-research/center-sustainable-business/research/return-sustainability-investment-rosi/food-and-agriculture-sustainability-strategies
37. Section 3 – Supply Chain. (2020, February 20). Farming First. https://farmingfirst.org/sustainable-food-system/section-3-supply-chain/#home
38. G. (2021, December 7). Surplus Food Recovery. Goodr – Feed More, Waste Less. https://goodr.co/food-waste-solutions/surplus-food-recovery
39. Kata R, Wosiek M. Inequality of Income in Agricultural Holdings in Poland in the Context of Sustainable Agricultural Development. Sustainability. 2020; 12(12):4963. https://doi.org/10.3390/su12124963
40. Ritchie, H. (2021, July 8). Farm Size. Our World in Data. https://ourworldindata.org/farm-size
41. Bloomberg – Are you a robot? (2022, January 21). Bloomberg. Retrieved July 25, 2022, from https://www.bloomberg.com/tosv2.html?vid=&uuid=c1052050-0c11-11ed-ae3b-4c6a4c6f5672&url=L25ld3MvYXJ0aWNsZXMvMjAyMi0wMS0yMC9qb2huLWRlZXJlLWlzLWZhY2luZy1hLWZhcm1lci1yZXZvbHQtb3Zlci10aGUtcmlnaHQtdG8tcmVwYWly#xj4y7vzkg
42. Moran, G. (2022, April 28). In the Battle Over the Right to Repair, Open-Source Tractors Offer an Alternative. Civil Eats. Retrieved July 25, 2022, from https://civileats.com/2022/04/27/right-to-repair-open-source-tractors-john-deere-oggun-farms-profitability-technology/
43. Sitaker, M., McGuirt, J., Wang, W., Kolodinsky, J., & Seguin, R. (2019). Spatial Considerations for Implementing Two Direct-to-Consumer Food Models in Two States. Sustainability, 11(7), 2081. MDPI AG. Retrieved from http://dx.doi.org/10.3390/su11072081
44. Piper, K. (2021, February 2). Impossible Foods cuts prices for its plant-based meat offerings. Vox. Retrieved July 25, 2022, from https://www.vox.com/future-perfect/2021/2/2/22260454/impossible-foods-burger-plant-based-meat
45. Average Retail Food and Energy Prices, U.S. and Midwest Region : Mid–Atlantic Information Office : U.S. Bureau of Labor Statistics. (2022, June 10). U.S. Bureau of Labor Statistics. https://www.bls.gov/regions/mid-atlantic/data/averageretailfoodandenergyprices_usandmidwest_table.htm
46. Bland, A. (2021, December 14). The Wholesale Food Distribution Industry: A Guide for 2022. Unleashed Software. https://www.unleashedsoftware.com/blog/the-wholesale-food-distribution-industry-a-guide-for-2022
47. Piazzai, M., & Wijnberg, N. M. (2019). Product proliferation, complexity, and deterrence to imitation in differentiated‐product oligopolies. Strategic Management Journal, 40(6), 945–958. https://doi.org/10.1002/smj.3002
48. Piazzai, M., & Wijnberg, N. M. (2019). Product proliferation, complexity, and deterrence to imitation in differentiated‐product oligopolies. Strategic Management Journal, 40(6), 945–958. https://doi.org/10.1002/smj.3002
49. Parameswaran, A. P. (2016, June 5). Give us this day our daily bread. Business Standard. https://www.business-standard.com/article/management/give-us-this-day-our-daily-bread-116060500684_1.html
50. Marie, A. (2022, May 17). Addressing the Digital Divide for Smallholder Farmers. ALI Social Impact Review. https://www.sir.advancedleadership.harvard.edu/articles/addressing-digital-divide-for-smallholder-farmers
51. Food and Agriculture Organization of the United Nations. (2015). The economic lives of smallholder farmers.
52. Food and Agriculture Organization of the United Nations. (2015). The economic lives of smallholder farmers.
53. Food and Agriculture Organization of the United Nations. (2015). The economic lives of smallholder farmers.
54. Global Digital Farming Market Size, Share and Forecast 2025 | BlueWeave. (2021, April). BlueWeave Consulting. https://www.blueweaveconsulting.com/report/global-digital-farming-market-bwc19388#ReportSample/
55. AgroStar – Crunchbase Company Profile & Funding. (n.d.). Crunchbase. https://www.crunchbase.com/organization/agrostar
56. Statista. (2022, July 21). Internet penetration in Africa January 2022, by country. https://www.statista.com/statistics/1124283/internet-penetration-in-africa-by-country/
57. Ganbold, S. (2022, March 14). Internet usage in Southeast Asia – statistics & facts. Statista. https://www.statista.com/topics/9093/internet-usage-in-southeast-asia/
58. International Fund for Agricultural Development. (n.d.). Driving AgriTech Adoption: Insights from Southeast Asia’s Farmers. Grow Asia Partnership Ltd. http://exchange.growasia.org/system/files/Driving%20AgriTech%20Adoption%20-%20Insights%20from%20Southeast%20Asia%27s%20Farmers.pdf
59. Microfinance: macro benefits. (n.d.). IFAD. https://www.ifad.org/es/web/latest/-/news/microfinance-macro-benefits#:%7E:text=Microfinance%20is%20one%20way%20of,the%20reach%20of%20poor%20people
60. LIEBERMAN, I. W., DILEO, P., WATKINS, T. A., & KANZE, A. (Eds.). (2020). The Future of Microfinance. Brookings Institution Press. http://www.jstor.org/stable/10.7864/j.ctvbnm3hx
61. LIEBERMAN, I. W., DILEO, P., WATKINS, T. A., & KANZE, A. (Eds.). (2020). The Future of Microfinance. Brookings Institution Press. http://www.jstor.org/stable/10.7864/j.ctvbnm3hx
62. K. (2020, February 10). What Impact do Fintechs have on Microfinance? FintechLab. https://www.thefintechlab.com/blog/what-impact-do-fintechs-have-on-microfinance/
63. Krishna, S. (2022, June 24). How microfinance startups leverage AI to democratise credit access. Analytics India Magazine. https://analyticsindiamag.com/microfinance-startups-leverage-ai-to-democratise-credit-access/
64. Krishna, S. (2022, June 24). How microfinance startups leverage AI to democratise credit access. Analytics India Magazine. https://analyticsindiamag.com/microfinance-startups-leverage-ai-to-democratise-credit-access/
65. Asian Development Bank Institute, McIntosh, C. M., & Mansini, C. S. M. (2018, September). The Use of Financial Technology in the Agriculture Sector. Asian Development Bank Institute. https://www.adb.org/sites/default/files/publication/455116/adbi-wp872.pdf
66. Index Insurance – Frequently Asked Questions. (n.d.). International Finance Corporation. https://www.ifc.org/wps/wcm/connect/industry_ext_content/ifc_external_corporate_site/financial+institutions/priorities/access_essential+financial+services/giif+frequently-asked-questions#:%7E:text=What%20is%20index%20insurance%3F,from%20weather%20and%20catastrophic%20events
67. Reuters. (n.d.). Reuters. https://www.reuters.com/article/us-food-africa-india-idUSKBN0L21WH201501290
68. Asian Development Bank Institute, McIntosh, C. M., & Mansini, C. S. M. (2018, September). The Use of Financial Technology in the Agriculture Sector. Asian Development Bank Institute. https://www.adb.org/sites/default/files/publication/455116/adbi-wp872.pdf
69. Society of Actuaries, Chow, Q. C., Ng, J. M. N., Biese, K. B., & McCord, M. J. M. (2019, May). Technology in Microinsurance – How New Developments Affect the Work of Actuaries. Society of Actuaries. https://www.soa.org/globalassets/assets/files/resources/research-report/2019/2019-technology-microinsurance.pdf
70. Bringing the benefits of agricultural insurance to smallholders in Viet Nam: Building awareness and understanding. (n.d.). Stockholm+50. https://www.stockholm50.global/news-and-stories/bringing-benefits-agricultural-insurance-smallholders-viet-nam-building-awareness
71. Terazono, E. (2021, November 23). Agricultural insurtech offers lifeline for smallholders. Financial Times. https://www.ft.com/content/3bc0a0c2-635e-48d4-8535-6a93fab7b0fc
72. IBISA Network – Enabling the Next Generation of Insurance for Agriculture. (n.d.). IBISA. https://ibisa.network/
73. Ceballos, F., Kramer, B., & Robles, M. (2019). The feasibility of picture-based insurance (PBI): Smartphone pictures for affordable crop insurance. Development Engineering, 4, 100042. https://doi.org/10.1016/j.deveng.2019.100042
74. United States Agency for International Development, & Tranh, N. T. (2018, January). Guide to Using Digital Tools to Expand Access to Agricultural Insurance. United States Agency for International Development. https://www.usaid.gov/sites/default/files/documents/15396/Guide_to_Using_Digital_Tools_to_Expand_Agricultural_Insurance.pdf
75. GSMA. (2020, May). Agricultural insurance for smallholder farmers – Digital innovations for scale. https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2020/05/Agricultural_Insurance_for_Smallholder_Farmers_Digital_Innovations_for_Scale.pdf
76. A Well-Fed World. (2022, July 20). Feed-to-Meat – Conversion Inefficiency Ratios. https://awellfedworld.org/feed-ratios/ 
77. Land use of foods per 1000 kilocalories. (2018). Our World in Data. https://ourworldindata.org/grapher/land-use-kcal-poore 
78. Water footprint of crop and animal products: a comparison. (n.d.). Water Footprint. https://waterfootprint.org/en/water-footprint/product-water-footprint/water-footprint-crop-and-animal-products/
79. Alessandrini, R., Brown, M. K., Pombo-Rodrigues, S., Bhageerutty, S., He, F. J., & MacGregor, G. A. (2021). Nutritional Quality of Plant-Based Meat Products Available in the UK: A Cross-Sectional Survey. Nutrients, 13(12), 4225. https://doi.org/10.3390/nu13124225
80. Curtain, F., & Grafenauer, S. (2019). Plant-Based Meat Substitutes in the Flexitarian Age: An Audit of Products on Supermarket Shelves. Nutrients, 11(11), 2603. https://doi.org/10.3390/nu11112603
81. Andreyeva, T., Long, M. W., & Brownell, K. D. (2010). The Impact of Food Prices on Consumption: A Systematic Review of Research on the Price Elasticity of Demand for Food. American Journal of Public Health, 100(2), 216–222. https://doi.org/10.2105/ajph.2008.151415 
82. de Oca, C. M. (2022, January 19). When will the price be right? The Good Food Institute. https://gfi.org/blog/when-will-the-price-be-right/ 
83. IMPOSSIBLE FOODS CUTS SUGGESTED GROCERY STORE PRICES 20%. (2021, February 2). Impossible Foods. https://impossiblefoods.com/media/news-releases/impossible-foods-cuts-suggested-grocery-store-prices-20 
84. Morach, B., Witte, B., Walker, D., von Koeller, E., Grosse-Holz, F., Rogg, J., Brigl, M., Dehnert, N., Obloj, P., Koktenturk, S., & Schulze, U. (2021, May 26). Food for Thought: The Protein Transformation. BCG Global. https://www.bcg.com/publications/2021/the-benefits-of-plant-based-meats   
85. Good Food Institution, Parry, J. P., & Szejda, K. S. (2019, October). How to drive plant-based food purchasing. https://gfi.org/images/uploads/2019/10/GFI-Mindlab-Report-Implicit-Study_Strategic_Recommendations.pdf 
86. Evans, J. (2022, January 27). Has the appetite for plant-based meat already peaked? Financial Times. https://www.ft.com/content/996330d5-5ffc-4f35-b5f8-a18848433966 
87. Merrill, D. (2022, May 26). Plant-based protein manufacturing: Scaling-up extrusion. CRB. https://www.crbgroup.com/insights/food-beverage/plant-based-protein-manufacturing 
88. Beyond Meat® Reports Fourth Quarter and Full Year 2020 Financial Results. (2021, February 25). Beyond Meat, Inc. https://investors.beyondmeat.com/news-releases/news-release-details/beyond-meatr-reports-fourth-quarter-and-full-year-2020-financial 
89. G. (n.d.). Impossible Foods: Revenue, Competitors, Alternatives. Growjo. https://growjo.com/company/Impossible_Foods 
90. Torrella, K. (2022, May 25). The plant-based future of meat and food doesn’t always taste good. Vox. https://www.vox.com/future-perfect/23065941/vegan-vegetarian-plant-based-food-tech-bad-products
91. Gelsomin, E. M. (2022, January 24). Impossible and Beyond: How healthy are these meatless burgers? Harvard Health. https://www.health.harvard.edu/blog/impossible-and-beyond-how-healthy-are-these-meatless-burgers-2019081517448 
92. Gillette, D. (2022, April 21). The True Cost of a Hamburger. AIER. https://www.aier.org/article/the-true-cost-of-a-hamburger/ 
93. G. (2021, May 27). Altimate Nutrition bets on Singapore’s innovative market via new insect-protein bar. Verdict Media Limited. https://www.foodprocessing-technology.com/comment/altimate-nutrition-singapore-insect-protein/ 
94. The Protein-rich Superfood. (n.d.). BBC. https://www.bbc.com/future/article/20210420-the-protein-rich-superfood-most-europeans-wont-eat 
95. Food and Agriculture Organization of the United Nations. (n.d.). The Contribution of Insects to Food Security, Livelihoods and the Environment. https://www.fao.org/docrep/018/i3264e/i3264e00.pdf 
96. Cricket Farming: Creating The World’s Food Source. (2021, February 12). Pinduoduo. https://stories.pinduoduo-global.com/agritech-hub/cricket-farming-for-human-consumption#:%7E:text=Farming%20crickets%20uses%2095%25%20less,more%20resource%20efficient%20than%20cows
97. Cricket Farming: Creating The World’s Food Source. (2021, February 12). Pinduoduo. https://stories.pinduoduo-global.com/agritech-hub/cricket-farming-for-human-consumption#:%7E:text=Farming%20crickets%20uses%2095%25%20less,more%20resource%20efficient%20than%20cows
98. Startup About. (2021, November 10). Altimate Nutrition. https://altimatenutrition.com/startup-about/ 
99. Insect Protein Market Size, Share & COVID-19 Impact Analysis, By Product Type (Coleoptera, Lepidoptera, Hymenoptera, Orthopetra, and Others), Application (Food & Beverages, Animal Feed, and Pharmaceuticals & Cosmetics), and Regional Forecast, 2022–2029. (n.d.). Fortune Business Insights. https://www.fortunebusinessinsights.com/industry-reports/insect-based-protein-market-100780 
100. Global Insect Protein Market Size Report, 2021–2028. (n.d.). Grand View Research. https://www.grandviewresearch.com/industry-analysis/insect-protein-market#:%7E:text=The%20global%20insect%20protein%20market%20size%20was%20estimated%20at%20USD,USD%20303.2%20billion%20in%202028 
101. Sustainable Cricket Protein, Cricket Flour & Edible Crickets | sens. (n.d.). Sens Foods. https://eatsens.com/ 
102. Morach, B., Witte, B., Walker, D., von Koeller, E., Grosse-Holz, F., Rogg, J., Brigl, M., Dehnert, N., Obloj, P., Koktenturk, S., & Schulze, U. (2021, May 26). Food for Thought: The Protein Transformation. BCG Global. https://www.bcg.com/publications/2021/the-benefits-of-plant-based-meats 
103. Messmer, T., Klevernic, I., Furquim, C., Ovchinnikova, E., Dogan, A., Cruz, H., Post, M. J., & Flack, J. E. (2022). A serum-free media formulation for cultured meat production supports bovine satellite cell differentiation in the absence of serum starvation. Nature Food, 3(1), 74–85. https://doi.org/10.1038/s43016-021-00419-1 
104. What’s been going on with the ‘hamburger professor.’ (n.d.). News – Maastricht University. https://www.maastrichtuniversity.nl/news/what%E2%80%99s-been-going-%E2%80%98hamburger-professor%E2%80%99 
105. Lab-grown Meat at US10 a Patty. (n.d.). Business Times. https://www.businesstimes.com.sg/consumer/lab-grown-meat-at-us10-a-patty-give-it-2-years 
106. Record US$5 billion invested in alt proteins in 2021, but GFI warns it’s not enough. (2022, March 3). ..Foodingredientsfirst.Com/. https://www.foodingredientsfirst.com/news/record-us5-billion-invested-in-alt-proteins-in-2021-but-gfi-warns-its-not-enough.html 
107. Huling, R. (2022, June 2). The State of APAC’s Alt Protein Industry in Four Graphs. GFI APAC. https://gfi-apac.org/the-state-of-apacs-alt-protein-industry-in-four-graphs/ 
108. Markets, R. A. (2022, February 2). 2022 Worldwide Market for Cultured Meat Report – Featuring 3D Bio-Tissues, Agulos Biotech and Aleph Farms Among Others. GlobeNewswire News Room. https://www.globenewswire.com/news-release/2022/02/02/2377373/28124/en/2022-Worldwide-Market-for-Cultured-Meat-Report-Featuring-3D-Bio-Tissues-Agulos-Biotech-and-Aleph-Farms-Among-Others.html#:%7E:text=There%20are%20now%20an%20impressive,to%20only%20four%20in%202016 
109. Biftek INC. (n.d.). Biftek. https://biftek.co/
110. Specht, L. (2021, March 9). The science of fermentation (2021) | GFI. The Good Food Institute. https://gfi.org/science/the-science-of-fermentation/#:%7E:text=Precision%20fermentation%20uses%20microbial%20hosts,incorporated%20at%20much%20lower%20levels 
111. Humpenöder, F., Bodirsky, B. L., Weindl, I., Lotze-Campen, H., Linder, T., & Popp, A. (2022). Projected environmental benefits of replacing beef with microbial protein. Nature, 605(7908), 90–96. https://doi.org/10.1038/s41586-022-04629-w 
112. Huling, R. (2022, June 2). The State of APAC’s Alt Protein Industry in Four Graphs. GFI APAC. https://gfi-apac.org/the-state-of-apacs-alt-protein-industry-in-four-graphs/  
113. Good Food Institute. (n.d.). 2020 State of the Industry Report – Fermentation. https://gfi.org/science/the-science-of-fermentation/#:~:text=Precision%20fermentation%20uses%20microbial%20hosts,incorporated%20at%20much%20lower%20levels 
114. Specht, L. (2021, March 9). The science of fermentation (2021) | GFI. The Good Food Institute. https://gfi.org/science/the-science-of-fermentation/#:%7E:text=Precision%20fermentation%20uses%20microbial%20hosts,incorporated%20at%20much%20lower%20levels 
115. A. (2021, November 5). Alternative Proteins, Part 3: Biomanufacturing, Fermentation. ERDYN. https://erdyn.com/us/alternative-proteins-part-3-biomanufacturing-fermentation/ 
116. Kateman, B. (2021, June 15). Fermentation: The New Game-Changer For Alternative Proteins? Forbes. https://www.forbes.com/sites/briankateman/2021/06/07/fermentation-the-new-game-changer-for-alternative-proteins/?sh=4ed3dd3e3aff 
117. foodnavigator.com. (2022, April 19). Experts outline ‘biggest obstacles’ facing precision fermentation sector: ‘We have brilliant people with brilliant innovations, but can this make money?’ https://www.foodnavigator.com/Article/2022/04/19/Experts-outline-biggest-obstacles-facing-precision-fermentation-sector-We-have-brilliant-people-with-brilliant-innovations-but-can-this-make-money 
118. Breeding & Genetics | KnowPulse. (n.d.). KnowPulse. https://knowpulse.usask.ca/node/21
119. Yadav, A. N., Kour, D., Kaur, T., Devi, R., Guleria, G., Rana, K. L., Yadav, N., & Rastegari, A. A. (2020). Microbial biotechnology for sustainable agriculture: Current research and future challenges. New and Future Developments in Microbial Biotechnology and Bioengineering, 331–344. https://doi.org/10.1016/b978-0-12-820526-6.00020-8
120. Schindele, A., Gehrke, F., Schmidt, C., Röhrig, S., Dorn, A., & Puchta, H. (2022). Using CRISPR-Kill for organ specific cell elimination by cleavage of tandem repeats. Nature Communications, 13(1). https://doi.org/10.1038/s41467-022-29130-w 
121. Caribou Biosciences. (n.d.). Caribou Biosciences – Wiki. Golden. https://golden.com/wiki/Caribou_Biosciences-W4BDMDA(https://golden.com/wiki/Caribou_Biosciences-W4BDMDA)
122. Products – Our Products. (n.d.). Cibus. https://www.cibus.com/crop-protection-traits.php
123. Wilson, W. W., & Huso, S. R. (2008). Trait Stacking, Licensing, and Seed Firm Acquisitions in Genetically Modified Grains: A Strategic Analysis. Journal of Agricultural and Resource Economics, 33(3), 382–401. http://www.jstor.org/stable/41220600 
124. How does a mRNA vaccine compare to a traditional vaccine? | Vanderbilt Institute for Infection, Immunology and Inflammation. (n.d.). Vanderbilt Institute for Infection, Immunology and Inflammation. https://www.vumc.org/viiii/infographics/how-does-mrna-vaccine-compare-traditional-vaccine
125. Le, T., Sun, C., Chang, J., Zhang, G., & Yin, X. (2022). mRNA Vaccine Development for Emerging Animal and Zoonotic Diseases. Viruses, 14(2), 401. https://doi.org/10.3390/v14020401 
126. Gago-Zachert, S., Schuck, J., Weinholdt, C., Knoblich, M., Pantaleo, V., Grosse, I., Gursinsky, T., & Behrens, S. E. (2019). Highly efficacious antiviral protection of plants by small interfering RNAs identified in vitro. Nucleic Acids Research, 47(17), 9343–9357. https://doi.org/10.1093/nar/gkz678
127. Bloomberg – Are you a robot? (n.d.). Bloomberg. https://www.bloomberg.com/tosv2.html?vid=&uuid=1eae4863-0cbd-11ed-bea9-4b7562496958&url=L25ld3MvYXJ0aWNsZXMvMjAyMS0wOS0yMS9iaW90ZWNoLXN0YXJ0dXAtZ3JlZW5saWdodC1pcy1tYXNzLXByb2R1Y2luZy1ybmEtdG8tZmlnaHQtcGVzdHM=#xj4y7vzkg 
128. 3. Public opinion about genetically modified foods and trust in scientists connected with these foods. (2020, August 27). Pew Research Center Science & Society. https://www.pewresearch.org/science/2016/12/01/public-opinion-about-genetically-modified-foods-and-trust-in-scientists-connected-with-these-foods/  
129. 3. Public opinion about genetically modified foods and trust in scientists connected with these foods. (2020b, August 27). Pew Research Center Science & Society. https://www.pewresearch.org/science/2016/12/01/public-opinion-about-genetically-modified-foods-and-trust-in-scientists-connected-with-these-foods/ 
130. S. (2015, August 11). The Patent Landscape of Genetically Modified Organisms. Science in the News. https://sitn.hms.harvard.edu/flash/2015/the-patent-landscape-of-genetically-modified-organisms/#:%7E:text=The%20discovery%2C%20development%2C%20and%20authorization,of%20exclusivity%20and%20profitability%20granted 
131. Schiek, B., Hareau, G., Baguma, Y., Medakker, A., Douches, D., Shotkoski, F., & Ghislain, M. (2016). Demystification of GM crop costs: releasing late blight resistant potato varieties as public goods in developing countries. International Journal of Biotechnology, 14(2), 112. https://doi.org/10.1504/ijbt.2016.077942 
132. Carrière, Y., Brown, Z., Aglasan, S., Dutilleul, P., Carroll, M., Head, G., Tabashnik, B. E., Jørgensen, P. S., & Carroll, S. P. (2020). Crop rotation mitigates impacts of corn rootworm resistance to transgenic Bt corn. Proceedings of the National Academy of Sciences, 117(31), 18385–18392. https://doi.org/10.1073/pnas.2003604117 
133. ET Bureau. (2021, November 22). Precision agriculture platform Fasal raises $4 million from 3one4 Capital, others. The Economic Times. https://economictimes.indiatimes.com/tech/funding/precision-agriculture-platform-fasal-raises-4-million-from-3one4-capital-others/articleshow/87842320.cms 
134. Price Challenges blocking Adoption of Sensors. (n.d.). Yahoo. https://sg.news.yahoo.com/price-challenges-blocking-adoption-sensors-123000482.html 
135. Biolumic. (n.d.). Biolumic. https://www.biolumic.com/ 
136. Russell, R., & Bewley, J. (2013). Characterization of Kentucky dairy producer decision-making behavior. Journal of Dairy Science, 96(7), 4751–4758. https://doi.org/10.3168/jds.2012-6538 
137. Precision Agriculture Adoption and Profitability. (n.d.). Agricultural Economics. https://agecon.unl.edu/cornhusker-economics/2017/precision-agriculture-adoption-profitability 
138. Krzemiński, M. (2022, June 16). Heralds the Next Generation of Cloud-enabled Farming. Infarm. https://www.infarm.com/infarm-heralds-the-next-generation-of-cloud-enabled-farming/ 
139. Krzemiński, M. (2022, June 16). Heralds the Next Generation of Cloud-enabled Farming. Infarm. https://www.infarm.com/infarm-heralds-the-next-generation-of-cloud-enabled-farming/ 
140. You want to reduce the carbon footprint of your food? Focus on what you eat, not whether your food is local. (n.d.). Our World in Data. https://ourworldindata.org/food-choice-vs-eating-local#:%7E:text=By%20analysing%20consumer%20expenditure%20data,(0.4%20tCO2eq) 
141. How Much Electricity Does a Vertical Farm Consume Using iFarm technologies? (n.d.). iFarm. https://ifarm.fi/blog/2020/12/how-much-electricity-does-a-vertical-farm-consume 
142. Tasgal, P. (2021, June 9). The economics of local vertical & greenhouse farming are getting competitive. AFN. https://agfundernews.com/the-economics-of-local-vertical-and-greenhouse-farming-are-getting-competitive
143. BrightFarms – Funding, Financials, Valuation & Investors. (n.d.). Crunchbase. https://www.crunchbase.com/organization/brightfarms/company_financials 
144. Burwood-Taylor, L. (2021, December 16). Brief: Infarm raises $200m Series D from Qatar sovereign fund, others at $1bn+ valuation. AFN. https://agfundernews.com/infarm-raises-200m-series-d-from-qatar-others-at-1bn-valuation#:%7E:text=Infarm%20has%20raised%20%24200%20million,Atomico%2C%20Lightrock%2C%20and%20Bonnier 
145. Ellis, J. (2021, September 29). Artemis acquired by iUNU in continued CEA rollup creating $50m+ contracted revenue company. AFN. https://agfundernews.com/artemis-acquired-by-iunu-in-continued-rollup-plots-agrifinance-offering 
146. True North Technologies – Home of Grasshopper, WeighRite and GrasslandTools. (n.d.). Moregrass. https://moregrass.ie/
147. InnovaFeed – Funding, Financials, Valuation & Investors. (n.d.). Crunchbase. https://www.crunchbase.com/organization/innovafeed/company_financials 
148. Bedord, L. (2020, February 19). Connecterra digitizing dairy to improve animal health and efficiency of cows. Successful Farming. https://www.agriculture.com/technology/livestock/connecterra-digitizing-dairy-to-improve-animal-health-and-efficiency-of-cows 
149. Pivot Bio – Crunchbase Company Profile & Funding. (n.d.). Crunchbase. https://www.crunchbase.com/organization/pivot-bio 
150. CBS News. (2021, October 21). Genetics can determine how much methane cows release when burping and passing gas, researcher says. https://www.cbsnews.com/news/cows-methane-emissions-gas-study/ 
151. Importance of Methane. (2022, June 9). US EPA. https://www.epa.gov/gmi/importance-methane 
152. Horton, C. (2022, June 23). Symbrosia raises $7 million to reduce livestock methane emissions. Reuters. https://www.reuters.com/markets/deals/symbrosia-raises-7-million-reduce-livestock-methane-emissions-2022-06-23/ 
153. Disruptive Technology Can Decrease Enteric Methane Emission | Feeding Intelligence. (n.d.). Cargill. https://www.cargill.com/feedingintelligence/disruptive-technology-can-decrease-enteric-methane-emission 
154. Zelp. (n.d.). ZELP – Reduce methane emissions while improving animal welfare. https://www.zelp.co/ 
155. Vorotnikov, V. (2022, February 16). Russia to approve record-breaking subsidies on cattle feed. All About Feed. https://www.allaboutfeed.net/market/market-trends/russia-to-approve-record-breaking-subsidies-on-cattle-feed/ 
156. 5 facts about food waste and hunger | World Food Programme. (2020, June 2). World Food Programme. https://www.wfp.org/stories/5-facts-about-food-waste-and-hunger#:%7E:text=1.,worth%20approximately%20US%241%20trillion 
157. Fight climate change by preventing food waste. (n.d.). World Wildlife Fund. https://www.worldwildlife.org/stories/fight-climate-change-by-preventing-food-waste 
158. Food Waste. (2019, September 4). The Nutrition Source. https://www.hsph.harvard.edu/nutritionsource/sustainability/food-waste/ 
159. World Resources Institute. (2013, June). Reducing Food Loss and Waste. https://wriorg.s3.amazonaws.com/s3fs-public/reducing_food_loss_and_waste.pdf 
160. 5 facts about food waste and hunger | World Food Programme. (2020, June 2). World Food Programme. https://www.wfp.org/stories/5-facts-about-food-waste-and-hunger#:%7E:text=1.,worth%20approximately%20US%241%20trillion
161. Erdman, J. (2018, December 2). We produce enough food to feed 10 billion people. So why does hunger still exist? Medium. https://medium.com/@jeremyerdman/we-produce-enough-food-to-feed-10-billion-people-so-why-does-hunger-still-exist-8086d2657539#:%7E:text=The%20world’s%20farmers%20produce%20enough,this%20excess%2C%20hunger%20still%20exists 
162. Feeding the world sustainably. (2021, May 27). McKinsey & Company. https://www.mckinsey.com/business-functions/sustainability/our-insights/feeding-the-world-sustainably 
163. South Korea once recycled 2% of its food waste. Now it recycles 95%. (2020, February 8). World Economic Forum. https://www.weforum.org/agenda/2019/04/south-korea-recycling-food-waste/#:%7E:text=As%20far%20back%20as%202005,that%20helps%20encourage%20home%20composting 
164. Eco-Tite R: PVDC-free recyclable packaging for meat and cheese. (2021, May 3). Amcor. https://www.amcor.com/insights/blogs/eco-tite-shrink-bag-amcor 
165. Hazel Technologies, Inc. (n.d.). Hazel Technologies. https://www.hazeltechnologies.com/ 
166. Soma, T. (2022, June 16). A bad wrap? Using packaging well to reduce food waste. Eco-Business. https://www.eco-business.com/opinion/a-bad-wrap-using-packaging-well-to-reduce-food-waste/ 
167. About us –. (2021, December 15). Packoorang. https://www.packoorang.com/about 
168. Singapore’s #1 app-enabled reusable food delivery option. (n.d.). barePack.Co. https://www.barepack.co/
169. CLUBZERØ, Formerly CupClub | Returnable Packaging for Takeaway. (n.d.). ClubZERO. https://www.clubzero.co/ 
170.  Algramo. (2022, May 12). Home – Algramo. Algramo – Refill the Future. https://algramo.com/en/ 
171. Guidelines on submission of a dossier for safety evaluation by the EFSA of active or intelligent substances present in active and intelligent materials and articles intended to come into contact with food. (2009). EFSA Journal, 7(8). https://doi.org/10.2903/j.efsa.2009.1208 
172. Dynamic shelf life labelling to reduce food waste. (n.d.). Innoscentia. https://www.innoscentia.com/ 
173. The Science. (n.d.). NABACO®. https://www.nabacoinc.com/the-science 
174.  EDEN AGRITECH |. (n.d.). Eden Agritech. https://edenagri.co.th/ 
175. Chabada, L., Damgaard, C. M., Dreyer, H. C., Hvolby, H. H., & Dukovska-Popovska, I. (2014). Logistical Causes of Food Waste: A Case Study of a Norwegian Distribution Chain of Chilled Food Products. SpringerLink. https://link.springer.com/chapter/10.1007/978-3-662-44739-0_34?error=cookies_not_supported&code=09c93d5c-da71-40b8-93ad-550da4a735b2 
176. Chabada, L., Damgaard, C. M., Dreyer, H. C., Hvolby, H. H., & Dukovska-Popovska, I. (2014). Logistical Causes of Food Waste: A Case Study of a Norwegian Distribution Chain of Chilled Food Products. SpringerLink. https://link.springer.com/chapter/10.1007/978-3-662-44739-0_34?error=cookies_not_supported&code=09c93d5c-da71-40b8-93ad-550da4a735b2 
177. Induportals Media Publishing. (2021, June 18). Nanolike digitizes silo monitoring for optimum efficiency. Food Process & Packaging Automation | EMEA. https://foodpackautomation.com/news/42401-nanolike-digitizes-silo-monitoring-for-optimum-efficiency 
178. Samsara – Crunchbase Company Profile & Funding. (n.d.). Crunchbase. https://www.crunchbase.com/organization/samsara-2 
179. FoodLogiQ: Food Safety, Traceability and Sustainability. (2022, May 20). FoodLogiQ. https://www.foodlogiq.com/ 
180. Wasteless. (n.d.). Wasteless. https://www.wasteless.com/?utm_source=hs_email&utm_medium=email&utm_content=2&_hsenc=p2ANqtz-_HWQnOqHC1v8KpEOl1xSvFqjKsjlJemYM2tIaYfcCd3yxrVVSbKSKSF1RVixdkLBRQViYvZP_YOiy2C2T5W8DphGI1cQ 
181. Schatz, R. D. (2020, May 23). How ‘Upcycled’ Ingredients Can Help Reduce The $940 Billion Global Food Waste Problem. Forbes. https://www.forbes.com/sites/robindschatz/2020/05/19/how-upcycled-ingredients-can-help-reduce-the-940-billion-global-food-waste-problem/?sh=f661a433ac9b 
182. WTRMLN WTR. (2022, June 15). Wtrmln Wtr. https://wtrmlnwtr.com/product/wtrmlnwtr 
183. Öle. (n.d.). Kern Tec. https://www.kern-tec.com/en/oele/ 
184. Bhatt, S., Ye, H., Deutsch, J., Ayaz, H., & Suri, R. (2020). Consumers’ willingness to pay for upcycled foods. Food Quality and Preference, 86, 104035. https://doi.org/10.1016/j.foodqual.2020.104035 
185. Axminenko, A. (n.d.). BANANATEX®. BANANATEX. https://www.bananatex.info/ 
186. Hamstra, M. (2021, October 26). How Startups Are Monetizing the Booming Food Waste Business. Https://Www.Uschamber.Com/Co. https://www.uschamber.com/co/good-company/launch-pad/food-waste-startups 
187. Too Good To Go – Funding, Financials, Valuation & Investors. (n.d.). Crunchbase. https://www.crunchbase.com/organization/too-good-to-go/company_financials 
188. Hartmann, T., Jahnke, B., & Hamm, U. (2021). Making ugly food beautiful: Consumer barriers to purchase and marketing options for Suboptimal Food at retail level – A systematic review. Food Quality and Preference, 90, 104179. https://doi.org/10.1016/j.foodqual.2021.104179 
189. Symmank, C., Zahn, S., & Rohm, H. (2018). Visually suboptimal bananas: How ripeness affects consumer expectation and perception. Appetite, 120, 472–481. https://doi.org/10.1016/j.appet.2017.10.002 

Credits

Analysts
Ms Soh Rui Min, Spring Analyst

Research
Mr James Tan

Overview

As of the latest Global Findex Database report published by the World Bank in 2017, a substantial one fourth of the global population remained unbanked amid the advancements in digital financial services. At the same time, nearly 60% of the world’s population enjoy internet access; with 91% of the former utilising their mobile devices to go online.

The emergence of mobile technology and its penetration into developing economies provide an interesting proposition – financial inclusion. The true cost of financial exclusion goes beyond the inability to finance short term consumption. Oftentimes, the lack of access to financial services impedes an individual’s ability to substantially accumulate long-term savings, entrapping them further into the web of poverty. By banking the underbanked; and serving the underserved, technological innovations have the potential to increase the accessibility of those currently financially excluded towards financial services. In turn, greater financial inclusion generates sizable socioeconomic benefits, presenting significant growth opportunities to governments, investors, and businesses alike.

Undoubtedly, financial inclusion is a major step towards promoting inclusive economic growth. With the global fintech market poised to grow at a CAGR of around 20% in the next ten years, fintech solutions have the potential to leverage the increasing rates of mobile usage and internet penetration to develop inclusive solutions for sustainable growth. This report aims to provide an overview of how AI, Blockchain and Cryptocurrency can reimagine the state of financial services by spearheading financially inclusive solutions.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

When traditional banking systems hold back the human capital development of a quarter of the world’s population, a new way of thinking is required.

Financial inclusion, enabled by income, credit history, documentation, and infrastructure, opens opportunities to useful and affordable financial products and services. Financial inclusion has a strong business and governance case.

We envision this inclusion can take place with thoughtful use of artificial intelligence, blockchain and cryptocurrencies.

We further believe its successful implementation will uplift populations and transform economies.

---

Defining Financial Inclusion

The World Bank defines financial inclusion as having access to useful and affordable financial products and services that meet the needs of individuals and businesses. These financial services range from banking, credit, equity to loan products. Over the last decade, with the help of mobile money accounts, the global unbanked population fell by 35%. To put things into perspective, this statistic denotes that 1.2 billion formerly unbanked individuals have now gained access to financial services.

Lack of income and poor credit history

Where the 2017 Global Findex Database report approximates that 30% of adults globally do not hold a basic transaction account, a lack of income has been cited as a main roadblock. Unable to meet the requirements of the traditional banking institution, these groups are excluded from the financial sector; preventing them from accessing resources to establish a business, fund their education and improve their quality of life.

The traditional banking system is not always designed in the interests of low income households. To make up for the lack of profitability in checking accounts, major financial institutions such as Wells Fargo and Bank of America impose overdraft fees, debit card swipe fees, ATM withdrawal fees, wire transfer charges on 25% to 40% of their accounts. While the fees may seem insignificant to the average individual, when amassed, they create an insurmountable burden to lower-income workers living from paycheck to paycheck. With such barriers to access traditional financial services, many low income households in America are left with no choice but to turn to alternative financial services providers, comprising check-cashing outlets, payday lenders, pawnshops, rent-to-own stores, and auto title lenders. While the former grants these low income families easy access to cash, these services come with a higher risk and more often than not, carry higher costs in the long run. With the ability to accrue wealth and assets impaired, lower income households are consequently unable to build up a credit history, further limiting themselves from other traditional financial services.

Credit scoring has traditionally been recognised as an essential tool for sound lending through accurately measuring and pricing risk over time. Other than the lack of income, the lower income population face significant challenges accessing credit due to their inability to build a good credit history. Oftentimes, they are imposed exceptionally high interest rates, or are fully denied credit by traditional financial institutions.

Being shut out of the traditional credit system can have imposing consequences on different aspects of their lives. Without creditworthiness, individuals and households are not able to access mortgages, car loans and other debt. More importantly, where more than 30 percent of adults in Cambodia, Guinea, Madagascar, Sudan and the Republic of Yemen have indicated that emergency and health reasons are the most common reason for having an outstanding loan, the lack of access to sufficient credit can limit the access to medical services. Traditional financial institutions have limited appetite to extend credit to vulnerable groups, including the low-income and women because of a lack of customer data and history to assess their creditworthiness. This further puts the at-risk group in a position of exploitation, as they end up turning to unregulated players with predatory interest rates. Unsurprisingly, many remain caught in the bad credit cycle, unable to break free from defaulting on more and more payments.

Furthermore, in other developing regions around the world, Micro, Small and Medium Enterprises (MSMEs) rely on their creditworthiness to tap on lines of credit to allow their businesses to survive. In Southeast Asia, only approximately 33% of businesses have access to proper financing. Without demonstrable creditworthiness and the lack of any deposits and properties as collateral, they are likely to be denied a line of credit. This inaccessibility to tap on a line of credit severely limits their growth potential – MSMEs often have to decline profitable opportunities that come along their way due to their lack of capital, and face disadvantageous payment terms when negotiating with larger debtors.

Without a stable revenue stream amid the surmounting business expenses, cash-strapped MSMEs have no choice but to undertake credit with skyrocketing interest rates – about 10% to 50% of the loan amount in a single transaction. At the same time, the sluggish underwriting processes from traditional financial institutions and the absence of government guidance on compliance paperwork further exacerbates the situation. To financially empower these MSMEs and help them grow organically, there is more to be done to redefine the existing credit scoring system and spearhead responsible economic enablement.

Lack of necessary documentation

The World Bank estimates that an approximate one billion people globally lack an official foundational identification. Without identification in the form of passports and identification cards, they are unable to be accurately authenticated, prohibiting them from accessing basic economic opportunities.

In the 2017 Global Findex Database published by the World Bank, it was stated that the lack of documentation was a critical barrier to accessing financial services. In fact, this barrier was more conspicuous for the marginalised segments of the society, which include women, rural farmers, migrants, refugees and stateless persons.

Consequently, this creates an entry cost friction in the process of obtaining credit. The barring documentation requirements largely comprise of standard Know-Your-Customer (KYC) requirements in compliance with the global Anti Money Laundering and Counter-Financing Terrorism (AML/CFT) guidelines in a bid to reduce improve financial transparency and governance.

Many developing countries have introduced such requirements as a result. For Brazilian banks, basic savings accounts keep KYC requirements at a minimum, which are otherwise known as “simplified accounts”. Halfway across the world in India, the Aadhar program implemented in 2009 introduced a biometrically-verifiable identification number to all citizens. While the Financial Action Task Force has also recognised the unintended consequences brought about by the stringent AML/CFT guidelines, they have reiterated the need to ensure that systemic safeguards are introduced to support overall financial inclusion.

As much as it is encouraging to see various digital identity frameworks being rolled out by government bodies across the world, financial exclusion undoubtedly remains a threat to the economic freedom of one-seventh of the world’s population.

Lack of infrastructure to access financial services

In the same 2017 Global Findex Survey by the World Bank, 20 percent of respondents voiced physical distance as a reason for not having a bank account. This reason was also cited more frequently in developing countries where financial services access points are more remote.

Over the past decade, “branchless banking” has seen successes in increasing financial access in developing economies. In essence, the former include stationary bank agents operating out of nearby retail stores, gas stations and post offices; as well as mobile agents who make rounds among clients. However, there is a limit to how cost-efficient the practice can expand financial access.

Mobile banking developments and the internet have thus opened up new channels for greater accessibility to formal financial services. According to the BIS, greater access to financial services is expected to foster financial inclusivity through greater availability that meets the needs of the population. Technological innovations and fintech advancements are therefore expected to overcome the barrier of geographical distance and increase the share of adults holding a formal bank account by up to 23 percentage points in Sub-Saharan Africa and 14 percentage points in South Asia.

Overall, we observe the unparalleled potential for fintech to increase financial inclusion in rural and hard-to-reach areas.

---

Business Case for Financial Inclusion

Financial inclusion creates an interesting business opportunity for many stakeholders in the economy. Oxford Economics estimates that serving the unbanked could potentially add upwards of $250 billion to the global Gross Domestic Product. Indeed, substantial social and business benefits can be unravelled through tapping on this otherwise lucrative market. The accelerating transformation of fintech, digital and mobile banking raises efficiency, lowers transaction costs and expands outreach to lower market segments. Necessitated by the COVID-19 pandemic, this digital transformation of the landscape has disrupted the high costs of customer acquisitions, credit scoring and credit underwriting processes; whilst remodelling the cross selling of products by traditional intermediaries.

Digital Financial Services

Financial service providers stand to gain from the democratisation of financial products. By serving the currently-unbanked businesses and populations around the world, banks stand to bring in an additional $380 billion in annual market revenues – global technology consultancy Accenture and leading humanitarian organisation CARE International finds. Out of the whopping $380 billion tag, closing the MSME credit gap and introducing fee-based services could rake in approximately $270 billion in additional revenue. Separately, $110 billion could be generated in the process of engaging unbanked adults into the existing financial system.

While the economics of financial inclusion show a promising value proposition to large institutional players, the main roadblock lies in the outdated perspective of incumbents. Thus far, the financial inclusion agenda has always been viewed to be a low-end, unprofitable and purely philanthropic segment. The push for creating innovative and inclusive financial products has often been driven through corporate social responsibility incentives and external regulatory pressures.

Despite this, there is cause to remain optimistic about the potential of digital financial services. According to strategy house McKinsey, digital finance is estimated to reach over 1.6 billion retail consumers in several developing economies. At the same time, the global volume of loans is expected to increase by $2.1 trillion when digital financial services are tapped on. Financial services providers are the first in line to benefit from this opportunity as they expand their existing revenue streams and introduce more product offerings aligned with the changing demands in the overarching landscape. Other ecosystem players stand to gain as well – new businesses offering data-based services, microfinancing services, and other novel products will spring up and disrupt the status quo.

Mobile money economics

The proliferation of mobile technology has allowed for the provision of live mobile money services across various regions over the past ten years. In the backdrop of increasing mobile penetration in several developing and fast-growing economies, the ubiquity of mobile phones has been a key enabler for the underbanked to gain a secure and affordable means of transfer and payment. With just a mobile phone application and a SIM card, anyone can register an account with the financial service provider and deposit cash for electronic money. This makes mobile banking an affordable and even more accessible counterpart to the commonplace agent banking model.

Currently, half of the global mobile money transactions are centred in Africa. In fact, mobile money has become so commonplace in the majority of the underbanked and unbanked areas that, in 2020, Africans exchanged a whopping $490 billion through mobile money providers. Taking an example, the implementation of a new mobile banking service has allowed the Zambia National Commercial Bank to now serve 200,000 more customers. The entry-level mobile account introduced, Xapit, offers minimal account fees and the optionality of an accompanying debit card. It is unsurprising that Xapit has been well-received domestically, given that over half of all Zambians own a mobile phone.

Asia takes the second spot as it accounts for over a quarter of the world’s mobile money services. Out of the 547 million mobile money accounts registered in Asia, more than half of these accounts are traced to users in South Asia. With the regional transaction volume more than doubling in the past few years, it is no wonder that tech firms have been disrupting the traditional banking landscape in Southeast Asia. In Indonesia, non-banks have already taken over primary payment providers. Similarly, non-banks have also been experiencing an exponential growth trajectory in the Philippines. With an estimated 290 million market size for the unbanked within the ASEAN region, there has never been a better incentive for new fintech players to ride on the mobile money economy and challenge the existing infrastructure.

---

Governance Case for Financial Inclusion

Across the world, inclusive growth has become one of the most prominent policy goals for governments. While financial inclusion is just one of many items on the inclusion agenda, the term has gained significant traction since the early 2000s. Financial inclusion drives seven of the United Nations Sustainable Development Goals (UN SDG), facilitating the universal goal of poverty reduction and global economic prosperity. Since then, governments have since recognised the urgent need to extend access to financial services across all segments of society. Globally, over 60 countries have made commitments to financial inclusion, and more than 50 countries have embarked upon national financial inclusion strategies to prioritise financial inclusion.

From the perspective of a policymaker, financial inclusion is imperative to poverty reduction and reducing socioeconomic costs on existing infrastructure. It is also key to promoting equity and a higher standard of living. To bridge the financial infrastructure gap, governments take on the role to stimulate infrastructural growth, catalyse volume and implement shared rules for adherence.

Regionally, governments have been actively promoting infrastructure through means such as taking on ownership of several retail points of services, introducing national payments and financial switches, and removing overarching barriers to financial access.

The Indonesian government has been active in their efforts to promote financially inclusive infrastructure. A successful example in promoting infrastructure is the Indonesian government’s TabunganKu BCA initiative in 2010. A savings product that targets the lowest denominator of migrant worker groups and societal groups in remote areas, run jointly by several banks in Indonesia, the program only requires Rp 20,000 for a starting balance and removes monthly administration costs charged by a traditional financial institution. However, there is an impediment to widespread usage – any transactions made through the TabunganKu account can only be performed in a bank branch. Yet, there are only 10 bank branches available to 100,000 Indonesians at any time, one of the lowest amongst its neighbouring countries.

Promoting infrastructure can also take the form of introducing national microfinancing schemes. Thailand’s Village Fund has become one of the most prominent microfinance institutions globally, and is the second-largest microcredit scheme in the world. The programme sets up a one million baht loanable fund per village. Ideally with a standard pool of loanable funds per village, entrepreneurs MSMEs can grow and sustain their businesses, contributing to a stronger economy within each precinct. However, effects varied across different segments. While overall agricultural income increased, the overall asset growth in villages declined.

At the same time, governments play a significant role in implementing rules that determine whom, how, and when can undertake initiatives and programmes to promote financial inclusivity. In fact, governments can be said to be the sole regulator in admitting new entrants into the financial services sector – and by proxy, determine how ecosystem changes will unfold.

The capacity of governments in being the payment systems overseer can be observed through the entry of the most notable non-bank e-money platforms in the Filipino market, Gcash. Now the country’s largest mobile e-wallet service, the non-bank payment system takes on market leadership as over 70 percent of Filipino adults have a Gcash account. In 2009, presented with two e-money schemes, the Filipino regulators, the central bank of the Philippines, Bangko Sentralng Pilipinas (BSG) had issued an operating licence to Gcash, in lieu of another bank-issued e-money product, Smart Money, which was introduced by a traditional financial institution. Gcash had an interesting value proposition – to be able to reach the unbanked and underbanked populations in the country and therefore fulfil the gap in e-wallet services. The introduction of Gcash’s frictionless application and overall ease-of-use was a better alternative to traditional financial services which had barriers to entry, with multiple documentation requirements, demonstrable credit records and high minimum balances required. A decade later, this regulatory action had pronounced effects in transforming the financial services landscape. Gcash has set a precedent to fintech companies overtaking banks in capturing the unbanked populations. Regulations had effectively created a level playing field between nonbanks and banks – and therefore a more dynamic ecosystem of different actors and products with an objective of democratising finance.

Undoubtedly, successes globally have been varied. Countries with more advanced and efficient banking systems have seen greater success in their initiatives. Large variations observed in the range and depth of financial services were observed to be attributed to the market frictions that hinder the efficient operations of financial institutions and markets. The existence of market and regulatory constraints constitute country-specific barriers that contribute to market frictions. Naturally, efficient and developed financial sectors allow greater competition to materialise, ensuring that there is a competitive supply of financial services to expand and entrench accessible financial and lending infrastructure.

After all, strong government support and an enabling environment remains key to establishing a financially inclusive society. Governments can seek to achieve financial inclusion by putting in place open regulatory policies that welcome the entry of innovative fintech solutions. For instance, the implementation of regulatory sandboxes ensure that market entrants have a safe space to test their products, services and solutions before going into the market. A positive, enabling environment that balances responsible and well-informed initiatives will be crucial to achieve greater financial inclusion.

---

AI

While the definition of artificial intelligence (AI) has been reimagined over the past century, it can simply be explained to be the endeavour to simulate human intelligence in machines through complex mathematical modelling techniques. Machine learning is thus the application of AI to develop models and algorithms to solve problems. Built from data, the performance of machine learning algorithms are largely correlated to the quality of the dataset – and this has implications on its corresponding applications. Today, AI and machine learning applications can be extended to the financial inclusion agenda, and have increasing relevance in the field of credit risk scoring.

In economies where financial mobility of the already vulnerable groups are impeded, artificial intelligence (AI) and machine learning serve as welcome technologies that can improve their access to basic financial services.

Information asymmetry and its barrier to extending credit

The credit market is largely characterised by information asymmetry. Banks, as their capacity as lenders, do not always possess perfect information on the borrower’s risks, as posited by Stiglitz and Weiss (1981). For the financially vulnerable, being excluded from the formal employment economy and the lack of a pre-existing account with traditional financial institutions further contribute to their information opacity. Similarly, MSMEs who do not have audited financial statements and lack any collateral to tag to their loan applications also make their characteristics much harder to capture in quantitative indicators as required by financial institutions. This creates the financial inclusion gap that could be largely resolved through technologies that can bridge the existing information asymmetry.

Redefining credit scoring through the use of AI and alternative data

Where the main barrier for the financially vulnerable to access credit products often lie in their inability to demonstrate creditworthiness as obligated by traditional financial institutions, AI can step in by calculating credit scores through machine learning algorithms that utilises alternative data – enhancing the existing credit scoring mechanisms to include the underserved into the credit system.

Alternative credit scoring utilises artificial intelligence and social media, scraping away traditional metric and paper-based scoring methodologies that depend on individuals having a preexisting account. In many developing economies, consumers tend to prefer one-stop-shops to make their necessary purchases. In Indonesia, e-commerce has become the most prevalent platform for the retail consumer to top up their phone credit, pay bills, and pay for their commute. At the same time, the unbanked in the society also typically are unable to demonstrate a consistent income history or creditworthiness, being traditionally cash intensive users.

This provides AI-based fintech firms an interesting opportunity. By onboarding the unbanked into the e-commerce and online platforms, there are now data points for their algorithm to evaluate their financial and consumption fitness. Similarly, alternative data sources such as public data, registered data from companies and interaction data from social media and messenger services can enrich the alternative credit scoring dataset to enable the AI algorithm to assess consumer behaviour and verify their ability to repay the loans more accurately.

The technology is already in place in some key emerging markets. Branch, a mobile-based digital lending application provides consumers in Kenya, Mexico, Nigeria, India and Tanzania access to instant loans with no physical documentation. Credit is made affordable and accessible to the financially vulnerable, including smallholder farmers which have difficulties accessing credit from traditional financial services providers. The application incorporates machine learning algorithms to assess the creditworthiness of the borrower through data points gathered from the individual borrower as well as those pegged to the accumulated experiences of other existing borrowers. Branch collects mobile data ranging from text messages to call logs and even GPS information to derive its credit decision. The onboarding process is frictionless as well – applicants simply have to download the application, perform standard identification verification processes and indicate their consent for Branch to access their mobile phone data. Furthermore, Branch extends credit in denominations as low as USD $50, breaking down traditional notions of economies of scale as necessitated in traditional financial institutions.

In a way, alternative credit scoring is simply an upgrade from traditional credit evaluation mechanisms to automated credit scoring in the presence of abundant, relevant and quality consumer data; which is otherwise known as alternative data. And yet, alternative credit scoring serves as a more efficient, cost-effective and customised alternative to include the financially vulnerable into the system; overcoming the problem of information asymmetry.

---

Blockchain

The blockchain is simply a massive, decentralised ledger of transactions across a peer-to-peer network. The shared and immutable ledger enables the processing of transactions and tracking of assets without the need for a central authority or bank as an intermediary, extending its uses beyond the more commonly known cryptocurrency. Distributed ledger technology is one of such applications that can help to foster financial inclusion.

A case for accessibility and usability

Conventionally, the unbanked and underbanked face significant challenges and hefty costs in opening a bank account. Other than a potentially long travel time and opportunity costs in heading to a bank branch, identification documents and a minimum initial deposit balance are also some of the key barriers.

Blockchain technologies have the potential to make the financial services ecosystem more transparent, frictionless and efficient. Operating on a wholly online presence, individuals do not need to travel to a bank branch to open an account or to deposit cash. Furthermore, in terms of usability, they are also able to deposit money into their accounts through third party agents right on their phone. This makes their access to the financial system seamless. However, this is not the sole value proposition of blockchain technology.

Blockchain-based identities help address the hurdle on identification documents. One billion in the world lack proof of identity and struggle to face challenges in verifying and authenticating their identities. This restricts their access to many basic services and opportunities – financial, health and livelihood. Without legal identification, they are denied access to formal employment, registering self-owned businesses, opening a bank account, accessing healthcare and even obtaining government aid. This makes a strong case for a verifiable digital ID, which can be registered at a lower cost. Blockchain provides an effective proposition to digital identity management.

Without requiring the typical legacy documentation from traditional financial systems, the technology could help the unbanked become more easily verifiable on public blockchains. If the unbanked are able to gain access to the internet, they are surely able to access blockchains. Similarly, if they are able to access blockchains, they now have a digital identity in the form of a decentralised identifier (DID). This allows individuals without proper access to the financial system to gain a higher independence and better chances of government welfare through their digital identity on blockchain. These unique identifiers are generated and controlled by holders, in so-called decentralised self-sovereign identity (SSI) systems – immutable and more secure than traditional identity systems. It allows an individual to have control over the administration of his identity – users can now carry their own tangible digital ID to access services such as transferring money over a domestic and international scale.

As such, self-sovereign identity platforms are easily accessible to any mobile phone holder – the unbanked would just be required to open an account and input the necessary data to create the digital ID. This is well-aligned with the ubiquity of mobile and internet usage across the world.

Blockchain-based identities empower individuals. Individuals remain in sole control of their own identity, and with the immutability of the underlying blockchain technology, their identity cannot be owned by any governmental authority and financial intermediaries. Predictably, decentralised identity solutions will benefit refugees without proper identification documents the most , providing them with a digital verification mechanism to prove and share their identities, enabling them access to basic services. Beyond that, blockchain-based identities serve to include the financially vulnerable on a larger scale, providing them with an economic identity through a public decentralised infrastructure.

Redefining digital credit and capital raising

The global online alternative finance market volume has increased by a whopping 37 percent from 2012 to 2017. In 2017, the total market volume stands at $418.52 billion. Under the umbrella of online alternative finance, peer-to-peer (P2P) lending and crowdfunding has seen a continuous growth trajectory. Unsurprisingly, the push for P2P lending and crowdfunding has been marked by the underlying demand for greater credit accessibility by small businesses.

While still a relatively nascent industry, P2P lending provides significant potential in contributing to the growth of many MSMEs. Globally, P2P lending accounts for 25 percent of MSMEs’ funding mechanism. MSMEs in Indonesia face obstacles and limited access to funding from formal funding, making it challenging for their businesses to expand and survive. At the same time, they are vital to Indonesia’s economy, contributing to job creation, poverty reduction, and solving inequality. Where P2P lending is seen as a more convenient, efficient and flexible alternative to traditional financing, the P2P lending market steps in as one of the most important sources of funding for these businesses.

As the P2P lending market continues to scale up, blockchain technology has the potential to be implemented in P2P lending platforms to help facilitate safer, more transparent and quicker access to funds. The role of the blockchain-based P2P platform is not that of a credit intermediary, but rather as an information intermediary to connect supply and demand resources (i.e. or borrowers and lenders). The platform facilitates transaction initiation, pre-transaction verification, contract signing, transaction processing and risk control.

In transaction initiation, both borrowers and lenders download the blockchain client. Synchronising their devices to the blockchain network, the borrower proceeds to request for financing at the terminal with the amount, maturity, interest rate, collaterals and other relevant information. The lender mobilises the borrower’s credit history in the blockchain platform and proceeds to make the credit decision through direct P2P communication. Verification takes place in the form of fuss-free, quick, real-time authentication and approval without the involvement of a third party. The use of smart contracts comes in to enable contract signing without the need of brokers and intermediaries, enabling greater speed, accuracy and safety in processing. To finish off, the client wallet is then utilised to transfer the money and to synchronise information in real time, without account processing. All transaction information and protocols are publicly recorded on the ledger – information ascribed on each block is available on all nodes and visible throughout the entire network.

Blockchain P2P lending provides substantial cost efficiencies and onboarding time. For instance, by removing intermediaries in loan closing, the technology can help save 1 to 2 percent of the closing costs. This makes P2P lending much more affordable and scalable to the underserved. Furthermore, as the blockchain saves the full credit history of borrowers, future lenders are provided a degree of oversight on their creditworthiness. This is a welcome innovation to the financially vulnerable, as they are often unable to demonstrate creditworthiness in the first place. By slowly building up their credit history, they are able to receive more and higher-value loans as they repay their smaller loans and apply for larger loans in the future.

Smart contracts and transparent financing

Smart contracts also provide significant benefits in providing financially inclusive and sustainable solutions. As programs stored on a blockchain that run when predetermined conditions are met, smart contracts automate the execution of agreements without any intermediaries. In essence, a distributed ledger is used to store contracts. Blockchain-based smart contracts are characterised by their ability to automate, self-execute, remain immutable and allow distributed access and accurate verification. In fact, the design imperatives of a smart contract lies in its observability of either party’s performance of obligations, verifiability to an independent third party that the obligation has been breached or met, privity only to parties of the contract and enforceable through built-in self enforcement protocols through incentives and penalties. As such, they offer a more transparent, efficient and secure way to facilitate contractual processes that are commonplace in capital raising and financing.

One alternative financing mechanism that has compelling benefits to the MSME market in developing economies is through crowdfunding. Crowdfunding allows for a quick way to raise funds with fewer regulatory requirements and provides greater cost efficiencies, allowing MSMEs and underserved individual access to finance, whilst paving the way for innovations in microfinance and mobile financial services. Beyond helping the bottom-of-pyramid (BOP) groups and businesses access, crowdfunding has also been successful in connecting funders in developed economies to low-income entrepreneurs in developing countries. For instance, Kiva remains one of the most prominent crowdfunding loan platforms globally and has since coordinated more than 1 million loans from funders to BoP owners in developed economies.

A lack of transparency remains one of the key concerns of crowdfunders. Trust is integral in the crowdfunding process as both the crowdfunder and fundraiser need to know that the funds are handled appropriately. On one hand, crowdfunders need to ensure that the funding is transmitted to them when project goals are met. On the other hand, fundraisers need to ensure that their funds are channelled correctly to the project when the fundraising goals are met; or if otherwise, refunded to them. As such, an intermediary in the form of a trustworthy crowdfunding platform is required. This is where smart contracts come into play, as they are suited to alleviate process frictions and operational, fraud and legal risks by holding the funding until a fundraising goal is reached. When the project is fully funded, the smart contract automatedly transfers the money to fundraisers. Alternatively, if the project fails to meet fundraising goals, the program executes the refund to the supporters.

Effectively, smart contracts eliminate the dependency on traditional crowdfunding platforms such as Kickstarter, and offers a stronger value proposition to instilling trust between both the fundraiser and crowdfunders. Streamlining and shortening the process, smart contracts provide greater cost efficiencies and operational efficiencies as compared to traditional incumbent platforms. As parameters are already clearly defined in the program, processes are executed automatically. Additionally, a smart contract adds an additional layer of governance and transparency. As it is a distributed ledger, there is no sole ownership of the money until fundraising goals are met. Furthermore, the distributed ledger also enhances verifiability through its auditability. Its immutable characteristic also ensures that once the contract is set, it will be unable to be tampered with, adding an additional layer of security.

In other words, smart contracts provide exceptional benefits that contribute to the overarching objectives of crowdfunding and are key to building trust between stakeholders on either side of the project. Its versatility and interoperability also enables it to be utilised in wider applications than that of capital raising. For instance, smart contracts can also be utilised in insurance and cross border payments,, in the push to enable the financially vulnerable to access basic financial services.

---

Cryptocurrency

While blockchain technology has unparalleled potential in allowing the financially vulnerable to spend and exchange money in a cheaper and faster way, one of its most prominent applications is the cryptocurrency. Using blockchain technology, cryptocurrency is a medium of exchange, created and stored electronically in the former through encryption techniques to algorithmically control the creation of monetary units and verify the transfer of funds. As at 2021, cryptocurrencies were valued at over $2 trillion in market capitalisation – and this number is further expected to increase as cryptocurrency-based lending applications and decentralised trading revenues gain more traction. One of the best known examples is Bitcoin.

A transformation in cross-border remittances

The borderless nature of cryptocurrencies has allowed it to be proposed as an alternative medium for international remittances. Globally, remittances cost an average of 6.30 percent of the amount sent. For many salaried workers in developing economies such as Kenya, this can comprise a significant amount of their monthly income – sometimes up to 30% of their gross earnings. For some financially vulnerable groups such as low-wage migrant workers, the hefty fees incurred in cross-border remittances is an even more pressing issue for them to send money back home. International transfers by traditional intermediaries such as Western Union and MoneyGram often impose high costs for their services,. This results in many migrant workers having no choice but to limit the frequencies of their remittances, even when emergency expenditures may be required by their families.

Similar to other blockchain technologies, transaction time and costs can be significantly reduced by the elimination of the middleman. Conventionally, a foreign exchange transaction requires the completion of tedious paperwork and payment of the significant bid-ask spread between the two currencies. Thereafter, the transaction goes through a series of third-party middlemen such as an intermediary and an end-point bank in the receiving country. The SWIFT protocol currently acts as a network to bridge two banks without an established financial relationship by searching the network for correspondent intermediary banks that can settle the transaction and take a cut of the fee. Another cut of the fee is then absorbed by the actual intermediaries that process the funds – the SWIFT protocol only sends the payment orders. The substantial involvement of intermediaries results in a series of commissions being charged, with zero transparency and a lack of immutable records for verifiability.

To counter this, cryptocurrency acts as an asset to remit money with little costs to transfer and allows for currency exchange with no markup. In fact, with cryptocurrency as a medium, transfer fees could be reduced to as little as 0.025%. On the whole, a study by Accenture expects that blockchain technology could bring down the global clearance and settlement costs by $10 billion annually. With an almost instantaneous processing, cryptocurrencies also help to alleviate the issue of an uncertain payment time encountered with traditional intermediaries – allowing users to transfer money swiftly during exigencies. On a macroeconomic level, the cryptocurrency-based blockchain technologies will also allow overall payment processing capacities to expand globally.

While traditional cryptocurrencies such as Bitcoin are already able to provide significant advantages, the payment landscape is also seeing new entrants in the form of cryptocurrency-based blockchain payment systems. To take an example, Ripple is a blockchain technology that bypasses the intermediate tiers of the banks to enable transactions to be confirmed in seconds. The medium used is in the form of a cryptocurrency, XRP, in which its sole objective is to be converted back and forth between currencies. In its design we see its ingenuity – by having both a distributed ledger and cryptocurrency, the transaction data and the actual funds are carried synchronously in real time. This is enabled through the use of its decentralised P2P network that allows for both the bidirectional messaging between the messengers of both the sending and receiving bank, inter-ledger protocols (ILPs) to track debits, credits and liquidity of the transaction, FX ticker, and validator for real-time settlement. As a result, it only takes around four or five seconds to complete transactions.

Safeguarding against financial collapse

In economies where financial systems have collapsed, cryptocurrencies are a good way for people to safeguard their assets and perform remittances. Venezuela serves as a perfect example of how cryptocurrency has transformed the lives of people who are unable to access basic financial services due to the state of their economy. Wrecked by hyperinflation of the national currency, Bolivar, most Venezuelans do not have sufficient US dollars to be able to open a US bank account and thus are barred from accessing international banking services. At the same time, sanctions and compliance regulations resulted in the closure of multiple international bank accounts, restricting their access to the international financial market. The persistent distrust of the traditional banking sector and the sentiment of cryptocurrencies as a hedge to volatile currencies and geopolitical risk has also led a strong push toward cryptocurrencies.

This is where cryptocurrency can step in – it provides a viable solution for populations living in countries with fluctuating and unstable monetary systems as a storage of value or platform for holding their wealth. In fact, Bitcoin has emerged as a more attractive alternative to holding the rapidly depreciating national currencies in Argentina and Venezuela that even the relatively high price volatility of the former imposes less of a barrier.

The nature of cryptocurrency allows it to be a good alternative storage of value and hedge in troubled economies. For instance, despite the fact that new Bitcoins can enter the exchange through mining, there is ultimately a finite number that are allowed to exist. Its algorithmically fixed production schedule helps protect the coins from arbitrary inflation by the central authority through Proof-of-Work. Furthermore, cryptocurrencies like bitcoin are decentralised, shielding it against pitfalls associated with monetary supply, such as macroeconomic supply shocks and asset market inflation.

Where inflationary pressures have a direct correlation to currency devaluation, cryptocurrencies such as Bitcoin also address problems relating to wildly fluctuating exchange rates. Cryptocurrencies also have the ability to insulate against currency wars initiated due to escalating geopolitical tensions. This was observed when Brazil declared a currency war on the United States due to the latter’s expansionary monetary policy which had resulted in the Brazilian Real to appreciate. As the Brazilian government introduced a series of measures that had the intention to depreciate the currency in a controlled manner, it had, in reality, resulted in the severe fluctuation of exchange rates. Faced with the volatility of exchange rates, Brazilians turned to Bitcoin as a store of value and a medium of exchange into other more stable currencies.

While the benefits of cryptocurrencies can be realised by anyone who accesses the financial system, its benefits are felt the most among the financially vulnerable in developing economies with a volatile and unstable monetary system.

---

Conclusion

AI, Blockchain and Cryptocurrency present promising new opportunities to revolutionise how things are traditionally done in the existing global financial system. As financial inclusion remains a key social and economic agenda in countries all over the world, fintech companies are likely to take the centre stage in harnessing digital technologies and applications through the former to address institutional inefficiencies and alter public expectations in the process.

At the same time, these technologies will face an enormous hurdle in scaling up and achieving widespread adoption and acceptance; enabling inclusive financial services to the masses. Market entrants offering innovative AI, Blockchain and Cryptocurrency based products will need to navigate through regulatory uncertainty across different geographical and political landscapes. The regulatory direction taken by governments are likely to differ and lead to substantial uncertainty in the short and medium term. While regulatory bodies have since improved in working with the industry to build an ecosystem that balances protection and regulation, regulatory uncertainty will undoubtedly surface as regulators struggle to meet with the rapid advancement and evolvement of AI, Blockchain and Cryptocurrency technologies. With overarching regulatory uncertainty, investors become hesitant and innovation may be dampened.

As posited at the World Economic Forum, technologies alone are insufficient to spearhead the creation of new market infrastructure or lead to the improvement of existing infrastructure. The involvement of all players in the entire ecosystem is necessary to shape the direction of financially inclusive technologies. Strategic partnerships, established with sound frameworks and implementable timelines, can help stakeholders respond and adapt to a rapidly evolving financial services landscape globally. After all, universal financial inclusion can only be achieved when innovation is aligned with shared strategic objectives in the entire ecosystem.

Fintech has the power to uplift the lives of the 1.7 billion people who are outside of the traditional financial system. With the advancement of AI, Blockchain and Cryptocurrency technologies, there has never been a better time to call upon all stakeholders across the value chain – investors, businesses, consumers and regulators alike – to take part in the development of the fintech ecosystem. Fintech is a force for good – and it is here to stay.

---

Citations

1. Demirgüç-Kunt, A., Klapper, L., Singer, D., Ansar, S., & Hess, J. (2018). Measuring Financial Inclusion and the Fintech Revolution (p. 35). World Bank Group. Retrieved from https://globalfindex.worldbank.org/sites/globalfindex/files/2018-04/2017%20Findex%20full%20report_0.pdf
2. Kemp, S. (2021). 60% of the World’s Population Is Now Online. Retrieved 6 April 2022, from https://datareportal.com/reports/6-in-10-people-around-the-world-now-use-the-internet
3. Johnson, J. (2021). Internet users in the world 2021. Retrieved 6 April 2022, from https://www.statista.com/statistics/617136/digital-population-worldwide/#statisticContainer
4. Goswami, A., Borasi, P., & Kumar, V. (2021). Fintech Technologies Market. Retrieved from https://www.alliedmarketresearch.com/fintech-technologies-market
5. Appaya, S. (2021). On fintech and financial inclusion. Retrieved 6 April 2022, from https://blogs.worldbank.org/psd/fintech-and-financial-inclusion
6. Ibid
7. Rubstova, V. (2019). Banking and Poverty: Why the Poor Turn to Alternative Financial Services. Retrieved 6 April 2022, from https://econreview.berkeley.edu/banking-and-poverty-why-the-poor-turn-to-alternative-financial-services
8. Sawyer, N., & Temkin, K. Analysis of Alternative Financial Service Providers (p. 1). Fannie Mae Foundation. Retrieved from https://www.urban.org/sites/default/files/alfresco/publication-pdfs/410935-Analysis-of-Alternative-Financial-Service-Providers.PDF
9. Reinicke, C. (2022). There have never been more ways to build a credit score. Here’s what to know. Retrieved 6 April 2022, from https://www.cnbc.com/2022/02/03/there-have-never-been-more-ways-to-establish-and-build-a-credit-score.html
10. Demirguc-Kunt, A., & Klapper, L. (2012). Measuring Financial Inclusion: The Global Findex Database. Policy Research Working Papers, 39. doi: 10.1596/1813-9450-6025
11. Oliver Wyman. (2022). Accelerating Financial Inclusion in South-east Asia with Digital Finance. Asian Development Bank. Retrieved from https://www.adb.org/sites/default/files/publication/222061/financial-inclusion-se-asia.pdf
12. Tan, Y. (2018). How Digital Disruptors Serve The Unbanked In Southeast Asia. Retrieved 6 April 2022, from https://www.forbes.com/sites/tanyinglan/2018/10/02/how-digital-disruptors-serve-the-unbanked-in-southeast-asia/?sh=159a89f120be
13. Carandang, B. (2019). How fintech is setting Southeast Asia’s SMEs free. Retrieved 6 April 2022, from https://www.weforum.org/agenda/2019/06/fintech-is-driving-financial-inclusion-in-southeast-asia/
14. Appaya, S., & Varghese, M. (2019). Digital ID – a critical enabler for financial inclusion. Retrieved 6 April 2022, from https://blogs.worldbank.org/psd/digital-id-critical-enabler-financial-inclusion
15. Why ID matters for development. Retrieved 6 April 2022, from https://id4d.worldbank.org/guide/why-id-matters-development
16. Barajas, A., Beck, T., Belhaj, M., & Ben Naceur, S. (2020). Financial Inclusion: What Have We Learned So Far? What Do We Have to Learn?. IMF Working Papers, 20(157). doi: 10.5089/9781513553009.001
17. Alliance for Financial Inclusion (AFI). (2019). KYC Innovations, Financial Inclusion and Integrity In Selected AFI Member Countries. Alliance for Financial Inclusion (AFI). Retrieved from https://www.afi-global.org/sites/default/files/publications/2019-03/KYC-Innovations-Financial-Inclusion-Integrity-Selected-AFI-Member-Countries.pdf
18. Perrigo, B. (2018). India Has Been Collecting Eye Scans and Fingerprint Records From Every Citizen. Here’s What to Know. Retrieved 6 April 2022, from https://time.com/5409604/india-aadhaar-supreme-court/
19. Camara, N., & Tuesta, D. (2014). Measuring Financial Inclusion: A Multidimensional Index. SSRN Electronic Journal. doi: 10.2139/ssrn.2634616
20. Mahmood, R., & Sarker, S. (2015). Inclusive Growth through Branchless Banking: A Review of Agent Banking and its Impact. Journal Of Economics And Sustainable Development, 6(23).
21. Caputo, S. (2019). The pivotal role of mobile money agents in driving financial inclusion. Retrieved 6 April 2022, from https://www.gsma.com/mobilefordevelopment/blog/the-pivotal-role-of-mobile-money-agents-in-driving-financial-inclusion/
22. Demirgüç-Kunt, A., Klapper, L., Singer, D., Ansar, S., & Hess, J. (2018). Measuring Financial Inclusion and the Fintech Revolution (p. 35). World Bank Group. Retrieved from https://globalfindex.worldbank.org/sites/globalfindex/files/2018-04/2017%20Findex%20full%20report_0.pdf
23. Oxford Economics. (2019). The ‘YES’ Economy: Giving the world financial identity. Oxford Economics. Retrieved from https://www.oxfordeconomics.com/resource/The-YES-Economy-Giving-the-world-financial-identity/
24. Accenture. Within Reach: How banks in emerging economies can grow profitably by being more inclusive. CARE International. Retrieved from https://care.ca/wp-content/uploads/2018/12/Accenture-Banking-WithinReach.pdf?x77159
25. Osafo-Kwaako, P., Singer, M., White, O., & Zouaoui, Y. (2018). Mobile money in emerging markets: The business case for financial inclusion. Retrieved 6 April 2022, from https://www.mckinsey.com/industries/financial-services/our-insights/mobile-money-in-emerging-markets-the-business-case-for-financial-inclusion
26. Aron, J., & Muellbauer, J. (2019). The economics of mobile money: Harnessing the transformative power of technology to benefit the global poor. Retrieved 6 April 2022, from https://voxeu.org/article/economics-mobile-money#:~:text=Every%20deposit%2C%20withdrawal%2C%20transfer%20or,remittances%20more%20affordable%20and%20traceable
27. Mureithi, C. (2021). Africa continues to be the global leader in mobile money services. Retrieved 6 April 2022, from https://qz.com/africa/1990532/africa-continues-to-be-the-global-leader-in-mobile-money-services/
28. Zandt, F. (2021). Where is ‘mobile money’ being used the most?. Retrieved 6 April 2022, from https://www.weforum.org/agenda/2021/09/mobile-money-africa-prevalence-economics-technology/
29. Mastercard Foundation. Digital Access: The Future of Financial Inclusion in Africa. International Finance Corporation (IFC). Retrieved from https://www.ifc.org/wps/wcm/connect/96a4f610-62b1-4830-8516-f11642cfeafd/201805_Digital-Access_The-Future-of-Financial-Inclusion-in-Africa_v1.pdf?MOD=AJPERES&CVID=mdz-QF0
30. O’Dea, S. (2021). Zambia mobile cellular subscriptions 2000-2020. Retrieved 6 April 2022, from https://www.statista.com/statistics/501173/number-of-mobile-cellular-subscriptions-in-zambia/
31. GMSA (2021). State of the Mobile Money Industry in Asia. (2021). Presentation. Retrieved from https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2021/07/State-of-the-Mobile-Money-Industry-in-Asia-1.pdf
32.  Ibid
33.  Ibid
34. Nariyanuri, S. (2021). Southeast Asia E-Money Market Report. S&P Global Market Intelligence. Retrieved from https://pages.marketintelligence.spglobal.com/SEA-E-Money-Report-2021-Report-Request.html
35. FitchRatings. (2020). Digital Banks in South-East Asia. FitchRatings. Retrieved from https://www.fitchratings.com/research/banks/digital-banks-in-south-east-asia-19-08-2020
36. Senay, R. (2021). How Financial Inclusion is Driving Fairer Growth in Emerging Markets. Retrieved 6 April 2022, from https://www.lazardassetmanagement.com/uk/en_uk/references/fundamental-focus/financial-inclusion
37. Bank Indonesia (n.d.) Financial Inclusion Development Policy in Indonesia. Presentation, Indonesia. Retrieved from https://www.ilo.org/wcmsp5/groups/public/—asia/—ro-bangkok/—ilo-jakarta/documents/presentation/wcms_216688.pdf
38. Santoso, A. (2014). Analysis: Financial inclusion through government aid programs. Retrieved 6 April 2022, from https://www.thejakartapost.com/news/2014/09/17/analysis-financial-inclusion-through-government-aid-programs.html
39. Commercial bank branches (per 100,000 adults) – Indonesia. Retrieved 6 April 2022, from https://data.worldbank.org/indicator/FB.CBK.BRCH.P5?locations=ID
40. Boonperm, J., Haughton, J., Khandker, S., & Rukumnuaykit, P. (2012). Appraising the Thailand Village Fund. Policy Research Working Papers. doi: 10.1596/1813-9450-5998
41.  Kislat, C., & Menkhoff, L. (2013). The Village Fund Loan Programme: Who Gets It, Keeps It and Loses It?. Vulnerability To Poverty, 283-304. doi: 10.1057/9780230306622_11
42. Dizikes, P. (2022).Taking Credit. Retrieved 6 April 2022, from https://news.mit.edu/2012/thai-village-0510
43. GCash Sustains Growth and Market Leadership with over 51 Million Users as of End-October. (2021). Retrieved 6 April 2022, from https://www.globe.com.ph/about-us/newsroom/partners/gcash-sustains-growth-market-leadership.html#gref
44. Financial services are experiencing massive adoption in the Philippines through Gcash. (2021). Retrieved 6 April 2022, from https://www.hubbis.com/news/financial-services-are-experiencing-massive-adoption-in-the-philippines-through-gcash
45. Cigaral, I. (2021). Fintech firms to overtake banks in cornering unbanked Filipinos — Moody’s. Retrieved 6 April 2022, from https://www.philstar.com/business/2021/07/15/2112718/fintech-firms-overtake-banks-cornering-unbanked-filipinos-moodys
46. Ehrbeck, T., Pickens, M., & Tarazi, M. (2012). Financially Inclusive Ecosystems: The Roles of Government Today. CGAP. Retrieved from https://www.cgap.org/sites/default/files/Focus-Note-Financially-Inclusive-Ecosystems-The-Roles-of-Government-Today-Feb-2012.pdf
47. Ayyagari, M., & Beck, T. (2015). Financial Inclusion in Asia: An Overview. Asian Development Bank. Retrieved from https://www.adb.org/sites/default/files/publication/173377/ewp-449.pdf
48. Asian Development Bank Institute. (2014). Financial Inclusion in Asia: Country Surveys. Asian Development Bank Institute. Retrieved from https://www.adb.org/sites/default/files/publication/159308/adbi-financial-inclusion-asia.pdf
49. Baker McKenzie. A Guide To Regulatory Fintech Sandboxes Across Asia Pacific. Baker McKenzie. Retrieved from https://www.bakermckenzie.com/-/media/files/insight/publications/2018/01/qrg_ap_regulatoryfintech_jan18.pdf?la=en
50.  What is Artificial Intelligence? How Does AI Work?. Retrieved 6 April 2022, from https://builtin.com/artificial-intelligence
51. Marr, B. (2016). What Is The Difference Between Artificial Intelligence And Machine Learning?. Retrieved 6 April 2022, from https://www.forbes.com/sites/bernardmarr/2016/12/06/what-is-the-difference-between-artificial-intelligence-and-machine-learning/?sh=3b0c65bf2742
52. Mhlanga, D. (2021). Financial Inclusion in Emerging Economies: The Application of Machine Learning and Artificial Intelligence in Credit Risk Assessment. International Journal Of Financial Studies, 9(3), 39. doi: 10.3390/ijfs9030039
53. Stiglitz, J., & Weiss, A. (1981). Credit Rationing in Markets with Imperfect Information. The American Economic Review, 71(3), 393-410. doi: http://www.jstor.org/stable/1802787
54. Barajas, A., Beck, T., Belhaj, M., & Ben Naceur, S. (2020). Financial Inclusion: What Have We Learned So Far? What Do We Have to Learn?. IMF Working Papers, 20(157). doi: 10.5089/9781513553009.001
55. Widiyasari, V., & Widjaja, H. (2021). This new approach to credit scoring is accelerating financial inclusion in emerging economies. Retrieved 6 April 2022, from https://www.weforum.org/agenda/2021/01/this-new-approach-to-credit-scoring-is-accelerating-financial-inclusion/
56. Cuevas, L. (2020). AI for Financial Inclusion: Banking the Unbanked. Retrieved 6 April 2022, from https://blog.strands.com/ai-for-financial-inclusion-banking-the-unbanked#:~:text=The%20application%20of%20artificial%20intelligence,being%20mostly%20cash%20intensive%20users
57. Mhlanga, D. (2021). Financial Inclusion in Emerging Economies: The Application of Machine Learning and Artificial Intelligence in Credit Risk Assessment. International Journal Of Financial Studies, 9(3), 39. doi: 10.3390/ijfs9030039
58. Margarete, B., & O’Neill, F. (2022). Artificial Intelligence Innovation in Financial Services. Retrieved from https://openknowledge.worldbank.org/handle/10986/34305
59.  Ibid
60. Kaya, D., & Pronobis, P. (2016). The Benefits of Structured Data across the Information Supply Chain: Initial Evidence on XBRL Adoption and Loan Contracting of Private Firms. Journal Of Accounting And Public Policy, 35(4). doi: 10.2139/ssrn.2450858
61. Powell, A. (2021). Cryptocurrency expert discusses recent fluctuations. Retrieved 6 April 2022, from https://news.harvard.edu/gazette/story/2021/06/cryptocurrency-expert-discusses-recent-fluctuations/#:~:text=For%20the%20uninitiated%2C%20cryptocurrencies%20are,that%20keeps%20track%20of%20transactions
62. James, H. (2022). Lucre’s Allure. Retrieved 6 April 2022, from https://www.imf.org/external/pubs/ft/fandd/2018/06/bitcoin-blockchain-history-of-money/james.htm#:~:text=Blockchain%20technology%20means%20that%20value,interaction%20of%20machines%20and%20energy
63. Bouveret, A., & Haksar, V. (2018). What Are Cryptocurrencies?. Retrieved from https://www.imf.org/external/pubs/ft/fandd/2018/06/what-are-cryptocurrencies-like-bitcoin/basics.htm
64. Desai, V., Diofasi, A., & Lu, J. (2018). The global identification challenge: Who are the 1 billion people without proof of identity?. Retrieved 7 April 2022, from https://blogs.worldbank.org/voices/global-identification-challenge-who-are-1-billion-people-without-proof-identity
65. Mahajan, D., Manyika, J., & White, O. (2019). Nearly one billion people have no form of legal ID. Retrieved 7 April 2022, from https://www.mckinsey.com/mgi/overview/in-the-news/nearly-one-billion-people-have-no-form-of-legal-id
66. Sporny, M., Longley, D., Sabadello, M., Reed, D., Steele, O., & Allen, C. (2021). Decentralized Identifiers (DIDs) v1.0 Core architecture, data model, and representations. W3C Proposed Recommendation. doi: https://www.w3.org/TR/did-core/#:~:text=Decentralized%20identifiers%20(DIDs)%20are%20a,the%20controller%20of%20the%20DID
67. Baruri, P. (2016). Blockchain Powered Financial Inclusion. Presentation. Retrieved from https://afyonluoglu.org/PublicWebFiles/Reports/Blockchain/WB/2016%20WB%20-%20Blockchain%20Powered%20Financial%20Inclusion.pdf
68. Blockchain for Digital Identity. Retrieved 7 April 2022, from https://www.nec.com/en/global/solutions/blockchain/blockchain-for-digital-identity.html#:~:text=Blockchain%20has%20facilitated%20the%20so,connect%20to%20different%20online%20services
69. Spilka, D. (2020). Blockchain and the unbanked: Changes coming to global finance. Retrieved 7 April 2022, from https://www.ibm.com/blogs/blockchain/2020/03/blockchain-and-the-unbanked-changes-coming-to-global-finance/
70. Karanja, R., & Korin, N. (2019). Blockchain-based Digital ID Platform for Refugee Camps in Kenya. Retrieved from https://bteam.org/assets/reports/Blockchain-Based-Digital-ID-Platform-for-Refugee-Camps-in-Kenya.pdf
71. Morrow, M. The Promise of Blockchain and Safe Identity Storage for Refugees. Retrieved from https://www.unhcr.org/blogs/promise-hype-provides-blockchain-safe-identity/
72. Lim, E. (2021). Decentralised identity: first step towards banking the unbanked. Retrieved 7 April 2022, from https://www.businessthink.unsw.edu.au/articles/decentralised-identity
73. Cambridge Centre for Alternative Finance. The Landscape of Peer to Peer / Marketplace Lending. Cambridge Centre for Alternative Finance. Retrieved from https://thedocs.worldbank.org/en/doc/382571560127611420-0130022019/original/FinSACFintech19KieranGarvey.pdf
74. SME Finance Working Group. (2020). Survey Report on Alternative Finance for SMEs. Alliance for Financial Inclusion. Retrieved from https://www.afi-global.org/wp-content/uploads/2021/01/AFI_MSMEs_survey-report_AW_digital_0.pdf
75. Tambunan, T., Santoso, W., Busneti, I., & Batunanggar, S. (2021). The Development of MSMEs and the Growth of Peer-to-Peer (P2P) Lending in Indonesia. International Journal Of Innovation, Creativity And Change, 15(2), 585-611. Retrieved from https://www.ijicc.net/images/Vol_15/Iss_2/15238_Tambunan_2021_E2_R1.pdf
76. Gonzalez, L. (2019). Blockchain, herding and trust in peer-to-peer lending. Managerial Finance, 46(6), 815-831. doi: 10.1108/mf-09-2018-0423
77. Wang, Y., Kim, D., & Jeong, D. (2020). A Survey of the Application of Blockchain in Multiple Fields of Financial Services. Journal Of Information Processing Systems, 16(4), 935-958. doi: doi.org/10.3745/JIPS.04.0185
78. What are smart contracts on blockchain?. Retrieved 7 April 2022, from https://www.ibm.com/topics/smart-contracts 
79. Bansal, A., & Swamy, S. (2020). Review: Impact of Blockchain Technology in Lending. International Research Journal Of Engineering And Technology (IRJET), 7(4), 2424-2427. Retrieved from https://www.researchgate.net/publication/341151091_Review_Impact_of_Blockchain_Technology_in_Lending
80. Schmidt, K., & Sandner, P. (2017). Solving Challenges in Developing Countries with Blockchain Technology. Retrieved from https://philippsandner.medium.com/solving-challenges-in-developing-countries-with-blockchain-technology-78ec9b01bae3#:~:text=Blockchain%20technology%20can%20solve%20development,restrict%20deception%2C%20corruption%20and%20uncertainties.
81. World Bank Group. (2020). Smart Contract Technology and Financial Inclusion. Retrieved from http://hdl.handle.net/10986/33723
82. Jenik, I., Lyman, T., & Nava, A. (2017). Crowdfunding and Financial Inclusion. CGAP. Retrieved from https://www.cgap.org/sites/default/files/Working-Paper-Crowdfunding-and-Financial-Inclusion-Mar-2017.pdf
83. Kiva’s small support team handles 4000+ cases a month, and responds within a day. (2022). Retrieved 11 April 2022, from https://www.salesforce.com/customer-success-stories/kiva/
84. Mejia, J., Urrea, G., & Pedraza‐Martinez, A. (2019). Operational Transparency on Crowdfunding Platforms: Effect on Donations for Emergency Response. Production And Operations Management. doi: 10.1111/poms.13014
85. Hamilton, M. (2020). Blockchain distributed ledger technology: An introduction and focus on smart contracts. Journal Of Corporate Accounting & Finance, 31(2), 7-12. doi: 10.1002/jcaf.22421
86.  Miraz, M., & Ali, M. (2020). Blockchain Enabled Smart Contract Based Applications: Deficiencies with the Software Development Life Cycle Models. Baltica Journal, 33(1), 101-116. doi: 10.48550/arXiv.2001.10589
87. Chen, C., Deng, Y., Tsaur, W., Li, C., Lee, C., & Wu, C. (2021). A Traceable Online Insurance Claims System Based on Blockchain and Smart Contract Technology. Sustainability, 13(16), 9386. doi: 10.3390/su13169386
88. Khan, S., Loukil, F., Ghedira-Guegan, C., Benkhelifa, E., & Bani-Hani, A. (2021). Blockchain smart contracts: Applications, challenges, and future trends. Peer-To-Peer Networking And Applications, 14(5), 2901-2925. doi: 10.1007/s12083-021-01127-0
89. Making sense of bitcoin, cryptocurrency and blockchain. Retrieved 11 April 2022, from https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html
90. Global Future Council on Cryptocurrencies. (2021). Cryptocurrencies: A Guide to Getting Started. World Economic Forum. Retrieved from https://www3.weforum.org/docs/WEF_Getting_Started_Cryptocurrency_2021.pdf
91. Soufaih, A. (2021). Revolutionizing International Remittance Payments Using Cryptocurrency and Blockchain-based Technology. Social Impact Research Experience (SIRE), (75). Retrieved from https://repository.upenn.edu/sire/75
92. The World Bank. (2021). Remittance Prices Worldwide Quarterly. Retrieved from http://remittanceprices.worldbank.org/
93. Mercy Corps Ventures. The potential of cryptocurrency for Kenya’s youth: Pilot insights on stablecoin micropayments for digital workers. Retrieved from https://www.mercycorps.org/sites/default/files/2022-02/MCV-Pilot-Insights-Report_Stablecoin-and-Digital-Microwork-in-Kenya-Web.pdf
94. Bersch, J., Ruiz, E., Yakhshilikov, Y., Clevy, J., & Muhammad, N. (2021). Fintech Potential for Remittance Transfers: A Central America Perspective.
95. Campioni-Noack, I. (2021). Cryptocurrencies: an innovative solution to migrant remittances?. Retrieved 11 April 2022, from https://blogs.lse.ac.uk/humanrights/2021/04/29/cryptocurrencies-an-innovative-solution-to-migrant-remittances/
96. Low, R., & Marsh, T. (2019). Cryptocurrency and Blockchains: Retail to Institutional. The Journal Of Investing, 29(1), 18-30. doi:10.3905/joi.2019.1.102
97. How Blockchain Could Disrupt Banking. (2021). Retrieved 11 April 2022, from https://www.cbinsights.com/research/blockchain-disrupting-banking/
98. Reeves, M. (2017). Cryptocurrency-Remittance Transfers Futuristic Technologies & Poverty Alleviation. Economics Student Theses And Capstone Projects, (56). Retrieved from https://creativematter.skidmore.edu/econ_studt_schol/56
99. Qiu, T., Zhang, R., & Gao, Y. (2019). Ripple vs. SWIFT: Transforming Cross Border Remittance Using Blockchain Technology. Procedia Computer Science, 147, 428-434. doi: 10.1016/j.procs.2019.01.260
100. Reed-Woodard, M. (2018). Cross Border Payments. Network Journal, 25(2), 45.
101. Chen, P. (2018). Ripple, the disruptor to the forty years old cross-border payment system – Digital Innovation and Transformation. Retrieved 11 April 2022, from https://digital.hbs.edu/platform-digit/submission/ripple-the-disruptor-to-the-forty-years-old-cross-border-payment-system/
102. Kaygin, E., Zengin, Y., Topcuoglu, E., & Ozkes, S. (2021). The Evaluation of Block Chain Technology within the Scope of Ripple and Banking Activities. Journal Of Central Banking Theory And Practice, 10(3), 153-167. doi: 10.2478/jcbtp-2021-0029
103. Rendon, M. (2021). How Open and Public Cryptocurrencies Can Help Venezuelans. Retrieved 11 April 2022, from https://www.csis.org/analysis/how-open-and-public-cryptocurrencies-can-help-venezuelans
104. Clements, R. (2018). Assessing the Evolution of Cryptocurrency: Demand Factors, Latent Value, and Regulatory Developments. Michigan Business &Amp; Entrepreneurial Law Review, (8.1), 73. doi: 10.36639/mbelr.8.1.assessing
105. Southurst, J. (2014). ZipZap CEO: Argentina’s Volatility Makes Bitcoin Look Stable. Retrieved 11 April 2022, from https://www.coindesk.com/markets/2014/04/01/zipzap-ceo-argentinas-volatility-makes-bitcoin-look-stable/
106. Folkinshteyn, D., & Lennon, M. (2016). Braving Bitcoin: A technology acceptance model (TAM) analysis. Journal Of Information Technology Case And Application Research, 18(4), 220-249. doi: 10.1080/15228053.2016.1275242
107. Ghimire, S. (2022). Analysis of Bitcoin Cryptocurrency and Its Mining Techniques. Retrieved 11 April 2022, from http://dx.doi.org/10.34917/15778438
108. Darlington, J. (2014). The Future of Bitcoin: Mapping the Global Adoption of World’s Largest Cryptocurrency Through Benefit Analysis. Chancellor’S Honors Program Project. Retrieved from https://trace.tennessee.edu/utk_chanhonoproj/1770
109. Cooper, R. (1971). Currency devaluation in developing countries (1st ed.). Princeton University. International Finance Section.
110. Mackenzie, K. (2012). Brazil declares new ‘currency war’. Retrieved 11 April 2022, from https://www.ft.com/content/76d1d4d0-63d0-11e1-8762-00144feabdc0
111. MagnaCarta. (2019). Removing Roadblocks: The New Road of Fintech. MagnaCarta & Klarna. Retrieved from http://www.fintechmundi.com/wp-content/uploads/2019/01/EMEA-Fintech-Disruptors-Report-2019.pdf
112. World Economic Forum & Deloitte. (2017). Beyond Fintech: A Pragmatic Assessment Of Disruptive Potential In Financial Services. Retrieved from https://www.weforum.org/reports/beyond-fintech-a-pragmatic-assessment-of-disruptive-potential-in-financial-services
113. Demirguc-Kunt, A., & Klapper, L. (2012). Measuring Financial Inclusion: The Global Findex Database. Policy Research Working Papers, 39. doi: 10.1596/1813-9450-6025

Verified compensation data of Software Engineers and other technology talents. Analysis of top paying companies.

Overview

This joint report recognises an unsolved pain point in the tech community – existing compensation solutions and reports were insufficient despite the abundance of data. They could not accurately capture the nuances of the tech industry where the 90th percentile of software engineers are paid as much as 3x more than those in the 10th percentile.

Salary data for Singapore are derived from NodeFlair’s proprietary database of over 30,000 data points from companies of all sizes and industries. This includes user submissions verified by documents (payslips and offer letters) as well as job advertisements from various aggregated from various job portals for the year 2021. Salary data for India and Indonesia are derived from over 5,300 data points from companies of all sizes and industries. These data are from job postings in these countries for the period of Q4 of 2021.

Salary data is not provided by the industry experts interviewed in the report.

In-depth interviews about the best talent management best practices with over 10 founders and engineering leaders. These leaders and companies are primarily in Singapore, but also with engineering footprints in other Asia countries such as India, Indonesia, Vietnam, Malaysia, Taiwan, Hong Kong and more.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

Tech talent compensation in Singapore increased 22% last year. The massive demand for tech talent is fueled by the wave of venture capital into tech startups in the region and global tech companies setting up in Singapore, layered on top of a limited tech talent supply.

In 2018, Quest Ventures invested in NodeFlair’s vision to build a solution for tech talent and businesses. Recognising the gravity of the global tech talent squeeze and its impact on Singapore and Asia, the team went on a mission to diagnose the pain points for tech talent and hiring entities. Salary is identified as the largest push and pull factor, and the reason responsible for failed job placement.

This report uncovers the tech talent salary black box and empowers tech talent and employers by analysing more than 30,000 data points from NodeFlair’s proprietary database, and in-depth interviews with founders and engineering leaders.

Salary transparency is paramount to both tech talent and employers. It makes the hiring process more time-efficient and prevents unnecessary unhappiness resulting from misalignment in salary expectations. Tech talent will also be more empowered in job interviews and compensation negotiations when they have access to up-to-date market salary benchmarks. Employers can further develop and finetune their human capital strategy and budget to be more competitive in their hiring process, increasing tech talent attraction, and improving retention. Beyond salary, the report also consolidated practical and actionable insights from founders and engineering leaders.

We congratulate NodeFlair on the release of this ambitious report.

---

Top challenges for Hiring Tech Talents in 2022

The talent war for experienced talents will intensify even more. The demand for senior engineers is higher due to the bullish funding scene and competition from foreign tech firms. Companies with deep pockets would “buy time with money” by prioritizing senior hires, as they are more operationally ready and take less time to onboard and contribute. On the supply side, while the border is opening up from the pandemic and companies are adopting a more remote approach for their engineering team, we expect this transition to take some time.

The rise of salary for tech talents is not slowing anytime soon. A better salary package is the top reason (65%) talents are looking for new opportunities. That ranks higher than other reasons like their desire to work on new technologies, work-life balance and growth opportunities. While companies can, and will, work on the non-compensation aspect to attract talents, the easier way out in the short term will be to increase their hiring budget, especially when they are on a hiring spree.

Companies can expect a talent drain as newer and more attractive technologies and sectors like blockchain and Web3 arise. In 2021, investors poured $30 billion into blockchain and cryptocurrency due to the growth and demand for Web3, NFTs and other related areas. We have observed that due to the underwhelming supply
of engineers specialized in blockchain development, companies have adjusted their hiring strategy by targeting software engineers who are interested in picking up blockchain
development instead. With the boom in space not slowing down anytime soon, companies will face tougher competition.

Most in-demand skills and competencies in 2022

Talent management skills will become increasingly important. As the war for tech talents grows fiercer, companies will see a drop in average tenure and a higher turnover rate. At some tipping point, the tangible and intangible cost of attracting, recruiting and onboarding talents will rise to be too expensive for companies if they do not retain these great talents well. Companies need to invest in leaders who can grow and retain these talents through non-compensation means, such as enforcing a higher quality engineering culture and creating a better Developer Experience (DX). While companies can solve their recruitment challenge by offering higher compensation, they require a distinguished engineering leader to manage the team well to ensure their hiring investment is not wasted.

How should companies position themselves to stay competitive in the tech talent market in 2022?

Instead of focusing on recruitment, companies should also focus on retention. Many companies are spending a lot of manpower, time and money in recruiting talents, but few allocates sufficient resources to talent retention. Non-technical leaders and CEOs have to understand that talent churn is much more expensive for engineering than a simple one-off recruitment cost. The time needed to replace these members and onboard new ones is longer for engineering is longer than other functions.

Attract talents with better non-compensation benefits. After salary, the top 3 reasons why talents are looking then considering new opportunities are 1) Wanting to work with new technologies, 2) Better flexibility and work-life balance and 3) Growth or leadership positions. Re-evaluate your existing working environment to improve these aspects, such as getting rid of rigid working hours and allowing for working from home (even if it is not required by government regulation).

Be more flexible with the hiring requirements. Companies often have a long list of required skill sets that they look for in their ideal candidate. However, in many situations, many of these skills are not crucial or can be picked up relatively easy as long as someone has experience in similar technology. Instead, have a clear list of the must-have and good-to-have and rank candidates based on how many good-to-have checkboxes they ticked. Doing so widens your pool of candidates and reduce the time you take to hire the right person.

Re-evaluate the hiring process. Often, companies have too many interview rounds than they need. Also, most of the assessments are not conclusive in determining if a candidate is suitable for the role. Instead, companies should figure out and eliminate interview rounds that are repetitive and ineffective. This way, they can complete the entire interview process much faster and have a lower chance of candidates withdrawing their applications.

Build up their engineering presence through various channels. At any time, only 20% of the market are active job seekers, while 54% are passive and open to new opportunities. The top 2 methods talents are learning about companies are through their network and reading about news and articles of the company. As such, invest money and effort in meetups and sharing, engineering blogs and developer advocacy, so that their company have huge mindshare.

---

Download the full report here.

Powering Southeast Asia’s charge to a sustainable future

Credits

Analysts
Mr Ang Wei Xuan, Summer Analyst

Research
Mr James Tan

Overview

The world’s population reached 7.9 billion in 2021. Its resources are already being pushed to the brink, and we are facing unprecedented social inequalities, environmental degradation, and governance issues.

Without taking the necessary steps to mitigate these effects, we are poised to see temperatures rise by 1.5 to 2ºC by 2050. The resultant detrimental effects, including a large increase in the frequency and scale of natural disasters, spread of diseases and ecosystem disruption will make life untenable for many regions, including Southeast Asia.[1] This will derail the lives of millions, and it would not be unfair to say that how governments, corporations & communities come together to tackle this mammoth problem will define the lives of many generations to come.

The severity and urgency of the problem has seen hitherto silent stakeholders begin taking action to ensure sustainability on all fronts. In this regard, we believe that early stage venture capital can serve a crucial role in resolving critical problems by financing and developing innovative tech-based solutions. The dual goals of profit and impact allow leveraging of market forces to scale quickly and effectively. This report aims to provide an insight into the ongoing sustainability efforts, trends and outline the reasons for our bullish sentiments towards sustainability-focused investing.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

The ‘take-make-waste’ industrial model is no longer feasible. With a larger GDP than the rest of the world combined, and as the fastest growing economic region, what Asia does as it rises will have a significant impact.

With a trillion dollars in economic benefits if efforts to go green in Asia go right, and climate change and other disastrous effects if the efforts do not, the stakes are high. 

We believe that governments need to push for sustainable practices on a national, regional and international level.

We believe that businesses must align between sustainability and corporate gains. Old and new businesses alike must commit to incorporating ESG goals in their key decision making.

We believe that the financial services industry can encourage industries to implement ESG criteria into their decision making, as well as rewarding efforts made towards sustainable development.

Time is not on our side. Our three tenets are merely a starting point. Governments, corporations, and individuals that want to do more can count on increasing awareness and support globally to drive changes. We look forward to working with them towards a sustainable future.

---

Defining Sustainability

The 1987 United Nations Brundtland Commission’ defined sustainability as the goal of “meeting the needs of the present without compromising the ability of future generations to meet their own needs. Today, sustainability is inevitably centered around environmental issues. However, we must keep in mind that sustainability also encompasses social issues like inequality, as well as economic issues such as trade, and that all these issues are often intertwined. 

Since the Industrial Revolution, the onset of capitalism and the industrial economic model has seen humanity consume resources at an unprecedented rate. Conservation of the environment was but an afterthought as natural resources were exploited for economic growth. Modern superpowers such as the USA and various European countries built their success on the back of the deployment of large quantities of less efficient technology, powered by finite natural resources. That has already caused irreversible damage to the ecosystem, creating issues such as global warming, extreme weather events and environmental degradation.

As of June 2021, the world population has reached approximately 7.9 billion. Sustaining so many on the old ‘take-make-waste’ industrial model is no longer feasible, and will only exacerbate the harm to our planet. We need to find ways to make more from less, focusing on social and environmental outcomes instead of economic ones. 

However, it is a tremendously unfair request from the Western developed countries (NOA, EUR) for countries in developing regions (APAC (including SSEA and EAS), MENA, LAC, SSA) to forgo the same tools and methods that had worked so well for them in their pursuit of economic development. 

As such, an integral determinant to the success of the sustainability push is how developing regions incorporate sustainable development as they rise.

Of particular importance will be Asia’s approach. Asia is the fastest growing economic region today, with a larger GDP than the rest of the world combined, both in nominal and PPP (Purchasing Power Parity) terms. By 2030, Asia will be home to 60% of global growth and 4.9 billion people.[2] While China, Japan and South Korea are already global leaders in green technology, how the rest of Asia adapts will become of paramount importance to the global fight for sustainability.

The physical effects of unsustainable growth, combined with growing research in and awareness of climate science & environmental issues have pushed sustainability to the forefront of the collective human consciousness, where it had once lingered at the back of for years. People today know that the fundamentals underpinning economic growth must change.

The UN has contributed towards pushing for global cooperation in this regard, and the well-known Sustainable Development Goals (SDGs) spur ambitious targets for companies, countries and individuals. Reaching them can only be achieved via sustainable practices. This can be defined as generating positive value for stakeholders, or not harming them at minimum, and improving environmental, social and governance (ESG) performance in areas where one has an impact.[3] However, the increase in adoption of sustainable practices by countries and corporations in recent years has its roots not just in lofty aspirations, but also in more practical reasons.

---

Governance Case for Sustainability

Traditionally, governments have avoided pursuing an overt sustainability agenda. While Bhutan has achieved carbon negative status, it did so at the expense of economic growth; few developing countries are willing to make that tradeoff.[4] Sustainability seemed to be a luxury only wealthy countries could afford. 

However, in the face of worsening climate risks, developing Asian governments have become increasingly aware that they can no longer afford to focus exclusively on economic growth and leave sustainability for later. They have to achieve both in tandem, or risk facing larger problems in the future.

High Stakes & Strong Motivations

Asia, and to a large extent Southeast Asia (SEA), is particularly vulnerable to climate change, due to the concentration of economic activity and population along coastlines and the reliance on agriculture, forestry & natural resources for livelihoods. Rising temperatures, sea levels, increased frequency of natural disasters (floods, cyclones, heat waves) and decreasing rainfall are effects that governments cannot afford to sit back and ignore. The rapid onset of pollution and degradation has had far-reaching consequences on the standards of living for citizens in Asian countries. Studies have also shown that deforestation and climate change increase the risk of zoonotic disease transmission (such as COVID-19). Becoming more sustainable has become a key socio-political promise for governments, with good reason. 

In the absence of appropriate adaptation and mitigation measures, McKinsey predicts that by 2050, up to $4.7 trillion of GDP in Asia will be at risk annually due to increased heat and humidity causing a loss of effective outdoor working hours.[5] It has also been predicted that by 2050, the exacerbation of natural disasters could cause $1.2 trillion of damage to capital stock from flooding in any given year and cause up to 40% of land area to experience shifts in biomes, affecting ecosystems and livelihoods. These effects have been corroborated by independent research done by the Asian Development Bank (ADB), which projects a decline of up to 50% rice yield potential and 6.7% combined GDP each year by 2100.[6]

Significant Potential Upside

On the other hand, Asian and South-East Asian economies have much to gain by focusing on greening their economy. A report by Bain claims that SEA could see up to US$1 trillion in economic benefits up for grabs by 2030 if it successfully builds a green economy and becomes a more attractive investment destination. [7]

Research done by think tanks ClimateWorks and Vivid Economics posit that a low-carbon industrial strategy could be the golden opportunity for ASEAN to recover from COVID-19.[8] They argue that ASEAN member countries are uniquely positioned, being both in close physical proximity as well as possessing strong existing trade relations with China, Korea and Japan, the current leaders in low-carbon technology. Combined with lower wage structures, improving infrastructure and a supportive legal environment, ASEAN is an attractive prospect for the leaders looking to scale up production and build more resilient supply chains. This opportunity for technology and expertise transfer for ASEAN countries to restructure their own economies while providing sustainable jobs for the economy.

---

Business Case for Sustainability

Thankfully, the policymaker’s viewpoint is shared by the corporate world. Leading management consulting firms such as Accenture and McKinsey have argued that sustainability and the circular economy represent the greatest business opportunity in over 100 years.[9] Traditionally, ESG goals were only pursued by companies on the basis that it coincided with their business philosophy or core values. Today, ESG goals are pursued because the double bottom line has been proven to be achievable, and there are tangible benefits to proactively integrating sustainable practices into one’s business strategy.

Managing Risks

Supply chains have a history of being affected by events outside any company’s control. Resource depletion and degradation of natural capital assets have the potential to rack up staggering losses for overly dependent corporations. By investing in the appropriate green technology and pivoting to more sustainable practices, corporations can reduce their vulnerability to resource scarcity and supply chain disruptions, but also avoid potentially having stranded assets. 

Bolster Performance 

A summary of 200 studies investigating the link between corporate performance and ESG goals done by the University of Oxford and Arabesque has posited that good ESG performance positively correlates to better stock price performance, operational performance and lower cost of capital in more than 80% of all cases. [10]

Mounting Investor Expectations

While ESG reporting is not a new phenomenon, it has only been in recent years that institutional investors have pushed for greater accountability of companies with regard to ESG challenges. This is in line with greater civic consciousness and expectations for companies to step up and contribute to solving issues like income inequality, climate change etc.

The 2020 EY Global Institutional Investor Survey of nearly 300 institutional investors shows that 91% used non-financial performance as a pivotal consideration in investment decision-making, and investors are set to consider it even more rigorously as the links between ESG performance and financial performance become clearer.[11] Despite the setbacks of the COVID-19 pandemic, investors have not reverted to short-term performance models. Rather, it has cemented the importance of long term resilience and the crucial role ESG performance plays in achieving that. Investors are also holding companies accountable, and those that fail to meet expectations risk losing precious access to capital markets. 

The wealth transfer to the younger generation has also seen a shift in investing philosophies, with surveys showing that Millennial respondents are more committed towards achieving social impact and long-term value creation with their investments than simple financial gains.[12] 

Larry Fink, CEO of Blackrock, has testified to the shift in client priorities towards climate change and sustainability agendas, most recently in his 2021 letter to CEOs.[13] This is a reflection of the growing number of institutional investors, not just Blackrock, that are demanding both greater reporting and moving their investments towards sustainability-focused companies. 

Companies looking to navigate through the changing financial services landscape will have to adapt to mounting pressure from investors with regards to sustainability. 

Mounting Consumer Expectations

In the past, consumers had previously balked at paying extra for sustainable products, and companies with sustainable products at higher prices were typically doomed to failure. However, changing consumer trends, spurred in part by the coming of age of the environmentally & socially-conscious millennials/Gen Zs and enabled by increasing levels of wealth in a post-recession world, have fuelled an increase in the demand for products whose brands display evidence of corporate social responsibility, sustainability and respect for others.

Recent empirical research strongly supports the existence of ‘shared value’, the proposition that companies can do well by doing good.[14] This offers companies the opportunity to build new global brands specialising in green products and surpassing large incumbent competitors. For example, EV companies have the opportunity to upstage traditional car manufacturers as trends change. 

According to the Harvard Business Review, companies can even charge up to 20% price premiums based on positive corporate responsibility practices.[15] This strong customer motivation to support sustainability further shows itself in the form of consumer support for a range of trustworthy sustainable products & services, creating superior revenue growth channels for companies. [16]

Achievable Double Bottom Line

Corroboration by multiple sources and the cumulative efforts of research done over the years has made it apparent that the double bottom line is no longer imaginary. A pivot to sustainability is as inevitable as it is necessary. The earlier companies recognise and make efforts to reposition themselves, the better poised they will be to ride through the green revolution. We can expect that as the business case becomes more apparent to top management, sustainability will be adopted at an increasing pace.

---

Categorising Businesses Based On Their Approach to Sustainability

Today, we can categorise businesses into 4 main categories based on their approach to sustainability.[17] Out of these four, three types are receptive towards ESG goals, namely: 

1. Businesses in industries with traditionally unsustainable supply or value chains, but are committed to pivoting towards environmentally friendly processes and products. Examples include those in the automotive industry that are making the switch to EVs or those in the consumer electronics industry that are considering social issues such as minimum wages, living standards and conservation of resources/recycling. 

2. Businesses that disrupted older business models and brought about positive ESG-related impact as a byproduct. Examples include ride-sharing companies such as GoJek, Uber, Lyft, Grab that have reduced the need for everyone to purchase a car by making ‘private’ transport ubiquitous and cheap, conserving the resources associated with car production and ownership. In Singapore, BlueSG is pioneering accessible EV rental. Airbnb has minimised hotel wastages by capitalizing on spare bedroom capacity globally.

3. Businesses that are driven by sustainability from the onset. This includes any form of social enterprise or primarily impact-focused businesses. Internationally, examples include Unilever and Novelis.

The last type of businesses however are standing in the way of widespread adoption of sustainability. This group comprises of: 

4. Large businesses in legacy/sunset industries such as those in coal, gas or petrochemicals, that still have significant political/lobbying influence where they are based.

---

Three Tenets For Sustainability

Growing awareness within the public and private sectors of the perils of feckless and unrestrained industrialisation has prompted increased attention to the subject of sustainability. It is heartening to see that all UN member states have signed commitments to the UN’s Sustainable Development Goals (SDGs), and companies are making visible efforts to achieve sustainable milestones. Regionally, we are also seeing increased attention and support by blocs such as the EU and ASEAN, and there have been many other international agreements in pursuit of sustainability goals, such as the Paris Agreement, the Sendai Framework for Disaster Risk Reduction, the New Urban Agenda etc.

To bring the quest for sustainability to the next level, we believe that there are three mutually reinforcing keys that need to be employed in tandem.

Firstly, there needs to be support from the respective governments to push for sustainable practices on a national, regional and international level. 

Secondly, businesses must become increasingly aware of the ever-growing alignment between sustainability and corporate gains. This can be achieved in two tranches. Existing businesses need to be convinced of the positive correlation, and subsequently commit to re-pivoting & incorporating ESG goals into their key decision making. Additionally, new sustainable impact-focused businesses must be given the opportunity to grow, provided that they meet critical criteria for success, both in terms of impact and in terms of profitability. 

Lastly, the financial services industry needs to accomplish the dual roles of pressuring industries to implement ESG criteria into their decision making, as well as enabling and rewarding efforts made towards sustainable development. This will be crucial in pushing industries towards the tipping point.[18] 

Quest Ventures is a long-standing believer in the business case for sustainability. In our 2020 publication done in collaboration with INSEAD MBA, we firmly stated our belief that business and ESG impacts are not mutually exclusive.[19] 

While most demonstrated success has been in tech-related startups in Indonesia, Quest Ventures today is actively searching for start-ups with impactful value propositions and solid business models, operating within SEA, across a range of verticals. In our opinion, technology is key to ensuring that sustainability is synonymous with growth. 

We have high hopes for the SEA region in particular, as there is notable progress being made towards unlocking the region’s sustainability. In this report, we will also be discussing Asia’s potential, how close it is to realising that potential and where we expect to see the largest developments in sustainability unfold.

---

The First Tenet: Governments

Private Sectors Follow The Government’s Lead

The business environment in Asia has historically been strongly intertwined with government prerogatives and the public sector. Governments provide the necessary support and confidence for businesses looking to test new waters, and their commitment provides strong impetus for the private sector. 

This is exemplified by the Singapore government’s approach to building ecosystems within the economy, such as the start-up ecosystem back in 2015.[20] This ranged from broader policies such as positioning itself as a launchpad into SEA and a general openness to foreign talent and investment, the long-term commitment to the end-goal and vision for the local start-up scene to smaller details such as the fostering of a close community within a start-up hub (Block 71 in Ayer Rajah, JTC Launchpad), the nurturing human capital (the NUS Overseas Colleges (NOC) programme, SMU’s Institute of Innovation and Entrepreneurship (IIE) etc.) and capital investments (indirectly) through Temasek Holdings. It is clear that when governments are onboard and committed to certain agendas, there will be sufficient traction to overcome inaction and uncertainty in the private sector. 

Another case study would be the importance of government initiatives in promoting the uptake of green technology. Globally, early attempts to introduce electric vehicles to the markets failed to make headways. Alongside improving technology and lower costs, electric vehicles have finally managed to take off, but only after governments stepped in with additional initiatives to supplement the manufacturers’ best efforts. These include CO2 emissions regulation schemes (e.g. in China, EU, California), efforts to expand the charging infrastructure in countries and subsidies to make EVs viable and competitive options against vehicles with internal combustion engines.[21] It is clear that the EV market would not have developed to where it is today if governments had taken the backseat. In Singapore’s Green Plan 2030, it intends to double the number of EV charging points to 60,000 by 2030, and gradually phase out internal combustion engines. It has also tightened the various vehicle emissions schemes in a bid to shift consumers to hybrid and electric vehicles. This marks the first of many ASEAN countries’ attempts to shift the citizenry towards EVs, where there has been little to no mainstream adoption before. 

In this regard, governmental buy-in is an essential first step for convincing businesses and individuals to come aboard. Likewise, when it comes to ensuring a concerted push for sustainability across sectors, governments must lead the way, in order for this to be implemented into business strategies and personal actions.

While the COVID-19 crisis has had a devastating impact, it has also provided the opportunity for countries to restructure and rebuild back greener. In this regard, Europe leads the rest of the world in its efforts to resurrect itself as a greener economy. In the next few years, billions of dollars will flow into infrastructure and business investments across Southeast Asia and the entire Asian continent as well, and this opportunity needs to be grasped to strike a proper balance between social & environmental capital and economic outcomes, as discussed briefly earlier.

Questions Over Commitment

However, some remain skeptical of the prospects, pointing to studies showing that governments have been split with regards to their approach. An ING report offers the following analysis of several APAC/SEA countries and their Environmental Performance Indicator and green spending as a percentage of total Covid-19 stimulus. There is a clear discrepancy between countries like Singapore and countries like the Philippines and Indonesia.

Additionally, some point to certain indicators within Asia-centric measuring indexes, such as the Hinrich Foundation Sustainable Trade Index (STI) that allows us to get a more in-depth analysis of 19 Asian economies and how they fare in terms of sustainability across 3 factors: economy, environment and society.[23] 

Taking a closer look at Indonesia, we see progress being made with regards to labor standards and educational attainment, and it has also increased factors like financial sector depth and technological innovation while reducing trade in natural resources.[24] However, Indonesia continues to do poorly in terms of environmental factors such as transfer emissions and air pollution. 

Meanwhile, Vietnam regressed relative to other Asian economies in terms of social and environmental sustainability, showing declining labor standards and a lack of improvement in environmental considerations relative to 2018. [25]

Furthermore, some point towards ASEAN’s lackluster performance with regards to reaching its 2030 Sustainable Development Goals, where it continues to poorly perform with regards to environmental sustainability despite having made significant progress on socio-economic fronts.[26]

Cause for Optimism 

Nevertheless, we are optimistic that Asia and ASEAN will still be able to build back post-COVID, more sustainably than ever, due to several mitigating factors. 

Firstly, as the ING report rightly acknowledges, several countries are progressing on a “background of general environmental progress”.[27] It is also important to note that sustainability goes beyond environmental performance, and that we are looking for more than government spending, but the development of an environment that encourages private sector attention and adoption of sustainability on a national and regional scale. 

Secondly, we cannot focus solely on negative aspects highlighted in the STI. While some countries have consistently done well on the STI, such as South Korea and Japan, others are still making good progress in other areas.[28] For example, China has made significant progress in reducing air pollution, while Pakistan reduced its deforestation considerably. Indonesia, Myanmar and Laos managed to diversify their trade bases away from natural resources, and Singapore also managed to reduce air/water pollution while implementing carbon pricing and lowering transfer emissions (pointing towards cleaner export industries).

This leads us to the conclusion that there is still progress being made overall, bearing in mind that the STI ranks economies relative to one another based on current achievements, and uses that as a proxy to measure progress towards meeting the Sustainable Development Goals.   A low ranking does not necessarily mean that nothing is being done in any particular regard. In fact, we are witnessing pivots to sustainability in many countries that might require several years to bear fruit. The existence of the STI serves to continually suggest areas for improvement for both the public and private sector to come in and plug the gaps, and should not be taken as a pessimistic outlook for the region. Rather, the existence of such academically rigorous comparisons indicate that sustainability on all fronts is being taken increasingly seriously, and play an important role in encouraging the various governments to do better. 

In fact, encouraging development has always been brewing in Asian countries. To provide some balance to the earlier discussion, it is important to note what countries like Vietnam, Indonesia, Singapore and even China have been doing with regards to meeting the SDGs. 

Vietnam managed to move from being one of the poorest countries in the 1980s-1990s, to lower middle-income status by the 2010s, while keeping the SDGs in sight, and even presented a National Report on Sustainable Development at the UN Conference on Sustainable Development (RIO+20) in 2012 and a Voluntary National Review of its progress towards the SDGs in 2018. [29,30]

Vietnam continues to incorporate SDGs into its national development strategy, such as its previous 2011-2020 Social and Economic Development Strategy (SEDS) and 2016-2020 Social and Economic Development Plan (SEDP), and upcoming 2021-2030 SEDS and 2021-2025 SEDP.[31] The government has also done good work in encouraging sustainable practices and investments in the private sector, with initiatives such as the setting up of the Vietnam Business Council for Sustainable Development (VBCSD) and the creation of an enabling legal environment.[32] A more detailed report of Vietnam’s development and SDG progress is available from the IMF.[33] 

It is also crucial to note Vietnam’s track record of efficiency with regards to adopting sustainable practices. This is shown through their achievement of installing 5 gigawatts (GW) of solar energy by 2020, exceeding their 1GW goal.[34] This also highlights the ability of Southeast Asian countries to execute plans quickly and effectively, bolstering our confidence in the region’s prospects. With Vietnam being Asia’s top performing economy through the pandemic, it is not a stretch to say that sustainable development will find its way into the government’s priorities again soon, and that this run of poor form is but a blip on an otherwise stellar trajectory. [35]

We also saw Indonesia launch its first sustainable development plan, the RPJMN 2020-2024 in January 2020. Research done by the Ministry of National Development Planning in collaboration with the World Resources Institute found that sustainable, inclusive growth could “deliver average GDP growth of 6 percent per year through 2045 and, compared to business as usual, create more than 15 million additional greener and better-paying jobs, halve extreme poverty, and save 40,000 lives annually from reduced air and water pollution – all while reducing greenhouse gas emissions by nearly 43 percent by 2030, exceeding Indonesia’s current international target.”[36] Buoyed by the prospects, Indonesian policymakers are doubling down on efforts to roll out low carbon development initiatives, and we believe that Indonesia stands a good chance of success with the scale of their efforts. 

In Singapore, the government also continues to push for greater sustainability across all sectors of the industry, having recently unveiled the Singapore Green Plan 2030.[37] This is a comprehensive plan that aims to garner buy-in from the citizenry and private businesses through initiatives including, but not limited to, the Eco Stewardship programme, greening of resource-intensive industries such as the petrochemicals industry, and the Enterprise Sustainability Programme to support local enterprises to adopt sustainable practices and seize opportunities in the sector. Singapore intends to position itself as a sustainability solutions hub, offering tech solutions for water treatment, upcycling, urban farming, decarbonization etc. There is also awareness that sustainable technology in areas such as agriculture can be used to further other goals, such as Singapore’s ‘30 by 30’ food self-sufficiency. 

We remain optimistic that individual member states of ASEAN recognise the importance of sustainability, and that armed with the data from research and the growing technology available, they will be able to tackle the various issues that have drawn attention from detractors. As a regional entity, we believe ASEAN will continue to play a formative role in promoting sustainability by providing the right environment for growth. This includes, but is not limited to: regional cooperation, laying out regional standards for sustainable finance and monitoring sustainability efforts. 

On a larger scale, we have seen Asian countries make significant pledges to meet the Paris Agreement’s goals. A large number of these initiatives revolve around achieving carbon neutrality, adopting new energy sources or reducing the emissions intensity of GDP. [38] It is inevitable that governments will have to step in and provide the necessary carrots and sticks to attain these goals.

---

The Second Tenet: Businesses

Becoming Aware Of The Business Case

While the business case for sustainability constitutes an indisputable fact, sustainability cannot succeed if corporations and businesses do not acknowledge or implement strategies according to it. Presently, the business case is catching on quickly via two methods.  

The first method is organic, as management becomes self-aware of the impacts caused by both the supply chain and value chain. This can come about through generational power transfers, as existing businesses hand over management responsibilities to a younger generation of CEOs. A study of young CEOs in China proved that they are more conscious about their ESG footprint and have higher tendencies to adopt sustainable practices within their companies (Shahab, Ntim 2019).[39]

The second method is through third-party pressures strong enough to overcome entrenched resistance. In this approach, there are some overlaps with the business case, such as investors and consumers demanding greater accountability and moving towards more sustainability-focused companies.

Internally, throughout the corporate ladder, employees are becoming increasingly vocal about value-alignment with the company they are working with. When it comes to hiring and retaining top tier talent from the millennial generation, a survey showed that nearly 40% decided between jobs based on the company’s sustainability performance, while almost 70% of respondents said that a company’s sustainability plans would influence their long-term decision to stay.[34] Performance indicators and employee happiness also increase when employees think what they are doing has meaning.This complements a large body of research that points to the growing phenomenon of workers choosing value creation over wealth generation.[41] Ultimately, the speed and efficacy will depend on the willpower and action of various stakeholders mentioned above. 

For the companies that have caught on to the winds of change, there are several essential steps that can be taken to prepare their company. 

First, corporations should conduct an honest appraisal of their current business practices and environment. This will involve examining the industry they operate in, their supply chain, as well as their value chain to note the impacts that their product/production processes are generating. 

There are many available scoring systems that companies can choose to use, one such system being Hedstrom Associates’ proprietary Corporate Sustainability Scorecard.[42] In short, this evaluates a company’s sustainability efforts in terms of 4 key aspects: Governance and Leadership, Strategy and Execution, Environmental Stewardship and Social Responsibility. Each section had 17 elements and 8-12 sub-elements, totalling about 150 Key Sustainability Indicators (KSI). A thorough evaluation will allow management to determine how far along the company is on the path to sustainability, how they compare to peers and competitors, and what the best practices today are. This will pave the way forwards with regards to the next steps that the company should be taking. 

With regards to environmental stewardship, a common ideal for businesses across industries should be the attainment of a circular economy. This refers to an economy where waste and pollution is reduced, products and materials are reused & recycled and natural resources are regenerated. This concept applies across the supply chain and the value chain, so we will briefly cover some of the general aspirations.[44]

Reduction: This can be defined very broadly to encompass a variety of processes. Constraining ourselves to the supply chain, there are several ‘reductions’ that companies should aim for.

One of them is to reduce the negative externalities created during production. For example, aiming for carbon neutrality is a fine goal for those in the manufacturing line, and beverage companies such as the Coca-Cola Company might pursue water neutrality. Additionally, companies should seek to reduce the amount of raw materials necessary, especially if the process of obtaining said materials endangers the environment (mining, logging). This amounts to a need for innovation, both to discover alternatives and to discover more efficient ways of production. 

With regards to the value chain, reduction is typically done by consumers, by being more mindful of their consumption and not to be as wasteful. On the companies’ end, we prefer to term their efforts in reducing waste as reusing and recycling. 

Reuse & Recycling: Companies should try to recover and recollect used consumer goods or byproducts from the production process, and reuse or recycle them for other purposes. This is especially pertinent when it comes to plastic products, which do not biodegrade in landfills, or for rare metals used to produce electronics and are already in scarce supply. By lengthening the lifespan of each material, we will need to use less in the long run. 

Regeneration: Companies that have no choice but to use natural resources such as timber should be proactive in the regeneration of forests. Switching to renewable resources (such as solar power as opposed to fossil fuels) for certain processes will also go a long way in stretching the lifespan of the finite resources we have left. In fact, they should be prioritised and implemented where possible. 

When it comes to social responsibility, all corporations, regardless of the scale of their operations, have the bare minimum responsibility of making sure that their business activities do not infringe or compromise on the quality of life for local communities, diminish their dignity or threaten their way of life. The best practice for corporations would be to rise while simultaneously uplifting the community that they are based in. This could be through providing fairly compensated employment, providing sufficient employment benefits, bearing the cost of building shared infrastructure (e.g. roads) or supporting the community through various other means. Companies should be going beyond the bare minimum stipulated by the law. Even in the absence of proper regulation, companies should be mindful and aware of these issues, not just out of compassion but also to not draw the ire of the public eye, as Apple, Nike and Volvo have learnt the hard way. 

By virtue of their size and the value of the foreign direct investment they represent to developing countries, large corporations have the power to make certain prerequisites before committing to a new plant or factory in developing countries. This gives them the opportunity to make positive change, such as pushing governments to incorporate proper labour laws, safety regulations and requirements in order to become more attractive. Companies should not exploit the lack of such governance, but rather set the precedent and industry standards where possible. 

Second, businesses need to engage in greater sustainability reporting. In some cases, certain metrics are not being measured at all, and in other cases, the impacts are not fully investigated. Where possible, corporations should continuously seek to implement new technology that allows for accurate tracking, diagnosis and reduction of detrimental impacts. 

Instead of having to retroactively modify old policies, start-ups might find it easier to embed ESG policies into their fresher business practices. On the other hand, startups might also be pioneering new concepts and technology that already have a sustainability-related value proposition. 

Regardless, the key for businesses is to possess a management both aware of the risks ahead and committed to contributing to sustainable development. We can thankfully count on the fast-changing financial services landscape to bolster these dual factors.

---

The Third Tenet: Finance

An Overview of Sustainable Finance

Sustainable finance, as defined by the Monetary Authority of Singapore (MAS), is “the practice of integrating environmental, social and governance (ESG) criteria into financial services to bring about sustainable development outcomes, including mitigating and adapting to the adverse effects of climate change.”[45] In addition, the European Commission states that “Sustainable finance also encompasses transparency when it comes to risks related to ESG factors that may have an impact on the financial system, and the mitigation of such risks through the appropriate governance of financial and corporate actors.”[46] In recent years, there has been growing understanding that businesses and governments will need the financial sector’s assistance in order to grasp the high-risk high-return opportunities associated with sustainability, and that the UN SDGs will be unobtainable without them. 

This has opened the door for companies to issue financing instruments (sustainable bonds) for the specific purpose of environmental/social projects. These instruments include green bonds, social bonds and sustainability bonds, which must be exclusively used for projects that bring about positive environmental/social impact. These open new financing channels for companies to pivot successfully, or undertake new climate/environmental related projects. 

Another class of financial instruments, Sustainability-Linked Bonds (SLBs), are bond instruments which tie the financial/structural characteristics according to whether the issuer achieves predefined sustainability KPIs or ESG objectives. This provides financial institutions with the opportunity to lay down industry-agnostic and industry-specific metrics for sustainability/ESG objectives. These have grown in number along with the development of measurement metrics for sustainability objectives, such as the Sustainability Accounting Standards Board’s Materiality Map.[47] As our understanding of important indicators develops, it becomes easier for investors to not only trust green investments, but also sift through and evaluate opportunities. 

Movements in Asia by governments and financial institutions mean that these new classes of financial instruments are rapidly catching on. According to a Moody’s report, Asia Pacific issuers accounted for 24% of global dollar-denominated green bond issuance, up from 8% 5 years ago.[48] 

As of 2019, the Asian Development Bank (ADB) has issued $7.9 billion worth of green bonds since its first issuance in 2015.[49] Nikkei Asia estimates that the Asian dollar-denominated green-bond market is now worth USD 50 Billion, and HSBC adds that despite the downturn caused by COVID-19, issuance will return to pre-pandemic levels in 2021.[50]

In March this year, J.P. Morgan led Asia (ex-Japan)’s first SLB, with a $200 million note for Hong Kong-based property developer New World Development (NWD).[51] This offering was hugely oversubscribed, and is reflective of a greater phenomenon in the sustainable finance sector, with demand for green bonds consistently outstripping supply (by almost 6x). 

These new types of financial instruments have caught the eye of fund managers and Asian investors for several reasons. 

Firstly, there is evidence that bond returns from green bonds are in line with returns generated from traditional financial instruments. This helps to allay concerns that expected returns will be compromised for the sake of particular agendas. Another draw is that Asian green bonds remain priced consistently with conventional bonds, whereas in Europe investors would have to pay an 9 basis-point price premium on average for holding European green bonds. The homogeneity between asset classes has contributed to the positive reception in Asia. 

Secondly, the governments of regional powers have moved to support the burgeoning investment sector. For example, the Monetary Authority of Singapore (MAS) has set up a sustainable bond grant scheme by subsidizing part of the costs incurred by first-time and repeat issuers, and has also set up a Green Finance Industry Taskforce (GFIT) to coordinate efforts in the space by banks, asset managers and issuers.[52] Japan has most recently issued its first government backed green bonds for environmentally friendly houses. Many Asian countries including China and ASEAN countries have also stepped up by publishing green guidelines and frameworks for the financial services industry. Regionally, we have also seen the ASEAN Green Bonds Standards being established, and China’s publication of the Green Bond Project Endorsed Catalogue of the People’s Republic of China. 

Issuance in the first half of 2021 has already surpassed the record total in 2020. We expect to see the issuance of such bonds increase even further in the future, as governments provide the necessary support required to promote the issuance of such bonds in order to meet their carbon neutrality and sustainability goals, companies recognise the credibility green finance instruments provide to their brand image and investors increasingly include them in their portfolios.

Sustainable investing has also gotten increasing attention and acceptance from the financial services industry. It refers to the investment philosophy of achieving competitive (comparable relative to traditional investing methodologies) portfolio risk/return profiles while also achieving positive ESG effect. It’s rise is mainly due to the rising pervasiveness of values-based and performance-based mindsets. The former refers to genuine concern about the long-term health of the environment and society, while the latter refers to the acknowledgement of the growth potential in ESG-related investments as well as the recognition of potential ESG risks and the need to mitigate them.  

Sustainable investing encompasses a range of strategies that are each best suited to a particular class of investor. These strategies are best expressed via the diagram below, and we will go into more detail on several of these strategies below.

Institutional Investors

The UN Principles for Responsible Investment give us a succinct summary of the roles institutional investors can play in pushing for ESG agendas in countries. 

Institutional investors are more likely to engage in the ‘Avoid’ strategies, such as negative screening, in a bid to reduce their investments and/or support for unsustainable businesses.

This is an approach favored by banks, such as the Overseas Chinese Banking Corporation (OCBC), which has moved away from financing infrastructure reliant on fossil fuels, in favor of providing loans to build sustainable infrastructure such as wind and solar farms.[54] Such an approach has also been codified by the World Bank’s private lending vehicle, the International Finance Corporation (IFC), in their Green Equity Approach (GEA) aimed at eliminating coal financing within its portfolio.[55] More recently, the Asian Development Bank announced in May 2021 that it would no longer finance fossil fuel projects if other cost-effective technologies were viable alternatives.[56]

Furthermore, funds such as Blackrock, State Street, Vanguard & Temasek are leading the rest of the pack with regards to integrating sustainability into the active investment process and reducing exposure to sectors with heightened ESG risk.[57] Different financial groups in Asian countries are also gradually renouncing unsustainable investments, and incorporating climate risk into their assessments of investments.[58] In the coming years, we will definitely see more financial groups come under pressure from a multitude of stakeholders and eventually conform to the green standards set by supranational organizations such as the United Nations or ASEAN. As financial institutions walk away from short-term profit and overturning decades-old stances on highly resisted policies such as coal bans, it is inevitable that the next pockets of growth will reside in verticals that can best capitalise on new-found demand for green solutions. 

Additionally, we have also seen institutional investors increasingly factor sustainability metrics and risks (eg. climate risks, transition risks, physical risks, long-term impacts on profitability) into their decision-making process. For example, asset/wealth managers like Blackrock, UBS, Citi and Blue Harbour Group are increasingly integrating proprietary ESG measurement tools to assess related risks, characteristics and signals of companies, with the goal of offering a suite of index funds and exchange-traded funds (ETFs).[59, 60, 61] With the influence that they have on management, large asset managers can show their support for certain management proposals and actions during the proxy voting season. For example, Blackrock has voted against management recommendations on more than 250 resolutions in 2021 compared to 53 resolutions in 2020, based on environmental considerations.[62]

These asset managers are also pushing for corporate sustainability reports to follow sector-specific standards, frameworks & regulation, which would make it easier to conduct research, make comparisons and allocate capital.[63] A UBS survey of over 100 asset managers also showed almost 75% of asset managers were intending to vote in favor of climate-related disclosures.[64] In Asia, ESG reporting is largely guided by voluntary reporting frameworks such as the GRI Standards.[65,66] However, we are also seeing convergence to common standards, with single standard discussions dominating events such as the Asia Sustainability Reporting Summit 2020.[67] In ASEAN, Singapore, Malaysia, Indonesia, Vietnam, Thailand and the Philippines all require some form of ESG disclosure and each government offers guidelines to issuers.[68, 69] 

According to research done by Morningstar, there were 534 sustainable index mutual funds and exchange-traded funds globally, accounting for $250 billion as of June 30 2021.[70] This is not just due to funds pushing forward with their own beliefs about sustainability, but reflective of growing demand from individual investors and the trust in ESG-based assets to outperform the broader market.[71]

Institutional investors might also consider impact investing in the private markets as another way of achieving positive ESG effects. This can be done through direct equity investment in private companies (SMEs), or through investing in private equity (PE) funds or fund of funds (FoFs). 

Impact Investing

Impact investing refers to capital placed into private equities in the hopes of generating ESG value alongside financial returns. This can take place across many different sectors and aim to achieve many different objectives, but the unifying themes are as follows. 

Impact investors draw their faith from several underlying beliefs. Firstly, the historical success private businesses have shown in innovating and solving the problems of the day. Secondly, there are untapped financial opportunities to be found by focusing on overcoming the gaps between achieving ESG goals. This is termed as ‘base-of-the-pyramid investing’, where providing basic services to the poor offers large opportunities for SMEs to expand. Lastly, they also believe that greentech and sustainability is the next pocket of growth. 

Some investors may choose to focus on capital preservation (‘impact first’), while others might be more focused on financial returns (‘financial first’). However, both are similar in that they seek a base-level of financial return as opposed to philanthropic grant giving. Detractors might say that impact investment is profiteering off others’ suffering, but studies have shown that this is a more efficient way of raising capital for those in need, and provides the right incentives to ensure that allocated capital brings long-term value as opposed to one-way grant allocation.[72]

The IFC has stated that private investments in SMEs is the top way of achieving maximum social impact on local economies.[73] This is due to the knock-on effects such as job creation, poverty reduction and economic development. 

We echo this sentiment at Quest Ventures, and firmly believe that private equity investments are particularly powerful in emerging markets such as Southeast Asia. According to the Business & Sustainable Development Commission, a significant percentage (> 50%) of the SDGs’ business opportunities are in developing countries, and emerging markets constitute the biggest opportunities in the agritech, smart cities, cleantech, healthtech verticals.[74] Advancing impact investment in emerging markets could create more than USD 12 trillion in market opportunities and up to 380 million jobs by 2030, of which many would be in emerging market cities. 

Finally, impact investors such as venture capitalists are uniquely positioned to guide and ensure tangible impact. By taking equity at an early stage, lead VCs sit on the board of their portfolio companies, allowing them to observe the impact trajectory of the startup. VCs are also able to lend their expertise to ensure SMEs have the best chance of succeeding, both as a business and as a changemaker. In companies that do not have an explicit impact agenda, VCs can still influence company direction and monitor indicators in the same way as larger asset managers. Some VCs even go as far as to explicitly include ‘sustainability clauses’ in term sheets, calling on firms to “regularly measure their carbon footprints, implement carbon offset schemes and promote environmental responsibility when engaging with customers and suppliers.”, as reported by CNBC.[75] 

Impact related venture capital investments are not new – between 2006 to 2011, $25 billion was invested by Silicon Valley VCs into cleantech startups, aimed at reforming the energy sector. However, these bets did not pay off and failure rates were high, contributing to low IRRs and poor risk/return profiles, with almost half of the invested amount being lost.[76] 

However, we believe that the developments over the past 10 years make it the right time to start rethinking about impact investments now. A concerted global movement across governments, businesses, individuals and the financial services industries have created the right policy environment and corporate demand for new green/sustainable solutions to flourish. 

The level of technology today far outstrips that of the start of the millennium, which has opened up many opportunities for technological innovation in various verticals. There are many new applications (AI, blockchain, etc.) that can simultaneously disrupt and greenify industries. Analysis done by PwC and Microsoft show that applying AI alone in 4 sectors of the economy has the potential to eliminate 2.4 gigatons of global CO2 emissions in 2030, a clear sign of the potential that lies ahead.[77]

Green investments today are no longer limited to the energy sector, but also include any technology that helps to decarbonise the economy (broadly termed as climate tech, including energy, smart cities, smart mobility etc.). Impact investors are also increasingly looking at other verticals such as fintech and agritech, that can help to improve social conditions and achieve sustainability. 

Additionally, we can learn from the failures between 2006 to 2011 to refine our criteria for seeking out the companies that are more likely to succeed. In order for start-ups with a sustainability objective to achieve the IRR needed for venture capital investing, it goes without saying that they have to be evaluated stringently. 

With early stage investments, venture capitalists need to be discerning in selecting the right start-ups. The right fund manager will ask the right questions when assessing startups for feasible business ventures and substantial impact outcomes before making a decision with confidence. For example: 

What level of impact value can potentially come from this business? 

At Quest Ventures, we believe that outcomes for individual companies are measurable. We do so via the Logical Framework Approach (LFA), which is further expounded on, along with other impact investing frameworks for early stage venture capital in our previous publication.[78] Keeping the end in mind, the company can be assessed Focusing on a particular part of the value chain that can create the most impact? 

Other considerations also include: 

1. How scalable and replicable is this business model across the region? 
2. What is the path to profitability? 
3. Will large amounts of upfront capital be required to prove the model? 
4. Is this the most effective solution to solve this particular problem? 

Research done by PwC has stated that VC investment into climate tech is rising again, from $418 million per annum in 2013 to $16.3 billion in 2019, backing up our belief that there is an increasing amount of sound business opportunities that are capital efficient, create substantial & tangible ESG value and are technically feasible, making them suitable for venture investment.[79]

---

Trends and Developments I

There are several spaces that we have identified and are keeping an eye on. Below we provide a high-level overview of each particular industry, focusing on upcoming technology, as well as innovative business models.

Energy

Given the increasing public awareness of the need for cleaner energy and the efforts by governments to encourage a phasing-in of clean/sustainable energy sources, it is inevitable that we will see the toppling of the oil & gas era soon. These winds of change also mean that the energy sector’s landscape has morphed considerably since the early 2000s. 

Today, solar and wind power technologies are well-proven and established, but still require additional innovations to provide a set of solutions that can rival and beat fossil fuels. Notably, there will need to be improvements in battery development, which is critical to overcoming the intermittent nature of renewable energy sources and reducing reliance on nature. In order to transition smoothly from fossil fuels, there also needs to be continued innovation in reducing emissions in electronics and supporting the spread of renewable energy (load-balancing and supply-demand balancing mechanisms). Lastly, the energy sector needs to continue to refine emerging technologies such as hydrogen fuel cells and biofuels. 

Achieving sustainability for the environment in the energy sector would be a smooth and accelerated transition to a zero-emission economy, globally and regionally. This can be measured via increasing the penetration of renewables and declining carbon emissions. On a social scale, impact for sustainability can be measured by bringing affordable and environmentally friendly electricity to communities that are off-the-grid and relying on damaging fuel sources such as coal and kerosene. 

Renewable Energy Generation

Besides solar and wind energy, the other forms of renewable energy that are often brought up are nuclear, geothermal and hydro power. We are bearish towards these forms of renewable energy for several reasons. 

Nuclear power is still risky, as evidenced by the various incidents, and there is the real possibility of societal and political backlash from the risks as well as the potential ecosystem & environmental damage that arises from the radioactive waste produced. Nuclear plants require large capital expenses to build and maintain. With safer, cheaper and equally viable alternatives in solar and wind energy, there is no strong reason for ASEAN countries to overtly support or implement nuclear power. There is also a long way to go before safer nuclear fusion technology becomes a reality. According to Dealroom data, VCs have steered clear of nuclear generation focused start-ups, similar to Quest Ventures’ position.[80] 

Likewise, geothermal and hydro power are also limited in where they can be applied across the region, and will require much more R&D and capital investment over a longer horizon before becoming commercially viable and/or see widespread adoption. 

While it will be interesting to see how and where these three forms of renewable energy will come into play in the future, we expect that the renewable energy will continue to mainly come from solar or wind power. 

Energy Storage

Lithium-ion batteries are the de-facto option for energy storage today. In recent years, they have been heavily used as part of electric vehicles (EVs), and in renewable energy-powered power grids and solar/wind farms. However, there are several issues with the existing lithium-ion battery technology that are limiting its applications. 

Firstly, their energy density is still inferior to fossil fuels. Fossil fuels remain more convenient and efficient – a fully charged battery in an EV will not allow one to travel as far as a full tank of petrol, and will likely weigh more as well. Batteries are also limited in terms of how well they can hold their charge over periods of time. This limits the applications of batteries to small electronics such as drones and smartphones, or electric cars and electric trucks at best. While inventions such as commercial electric planes would reduce air travel costs and emissions significantly, they regrettably remain unachievable. 

Even the most advanced lithium ion batteries today contain 14 times less usable energy than jet fuel, and a plane cannot possibly carry the weight of X such batteries to make up for the difference in energy density.[81] According to a study, batteries would need to be 4x as energy dense as the most advanced lithium ion batteries today before they can power a commercial airplane for ~1000km.[82] 

Secondly, battery costs remain high. Battery costs are measured in terms of the amount of money spent for every kilowatt-hour of electricity the battery can hold. While lithium ion battery costs have fallen from $1000/kWh to $200/kWh from 2010 to 2017, further reductions must be made in the next decade.[83] The US Department of Energy estimates that battery costs will need to fall to $125/kWh in order for EV ownership to rival gas-powered car ownership, and for renewable energy power grids to replace traditional grids, battery costs will have to fall even further to $10/kWh.[84] Besides costly production, batteries have a limited lifespan and will require replacements after a particular number of charge cycles. This adds additional cost considerations that will detract from adoption of renewable energy solutions. 

Thirdly, lithium-ion batteries use rare metals such as lithium, nickel, manganese and cobalt as key materials. Besides being only found in small quantities, they are often mined in countries with dubious labor and environmental regulations, such as the Democratic Republic of Congo. 

There have been some noteworthy developments coming from start-ups across the world aimed at tackling these limitations. 

The overall battery’s energy density can be increased theoretically by increasing the energy density of either the cathode, anode or both. The most promising cathode appears to be the lithium nickel-manganese-cobalt (NMC) 811 cathodes (the numbers refer to the ratios of the respective metals). However, more innovation needs to be done to increase its short lifespan. While most batteries have relied on graphite as the anode, materials such as silicon and lithium are being considered as potential better alternatives. Silicon anode technology is being used by start-ups such Silanano, and companies like Daimler and BMW have expressed their interest. Some startups are even looking at producing silicon sustainably (e.g. produced from barley husk ash or sand).[85] Other startups and researchers have also proposed alternative batteries, such as graphene batteries, lithium-sulfur batteries, solid-state lithium-ion batteries, gold nanowire batteries, sodium-ion batteries etc.[86] Each of these technologies has the potential to rival lithium-ion batteries in the next decade. 

Large battery makers and start-ups are coming up with solutions to reduce or replace unsustainable rare metals, in a bid to reduce supply chain and environmental risks. For example, some battery producers are adopting lithium nickel-manganese-cobalt (NMC) cathodes with lower ratios of cobalt (NMC 811, 532 or 622 vs NMC 111 respectively), while others are replacing cobalt completely with other mixtures (e.g. lithium iron phosphate (LFP) cathodes made by Aceleron). 

In the pursuit of sustainability, we are also seeing technology being applied by startups to search for rare metal deposits where extraction causes less negative externalities.[88] For example, Kobold is deploying AI to search for cobalt in places around the world with better environmental and labour regulations, while Deep Green is exploring deep-sea mining. Additionally, start-ups are pioneering new battery technology, utilising common metals and even materials like cotton to create batteries that can be used in small electronics and EVs. Audi and Umicore research and testing has shown that 95% of rare metals can be recycled.[89] Start-ups are now trying to find innovative ways to both improve this figure and ensure recycling’s cost-effectiveness. Lastly, start-ups are also trying to commercialise systems to recover rare metals lost during production processes.[90] Proper sourcing and recycling will help to conserve finite resources while the search for better long-term solutions is ongoing. 

New types of batteries, cheaper raw materials as a result of better sourcing, different materials being used or the circular economy are all ways of successfully bringing down production costs. 

With many interesting and novel technologies being developed, the energy storage vertical is one of the most interesting ones to watch out for within the energy sector itself. 

Alternative Fuels – Hydrogen

Hydrogen is the most abundant element on Earth. It can be obtained through water electrolysis (splitting of water into hydrogen and oxygen via electric currents), fermentation of biomass feedstock, or through natural gas reforming.[91, 92] The resulting hydrogen can then be used to release energy on recombination with oxygen, with water as a byproduct. This makes hydrogen one of the cleanest energy sources available, when electrolysis is done with renewable electricity (termed as green hydrogen).  

Hydrogen fuel cells are seen as a viable alternative to electric batteries. Applications such as hydrogen vehicles are being developed in tandem with EVs, and research suggests that green hydrogen will bring life-cycle emissions of vehicles lower than that of EVs, because of the current environmental costs of lithium-ion battery production.[93] 

Nevertheless, the technology remains more of a niche than electric vehicles, due to limitations in infrastructure (hydrogen refuelling stations) and efficiency. However, innovative methods of electrolysis (e.g. photobiological, photoelectrochemical water splitting) and innovations in fuel cell technology could both supplement and supplant the dominance of batteries in electric powered transportation, especially in larger vehicles hampered by battery capacity. 

Alternative Fuels – Biofuels

Biofuels can be divided into three generations. The first generation of biofuels were made from food crops, which meant that it’s sustainability and ethicality was immediately called into question. The second generation of biofuels, which we are currently using, are made from damaged or waste grain, forestry waste or even household waste. The third generation of biofuels will be the ones that are fully synthetic, but those are a long way off from achieving commercial success. 

In ASEAN, we expect biofuels to grow in importance for several reasons. Firstly, growing certain crops for biofuels is a part of the rural development strategy for countries that retain a large agricultural base, such as Indonesia, Philippines and Thailand. As food production expands due to increased farm productivity, there is more waste grain and residues from harvests that can be used as feedstock for biofuel production.[94] This provides an additional source of rural income opportunities, aiding in the reduction of poverty for rural communities. In fact, growing non-food crops in rotation with existing crops can provide synergistic properties such as mutually fertilising the soil for each subsequent season and maximising land use during off-seasons.[95] This also applies to the forest plantations found all over Southeast Asia, and the communities formed around them. As such, there is incentive for several governments to get involved in promoting biofuel adoption. We are already seeing in the form of biofuel mandates, such as Malaysia’s attempt to support its palm oil industry. Singapore’s Economic Development Board (EDB) is also carrying out a study to determine if materials such as palm oil, sugarcane and plant biomass can be used to produce fuels, chemicals and polymers.[96] 

Secondly, biofuels present a solution for countries to reduce their global carbon emissions quickly, as they often require little modification before usage. According to research by the International Renewable Energy Agency (IRENA), biofuels could potentially sustain up to two-fifths of the region’s projected transport fuel requirements by 2050, achieving considerable carbon emissions reductions and contributing to the energy security of each country.[97] 

We are already seeing interesting movements made by start-ups in the area. Alpha Biofuels, a Singapore company, is converting used cooking oil into biodiesel, successfully using it in a bulk carrier.[98] The biggest challenge will be creating efficient fuels while balancing land use biofuel crop growth against other priorities. Hence, we can expect innovation to continue not just in the refining process and application of biofuels, but also in the agritech space to improve yield efficiencies of crops and hence residual biomass feedstock.

Grid Management

Increasing access to electricity and bringing communities on to the grid is one of the sustainable development goals. Aided by the decreasing capital costs of solar panels and turbines and small power grids, start-ups have married impact with business opportunities by providing electricity to rural households through pay-as-you-go or lease-to-own models. This is currently being done throughout Southeast Asia, in Myanmar, Indonesia, Philippines and Thailand, and has the added bonus of reducing usage of environmentally unfriendly sources such as kerosene and charcoal.

Looking Beyond

Evidently, there is still all to play for in the energy sector, and whichever companies can best balance safety and efficiency to come up with the best solutions can potentially see themselves becoming the Shell or Exxon of the electric era. The energy sector also parallels other sectors dealing with essential resources, such as water and air, where the challenge lies in Increasing accessibility to safe sources of essential resources at an affordable cost.

---

Trends and Developments II

There are several spaces that we have identified and are keeping an eye on. Below we provide a high-level overview of each particular industry, focusing on upcoming technology, as well as innovative business models.

Infrastructure

According to the UN, the world population will be approximately 9 billion by 2050, of which almost 66% will be living in cities.[99] This places great strain on existing infrastructure, as well as the environment. It is imperative that governments take the necessary steps to mitigate these challenges now. Naturally, this also provides the private sector with the opportunity to step in with solutions. 

Smart Mobility

In sprawling urban jungles, getting from one place to another quickly is important for both life and work. This makes the development of efficient yet sustainable public and private transport options critical to the productivity of the country. 

With regards to public transport, we are seeing constant improvement on train and bus services. In Singapore, rail operators have implemented technology such as re-using energy from braking trains to power up other trains, and are looking at lighter trains and recyclable parts.[100] Efforts are also being undertaken by start-ups across ASEAN to provide cleaner public transport options. This include hardware options such as buses running entirely on biogas, or using AI & user apps to introduce dynamic routing & buspooling (e.g. Rushowl in Singapore, Bussr in Indonesia). The end goal we should be working towards is a rail system like Sweden’s, which runs entirely on renewable energy.  To continue pushing public transport (trains, buses, bicycles etc.) as a viable alternative to private transport, ASEAN governments need to continue their commitments to building the necessary infrastructure. 

We are seeing an increase in the availability of hybrid vehicles and EVs in ASEAN. Nissan recently announced in 2021 that Thailand would be its EV hub for the region, and startups across ASEAN have sprung up to produce their own EVs, electric bicycles, scooters etc. Similarly, infrastructure investments and government regulation will be key towards advancing the adoption of EVs. Thankfully, we have seen the Singaporean, Thai, Indonesian and Philippines governments commit to building this infrastructure. Singapore aims to install 60,000 charging points by 2030, and the Asian Development Bank (ADB) has signed a green loan to Energy Absolute in Thailand to finance a EV charging network.[101, 102] We are also seeing subsidies for electric vehicle ownership, including the reduction of road taxes on the basis of reduced carbon emissions, and stricter requirements on models that are allowed to be distributed or even driven within countries. 

We are also seeing the proliferation of tech-based mobility solutions that are disrupting traditional notions of private hire vehicles and private car ownership. This includes the now well-known model of ride-hailing (e.g. Grab, Uber, Gojek, Ola, Lyft, Didi etc.), as well as ride-sharing (e.g. Grabhitch).  We are also seeing the proliferation and expansion of car-sharing mobility startups such as BlueSG (Singapore), SoCar (South Korea) within Southeast Asia. Micro-mobility is also a plausible trend to look out for. While we have seen the rise and less than glamorous fall of bike-sharing start-ups such as Ofo, oBike and Mobike, the micro-mobility scene today is looking towards electric scooters as the next last-mile mobility solution.[103] With the operational and regulatory lessons learnt from bike-sharing, e-scooter sharing might be able to succeed where bike-sharing failed.[104] Lastly, the parking and navigation space is also seeing several start-ups attempt to use AI and blockchain technology to solve congestion, parking inefficiencies and other pain points. 

Smart Logistics

The pandemic has heightened demand for online purchases and highlighted the inefficiencies in the current processes and systems. There is room for AI and technology to bring about coordination, efficiency and optimization to the fragmented logistics network. By offering SaaS or in-house solutions, start-ups may potentially find success in a region where logistics and shipping continues to be a large industry. We are also seeing new fringe applications aimed at revolutionising last-mile logistics solutions, such as drone delivery. 

Smart Buildings

Being geographically positioned near the equator, tropical countries in Southeast Asia are some of the hottest all-year round. Additionally, Asian cities are some of the most densely populated, characterised by high-rise living and congestion. High population density, together with intense human activity and energy consumption synonymous with urban living environments has resulted in what is known today as the urban heat island (UHI) phenomenon. High temperatures in turn spur citizens to rely on air conditioning to create artificially cool indoors environments conducive for work, which consume large quantities of electricity from the grid, creating a large carbon footprint while venting hot air outdoors, raising the temperatures further. Heat stress is expected to cost APAC 62 million full-time jobs by 2030, or 3.1% of the workforce, according to the International Labour Organization, thus it is imperative that future urban planning and development aim to mitigate rising temperatures.[105] 

We should be looking towards constructing or converting existing buildings into green buildings. These are buildings that use innovative architectural designs or inventions to achieve sustainability. Countries assess green buildings via rating schemes, such as the Singapore Building Construction Authority (BCA)’s Green Mark rating scheme and their counterparts in Malaysia & Indonesia etc.[106] These are attuned to the regional context, focusing on passive: and active: technologies that can promote cooler buildings while reducing energy consumption.[107, 108]  

Examples of technologies include:[109]

1. Design innovation led by modelling software to optimise shade and ventilation
2. Architectural designs like overhangs, planters to block direct solar exposure, roof greening and facades
3. Efficient cooling systems such as water cooling for data centers 
4. Motion sensors and intelligent building control systems that regulate electricity use based on activity/outside temperature
5. Solar windows and cool roofs, paints that reflect sunlight and prevent absorbing heat
6. Sustainable construction materials with less embodied carbon

Governments are increasingly launching grants for green building technologies, and start-ups can take advantage of these to get their innovations ready for commercialization and further funding.  

Smart appliances are also continuously being developed, and continued innovation will serve to make them more energy efficient and lower costs, thus driving adoption. Homes are a main contributor to energy consumption as well, and establishing zero-energy homes will be an important goal for cities as well.

---

Trends and Developments III

There are several spaces that we have identified and are keeping an eye on. Below we provide a high-level overview of each particular industry, focusing on upcoming technology, as well as innovative business models.

Agriculture

Agriculture remains one of the most vital sectors of most ASEAN economies. Research done shows that agriculture (including farming, fishing and forestry) continues to account for 10.2% of ASEAN’s total GDP as of 2019, and remains a key contributor to employment both in developing countries such as Myanmar (almost 50%), Laos, Vietnam and Thailand, as well as countries that are rapidly pivoting to industry and service sectors such as Indonesia and the Philippines.[110] When considering the agriculture value chain as a whole, the value created is multiplied (2.9x in the Philippines), increasing agriculture’s importance to economies as a whole.[111] 

Furthermore, with the global population set to reach 10 billion by 2050, agricultural production needs to double in order to provide sufficient food for all. More efficient and sustainable agriculture will be integral in meeting these needs without infringing further on the environment. Simply scaling up will place unprecedented levels of strain, resulting in groundwater depletion, soil degradation, loss of biodiversity amongst other climate stresses. There is a need for fragmented supply chains to become more unified and efficient, for land to be used more efficiently and for alternative foods to be developed and adopted. 

Efficiency

We have already seen an agricultural revolution in the form of hardware improvements. Today, we are seeing the rise of precision farming, where softwares such as GPS, AI & data analytics, IoT and cloud computing are used alongside hardware (sensors, machines, drones etc.) to provide farmers with the tools to monitor, anticipate and tackle challenges. This allows for improvements in crop yields and stabilizing of harvest levels to ensure food security. 

There is much room for efficiency gains in Southeast Asia. Countries like Vietnam and Myanmar are still on the backfoot compared to the rest of the region, with inefficiencies caused by overirrigation, misuse of fertilisers and pesticides and a multitude of other problems. The key will be bringing in technology at a low enough cost to encourage adoption by more than 100 million rural smallholder farmers which collectively produce a significant portion of the food consumed and exported in Southeast Asia.[112] 

Smallholder farmers are constrained by several interconnected problems. Despite high internet penetration (66%) in SEA, smallholders lack access to information (weather reports, market prices, how to mitigate pests and diseases etc.), financial resources (e.g. loans) to make large capital purchases to upgrade, and markets to sell their goods to.[113] The vacant space has seen startups spring up to tackle smallholders’ pain points. As of April 2020, there were 134 smallholder-centric agritech startups. Some rely on proven business models such as peer-to-peer lending, crowdfunding, digital marketplaces etc. (including B2B marketplace and P2P lending platform Tanihub and crowdfunding platform Cropital), while others have found success with promising business models such as farmer advisories, mechanization platforms and marketing traceability (ethical, fair value branding).[114] Other innovative business models include Fefifo, which provides ‘Farmspace as a service’ to take the burden of large capital outlay off farmers starting out small. 

On the other hand, there has also been innovation specifically aimed at uniting the fragmented value chain. By connecting farmers, supermarkets, restaurants and export hubs, as well as relying on technology such as blockchain, real-time analysis and more efficient logistics, startups have seen success in improving the pricing mechanisms in agribusiness, reducing perishable food wastage, lowering costs for businesses while providing better returns for the otherwise-exploited farmers. 

Better Land Use

Food and fibre production currently use more than half of the world’s ice-free land.[115] Increasing production used to mean increasing land use, but in the face of growing land scarcity and opportunity cost, we have to learn how to make better use of existing space, while looking towards freeing up land for other purposes. 

As a relatively outdated sector, land use is prone to being disrupted by technology. While this can be achieved in part through more efficient farming, there are specific technologies being developed to maximise each square foot of land used for farming. For example, vertical farming technology produces 2.5 times more crops per hectare across various crop varieties on average.[116] While the leaders in vertical farming technology might not be in ASEAN (China, Japan, South Korea, US and Europe dominate), ASEAN countries like Singapore and Thailand are already beginning to implement vertical farming both in urban and rural farms, with home farm brands such as Sky Greens (SG)  and NoBitter (TH) rapidly scaling up in their respective home countries.[117]

Singapore’s ambitious 30% home-grown food by 2030 objective has led to it taking the lead in ASEAN, as it attempts to bolster its food security through greater self-sufficiency (10% as of today). This has come in the form of grants (Singapore Food Agency (SFA) 30X30 Express Grant), monetary support to adopt new technologies (Agriculture Productivity Fund (APF)), and innovation funding (Enterprise Singapore (ESG) has set aside S$55 million). Technologies include indoor LED lighting for multi-story vegetable farms and multi-storey recirculating aquaculture systems, which are 10-15x more efficient and less labor intensive. 

If successful, the Singaporean method presents opportunities for expansion to the rest of the ASEAN countries that are yet to explore such methods. 

Alternative Foods

This vertical encompasses a variety of applications of biotechnologies, including but not limited to plant-based meats, lab-grown products and new plant-based food production. It has seen huge investor interest in recent years – based on PwC analysis on Dealroom data, they take up a third of overall investment, with higher than average deal sizes.[118] 

In part, this heightened investor interest is due to the hype surrounding plant-based meats. These products retain the taste profile and nutritional value of actual meat, while using 87% less water, 96% less land, and producing 89% less greenhouse gases.[119] The combination of taste and sustainability has appealed to consumers, allowing companies, most notably Impossible Foods and Beyond Meat, to achieve commercial success. It is expected that the overall Asian plant-based meat market will grow to US$1.7 billion (a 25% increase) by 2026.[120] This echoes predictions surrounding global market growth not just for plant-based meats, but low-GHG proteins and alternative foods in general.[121] 

We expect demand for plant-based products and low-GHG proteins to increase across Asia because of a growing consciousness amongst an increasingly affluent population about the need to eat healthily (plant-based diets, less meats), as well as a historical familiarity with soy-based products and mock meat.[122] 

We also believe that both the Asian and global market will not be dominated by US or European players. We are already seeing Asian start-ups taking the market by storm, with upcoming products that cater specifically to local taste buds and traditional cuisines, such as Hong-Kong based Avant Meats’ cell-based fish maw and sea cucumber and Phuture Foods’ Halal and Buddhist-friendly pork alternatives. Startups like Thailand’s Let’s Plant Meat also offer plant-based meat products at half the cost of Impossible Foods’, raising doubts on the validity of a first-mover advantage in this vertical, especially in new markets. 

In Southeast Asia, the Singapore government has been positioning the island state as ASEAN’s hub for plant-based food production. There have been substantial efforts to promote alternative protein development by startups, including funding matching by the government and providing conducive, supportive environments for start-ups focusing on alternative food solutions. Accelerator programs such as Innovate 360, Big Idea Ventures and GROW, as well as regular regional roadshows, seminars and events held in Singapore are part of the burgeoning biotechnology/foodtech innovation ecosystem.[123] 

Temasek Holdings, the government’s investment arm, was an early backer of US alternative protein start-ups Impossible Foods and JUST Egg, and aims to replicate that success at home.[124] Already, Singapore is home to some of the region’s hottest prospects, including Shiok Meats (cell-based shrimp), Karana (jackfruit-based meat), Life3 Biotech (plant-based chicken and prawns, algae-based proteins) Hegg Foods (vegan eggs) and TurtleTree Labs (lab-grown diary).[125, 126, 127] 

Looking Forward

Agriculture has a history of undergoing revolutions as a result of technological disruption. This trend is set to continue as agriculture undergoes its third and fourth revolution. Although deal activity in ASEAN today focuses on downstream innovation (unifying the supply chain, increasing efficiency of traditional methods) rather than upstream innovation (plant foods, new types of farming), we expect these verticals to garner more attention in recent years as the technology stabilizes and the agritech ecosystem develops.

---

Conclusion

It would not be an exaggeration to say that achieving sustainability is the greatest hurdle facing the world today. Be that as it may, this is also our best opportunity to solve the problem before it spirals irreversibly out of control. In this report we have argued that achieving sustainability is our responsibility, and is one that does not require us to sacrifice other priorities. 

Many sectors that are critical for achieving sustainability are in dire need of (further) disruption. However, the need for significant capital outlay and government support in many sectors might not be compatible with traditional venture capital investment. Leaving capital intensive or underdeveloped sectors to other more suitable funding sources, venture investors should not shy away from the impact sector, as there are many unpolished gems to be discovered. 

Despite being limited in terms of opportunities that can be pursued, we have continued to keep an eye on a range of sectors and verticals, detailed above, regardless of their suitability for venture capital investments. There is value to this, as technology has historically shown that it is capable of turning concepts like feasibility, intensivity on their head quickly. By not writing off particular sectors or verticals and instead continuing to keep an eye on their developments, we ensure that Quest Ventures can be amongst the first to identify nascent opportunities. With that in mind, Quest Ventures takes a broad-based approach in analysing the core sectors that will make or break sustainability in ASEAN in the coming decades, a strategy that continues to serve us well. 

---

Citations

1. AR6 Climate Change 2021 Report, Intergovernmental Panel on Climate Change (IPCC), 2021
2. UN Population Division, Population 2030, Retrieved from https://www.un.org/en/development/desa/population/publications/pdf/trends/Population2030.pdf
3. Harvard Business Review, The Comprehensive Business Case For Sustainability, Retrieved from https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability
4. Global Vision International, Why Bhutan Is The Only Carbon-Negative Country In The World, Retrieved from https://www.gvi.co.uk/blog/bhutan-carbon-negative-country-world/
5. McKinsey, Climate Change Risk and Response in Asia, 2020, Retrieved from https://www.mckinsey.com/business-functions/sustainability/our-insights/climate-risk-and-response-in-asia
6. ASEAN, Working Group on Climate Change, Retrieved from https://environment.asean.org/asean-working-group-on-climate-change/
7. Bain & Company, Southeast Asia’s Green Economy: Pathway to Full Potential, Retrieved from https://www.bain.com/insights/southeast-asias-green-economy-pathway-to-full-potential/
8. Climate Works, Vivid Economics, Low Carbon Industrial Strategy Discussion Papers, Retrieved from https://www.climateworksaustralia.org/resource/low-carbon-opportunities-for-se-asia/
9. Gilbert S. Hedstrom, Sustainability What It Is and How to Measure It, 2019
10. Arabesque, Why ESG, Retrieved from https://www.arabesque.com/2020/02/04/why-esg/
11. EY, 2020 EY Global Institutional Investor Survey, Retrieved from https://www.ey.com/en_sg/assurance/how-will-esg-performance-shape-your-future
12. A.Aziz, Forbes, The Power of Purpose, 2020 Retrieved from https://www.forbes.com/sites/afdhelaziz/2020/03/07/the-power-of-purpose-the-business-case-for-purpose-all-the-data-you-were-looking-for-pt-2/?sh=6c9337713cf7
13. Blackrock, Larry Fink CEO Letter, Retrieved from https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter
14. Alexander Chernev, Sean Blair, Doing Well by Doing Good: The Benevolent Halo of Corporate Social Responsibility, Retrieved from Journal of Consumer Research, Volume 41, Issue 6, 1 April 2015, https://doi.org/10.1086/680089
15. Harvard Business Review, The Comprehensive Business Case For Sustainability, Retrieved from https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability
16. Accenture, Breaking the Circle of Denial, 2021, Retrieved from https://www.accenture.com/sg-en/blogs/southeast-asia-blog/breaking-the-circle-of-denial
17. Gilbert S. Hedstrom, Sustainability What It Is and How to Measure It, 2019
18. ING Wholesale Banking, Sustainability in Asia Pacific, 2019, Retrieved From https://www.ingwb.com/media/2984681/sustainability-in-asia-pacific-2.pdf
19. Quest Ventures, Impactful Successes in Southeast Asia, 2020
20. Enterprise Singapore, Build It And They Will Come, Retrieved from https://www.enterprisesg.gov.sg/media-centre/news/2021/may/build-it–and-they-will-come–how-singapore-forged-a-startup-ecosystem-from-scratch
21. International Energy Agency, Policies to promote electric vehicle deployment, Retrieved from https://www.iea.org/reports/global-ev-outlook-2021/policies-to-promote-electric-vehicle-deployment
22. Think ING, Asia’s Lamentable Green Covid-19 Response, Retrieved from https://think.ing.com/articles/hold-asias-lamentable-green-covid-19-response/#a2
23. Hinrich Foundation White Paper – STI 2020, Retrieved from https://www.hinrichfoundation.com/research/wp/sustainable/sustainable-trade-index-2020/
24. Hinrich Foundation Indonesia Highlights – STI 2020, Retrieved from https://www.hinrichfoundation.com/research/wp/sustainable/sustainable-trade-index-2020/
25. Hinrich Foundation Vietnam Highlights – STI 2020, Retrieved from https://www.hinrichfoundation.com/research/wp/sustainable/sustainable-trade-index-2020/
26. ASEAN SDGs Indicators Baseline Report 2020, Retrieved from https://www.aseanstats.org/wp-content/uploads/2020/11/ASEAN-Sustainable-Development-Goals-Indicators-Baseline-Report-2020-web.pdf
27. Think ING, Asia’s Lamentable Green Covid-19 Response, Retrieved from https://think.ing.com/articles/hold-asias-lamentable-green-covid-19-response/#a2
28. Hinrich Foundation Country Highlights – STI 2020, Retrieved from https://www.hinrichfoundation.com/research/wp/sustainable/sustainable-trade-index-2020/
29. UN Sustainable Development, Implementation of Sustainable Development, 2012, Retrieved from https://sustainabledevelopment.un.org/content/documents/995vietnam.pdf
30. UN Sustainable Development, Vietnam 2018 Voluntary National Review On The Implementation of The Sustainable Development Goals, Retrieved from https://sustainabledevelopment.un.org/content/documents/19967VNR_of_Viet_Nam.pdf
31. UN Sustainable Development, Retrieved from https://sustainabledevelopment.un.org/memberstates/vietnam
32. WBCSD, Vietnam, Retrieved from https://sdghub.com/vietnam-vbcsd/
33.  Vietnam’s Development Success Story and the Unfinished SDG Agenda. Retrieved from https://www.imf.org/en/Publications/WP/Issues/2020/02/14/Vietnam-s-Development-Success-Story-and-the-Unfinished-SDG-Agenda-48966
34. Disruptive Asia, Three Steps to a Sustainable Economic Alternative for the Asia-Pacific, Retrieved from https://disruptiveasia.asiasociety.org/three-steps-to-a-sustainable-economic-alternative-for-the-asia-pacific
35. CNBC, 2021, Retrieved from https://www.cnbc.com/2021/01/28/vietnam-is-asias-top-performing-economy-in-2020-amid-covid-pandemic.html
36. World Resources Institute, Indonesia Low Carbon Development Initiative Report 2019, Retrieved from https://www.wri.org/outcomes/indonesia-adopts-its-first-ever-sustainable-development-plan
37. CNA, Singapore unveils Green Plan 2030, outlines green targets for next 10 years, Retrieved from https://www.channelnewsasia.com/singapore/singapore-green-plan-2030-targets-10-years-1883021
38. HSBC, Asia’s Green Finance Boom, Retrieved from https://www.gbm.hsbc.com/insights/global-research/asia-green-finance-booms
39. Shahab, Y, Ntim, CG, Chen, Y, Ullah, F, Li, H-X, Ye, Z. Chief executive officer attributes, sustainable performance, environmental performance, and environmental reporting: New insights from upper echelons perspective. Bus Strat Env. 2020; 29: 1– 16. Retrieved from https://doi.org/10.1002/bse.2345
40. Swytch, 2019 Employee Survey Retrieved from https://ga-institute.com/Sustainability-Update/tag/swytch/
41. Harvard Business Review, 2018, Retrieved from https://hbr.org/2018/11/9-out-of-10-people-are-willing-to-earn-less-money-to-do-more-meaningful-work
42. Gilbert S. Hedstrom, Sustainability What It Is and How to Measure It, 2019
43. Hedstrom Associates, Corporate Sustainability Scorecard, Retrieved from http://hedstromassociates.com/service/strategy-services/
44. Ellen MacArthur Foundation, The Circular Economy in Detail, Retrieved from https://archive.ellenmacarthurfoundation.org/explore/the-circular-economy-in-detail
45. Monetary Association of Singapore, Retrieved from https://www.mas.gov.sg/development/sustainable-finance
46. European Commission, Retrieved from https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/overview-sustainable-finance_en
47. Sustainability Accounting Standards Board, Materiality Map, Retrieved from https://www.sasb.org/standards/materiality-map/
48. HSBC, Asia’s Green Finance Boom, Retrieved from https://www.gbm.hsbc.com/insights/global-research/asia-green-finance-booms
49. Asian Development Bank, Green, Social, and Sustainability Bonds for Asia and the Pacific, 2020, Retrieved from https://www.adb.org/publications/green-social-sustainability-bonds-asia-pacific
50. Nikkei Asia, Green bonds grow on Asia’s investors, Retrieved from https://asia.nikkei.com/Spotlight/Market-Spotlight/Green-bonds-grow-on-Asia-s-investors
51. JP Morgan, Breaking New Ground With Asia Ex-Japan’s First Sustainability-Linked Bond, Retrieved from https://www.jpmorgan.com/solutions/cib/investment-banking/nwd-sustainability-bond
52. The Asset, The inexorable rise of green and sustainable bonds in Asia, Retrieved from https://zh.theasset.com/article-esg/43763/the-inexorable-rise-of-green-and-sustainable-bonds-in-asia
53. Dr Ser Keng Ang, SMU Principal Lecturer of Finance, Vice Chairman of Executive Committee & Director, UOB-SMU Asian Enterprise Institute; Academic Director, Master of Business Administration (MBA); Academic Director, Executive Masters of Business (EMBA) Programme
54. Retrieved from https://mothership.sg/2021/06/banks-pulling-out-fossil-fuels-ocbc/
55. IFC’s Approach to Greening Equity Investments in Financial Institutions, 2020
56. Reuters, Asian Development Bank to end coal, oil and gas financing, Retrieved from https://asia.nikkei.com/Business/Energy/Asian-Development-Bank-to-end-coal-oil-and-gas-financing
57. Blackrock, Sustainable Investing, Retrieved from https://www.blackrock.com/za/individual/themes/sustainable-investing
58. Lee Kyung-min, Hana Financial under fire over anti-green biz, Retrieved from https://www.koreatimes.co.kr/www/biz/2021/02/367_303537.html
59. Blackrock, Client Letter, Retrieved from  https://www.blackrock.com/za/individual/blackrock-client-letter
60. Kevin Stankiewicz, CNBC, Retrieved from https://www.cnbc.com/2019/09/19/blue-harbours-cliff-robbins-esg-investing-leads-to-higher-returns.html
61. Blackrock, How to Get Started, Retrieved from https://www.blackrock.com/za/individual/etfs-and-indexing/sustainable-investing/navigate-our-range
62. Saijel Kishan, Bloomberg, Retrieved from https://www.bloomberg.com/news/articles/2021-07-20/blackrock-voted-against-255-directors-for-climate-related-issues
63. Sara Bernow, Conor Kehoe, McKinsey, Retrieved from https://www.cnbc.com/2019/08/06/mckinsey-its-time-to-simplify-sustainable-investing-which-is-now-a-30-trillion-market.html
64. Amantia Muhedini, Michaela Seimen Howat, Antonia, Sariyska, UBS  Sustainable Investing Perspectives 8 Aug 2021
65. Global Reporting Initiative, 2020 Sustainability Reporting Trends in South Asia, Retrieved from https://www.globalreporting.org/about-gri/news-center/growing-momentum-for-sustainability-reporting-in-south-asia/
66. Conference Board, Sustainability Reporting Across Asia, Trends & Challenges, Retrieved from https://conference-board.org/blog/sustainability/Asia-Sustainability-Reporting-Trends
67. CSR Works, Asia Sustainability Reporting Summit 2020 Agenda, Retrieved from https://csrworks.com/summit/agenda/
68. ASEAN CSR Network, Sustainability Reporting in ASEAN Countries 2018, Retrieved from http://asean-csr-network.org/c/news-a-resources/sustainability-reporting
69. Sustainalytics, ESG Disclosure and Performance in Southeast Asia, 2021, Retrieved from https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/esg-disclosure-and-performance-in-southeast-asia
70. Morning Star, Passive Sustainable Funds: The Global Landscape, Retrieved from https://www.morningstar.com/lp/passive-esg-landscape
71. UBS, Sustainable Investing is possible with index funds, Retrieved from https://www.ubs.com/sg/en/wealth-management/sustainable-investing/sustainable-investing-is-possible-with-index-funds.html
72.  W.F. Meehan, Investing in Society, Retrieved from http://www.ssireview.org/articles/entry/investing_in_society/
73. International Finance Corporation, The SME banking knowledge guide, Retrieved from https://www.ifc.org/wps/wcm/connect/c6298e7b-9a16-4925-b6c0-81ea8d2ada28/SMEE.pdf?MOD=AJPERES&CVID=jkCVrZU
74. Business & Sustainable Development Commission, Better Business, Better World, January 2017, Retrieved from https://sustainabledevelopment.un.org/index.php?page=view&type=400&nr=2399&menu=1515
75. Ryan Browne, Some of Europe’s top tech investors are adding a ‘sustainability clause’ to start-up deal terms, Retrieved from https://www.cnbc.com/2020/10/30/impact-investing-in-vc-european-tech-investors-sustainability-push.html
76. MIT Energy Initiative, Working Paper: Venture Capital and Cleantech, Retrieved from https://energy.mit.edu/wp-content/uploads/2016/07/MITEI-WP-2016-06.pdf
77. PWC, The State of Climate Tech 2020, Retrieved from https://www.pwc.com/gx/en/services/sustainability/assets/pwc-the-state-of-climate-tech-2020.pdf
78. Quest Ventures, Impact Investing Framework for Early Stage Venture Capital, 2019
79. PWC, The State of Climate Tech 2020, Retrieved from https://www.pwc.com/gx/en/services/sustainability/assets/pwc-the-state-of-climate-tech-2020.pdf
80. PWC, The State of Climate Tech 2020, Retrieved from https://www.pwc.com/gx/en/services/sustainability/assets/pwc-the-state-of-climate-tech-2020.pdf
81. Eric Adams, The Age of Electric Aviation Is Just 30 Years Away, Retrieved from https://www.wired.com/2017/05/electric-airplanes-2/
82. Andreas W. Schäfer, Technological, economic and environmental prospects of all-electric aircraft, Retrieved from  https://www.nature.com/articles/s41560-018-0294-x
83. Akshat Rathi, Quartz, Retrieved from https://qz.com/1302711/to-hit-climate-goals-bill-gates-and-his-billionaire-friends-are-betting-on-energy-storage/
84. US Department of Energy, Retrieved from https://www.vox.com/2016/6/6/11867894/electric-cars-global-sales
85. Chris Hall, Future batteries, coming soon: Charge in seconds, last months and power over the air, Retrieved from https://www.pocket-lint.com/gadgets/news/130380-future-batteries-coming-soon-charge-in-seconds-last-months-and-power-over-the-air
86. Robert Triggs, Graphene batteries: What are they and why are they a big deal?, Retrieved from https://www.androidauthority.com/graphene-batteries-explained-1070096/
87. Retrieved from https://theatlas.com/charts/r1WFyjyDN
88. Akshat Rathi, Quartz, Retrieved from https://qz.com/1582811/the-complete-guide-to-the-battery-revolution/#1
89. Hugh Finzel, Audi and Umicore open up on closed loop, Retrieved from https://www.bestmag.co.uk/content/audi-and-umicore-open-closed-loop
90. Jason Deign, How the Battery Sector Is Looking to Improve Lithium-Ion, Retrieved from https://www.greentechmedia.com/articles/read/how-the-battery-sector-is-looking-to-improve-lithium-ion
91. FuelCellsWork, E-TAC Water Splitting Technology, Retrieved from https://fuelcellsworks.com/news/researchers-develop-inexpensive-environmentally-friendly-safe-hydrogen-production-method-technology/
92. Alternative Fuels Data Center, Hydrogen Production and Distribution, Retrieved from https://afdc.energy.gov/fuels/hydrogen_production.html
93. Martin Saarinen, Retrieved from https://www.autoexpress.co.uk/car-news/electric-cars/93180/hydrogen-fuel-cell-do-hydrogen-cars-have-a-future
94. Green Facts, Prospects Risks & Opportunity, Retrieved from https://www.greenfacts.org/en/biofuels/l-2/5-food-security-poverty.htm#2
95. ERIA, Study on Asian Potential of Biofuel Market, Retrieved from https://www.eria.org/RPR-FY2013-20.pdf
96. Eco-Business, Biofuels development: Singapore powering ahead, but gaps remain, Retrieved from https://www.eco-business.com/news/biofuels-development-singapore-powering-ahead-but-gaps-remain/
97. IRENA, Biofuel potential in Southeast Asia: Raising food yields, reducing food waste and utilising residues, Retrieved from https://irena.org/publications/2017/Jun/Biofuel-potential-in-Southeast-Asia-Raising-food-yields-reducing-food-waste-and-utilising-residues
98. Clement Yong, Straits Times, Retrieved from https://www.straitstimes.com/singapore/bulk-carrier-sails-from-spore-to-s-africa-on-biofuel-made-from-waste-cooking-oil
99. UN, World Urbanization Prospects, 2014, Retrieved from https://population.un.org/wup/publications/files/wup2014-highlights.Pdf
100. Straits Times, Singapore’s MRT lines to be graded on green-ness, Retrieved from https://www.eco-business.com/news/singapores-mrt-lines-be-graded-green-ness/
101. Cheryl Heng, South China Morning Post, Retrieved from https://www.scmp.com/business/companies/article/3122026/singapores-electric-car-charging-providers-put-expansion-plans
102. Asia Development Bank, ADB, Energy Absolute Sign Green Loan for Renewable Energy and Electric Vehicle Charging Network, Retrieved from https://www.adb.org/news/adb-energy-absolute-sign-green-loan-renewable-energy-and-electric-vehicle-charging-network
103. Cindy Co, Channel News Asia, Retrieved from https://www.channelnewsasia.com/singapore/wheel-woes-rise-and-fall-singapores-bike-sharing-industry-892931
104. Hope Ngo, BBC, Why some bike shares work and others don’t, Retrieved from https://www.bbc.com/future/article/20210112-the-vast-bicycle-graveyards-of-china
105. International Labour Organization, Working on a Warmer Planet, 2019, Retrieved from https://www.ilo.org/global/publications/books/WCMS_711919/lang–en/index.htm
106. Mike Ives, Yale School of the Environment, Retrieved from https://e360.yale.edu/features/singapore_takes_the_lead_in_green_building_in_asia
107. The Business Times, Retrieved from https://www.eco-business.com/news/green-buildings-in-singapore-adding-the-green-touch-with-technology/
108. Conserve Energy Future, Retrieved from https://www.conserve-energy-future.com/top-sustainable-construction-technologies-used-green-construction.php
109. Teh Shi Ning, Straits Times, Retrieved from https://www.straitstimes.com/singapore/environment/green-buildings-reaching-beyond-energy-efficiency-to-tackle-embodied-carbon
110. ASEAN Key Figures 2020, Retrieved from https://www.aseanstats.org/wp-content/uploads/2020/11/ASEAN_Key_Figures_2020.pdf
111. Paul Teng, Andrew McConville, RSIS Commentary, Agriculture and ASEAN Economies: Still Key for Growth, Retrieved from https://www.rsis.edu.sg/wp-content/uploads/2016/05/CO16127.pdf
112. Deloitte, Converge: Cultivating Southeast Asia for the Future of Food, Retrieved from https://www2.deloitte.com/content/dam/Deloitte/sg/Documents/innovation/sea-inno-converge-cultivating-sea-for-the-future-of-food.pdf
113. Grow Asia, Smallholder AgriTech SEA Landscape 2020, Retrieved from https://drive.google.com/file/d/1maCAypMhWBZUBKYeSeHdy3PT2yfA9R1Y/view
114. Grow Asia, Business Model Guides, Retrieved from https://www.growasia.org/business-
115. Mervyn Piesse, Future Directions International, Global Food and Water Security in 2050, Retrieved from https://www.futuredirections.org.au/publication/global-food-and-water-security-in-2050-demographic-change-and-increased-demand/
116. Lucie Adenaeuer, Up, Up and Away! The Economics of Vertical Farming, Retrieved from https://www.researchgate.net/publication/259702659_Up_Up_and_Away_The_Economics_of_Vertical_Farming
117. Vertical Farming Planet, Countries Using Vertical Farming, Retrieved from https://verticalfarmingplanet.com/countries-using-vertical-farming/
118. PWC, The State of Climate Tech 2020, Retrieved from https://www.pwc.com/gx/en/services/sustainability/assets/pwc-the-state-of-climate-tech-2020.pdf
119. Impossible Foods, Quantis Life Cycle Assessment 2019, https://impossiblefoods.com/sustainable-food/burger-life-cycle-assessment-2019
120. DuPont Nutrition & Biosciences, IPSOS, Research Study, Retrieved from https://www.dupontnutritionandbiosciences.com/news/nutrition-biosciences/2020/plant-based-meat-alternatives-set-to-thrive-in-the-next-five-years.html
121. Allied Market Research, Meat Substitute Market by Product Type Global Opportunity Analysis and Industry Forecast, 2021–2027, Retrieved from https://www.alliedmarketresearch.com/meat-substitute-market
122. GMO Research, Asia Is The Next Plant-Based F&B Hub, Retrieved from https://gmo-research.com/news-events/articles/plant-based-industry-asia
123. The Asia Alternative Protein Industry Report 2020: New Decade, New Protein, Retrieved from https://www.greenqueen.com.hk/download-asia-alternative-protein-report-2020/
124. Sally Ho, Green Queen, Retrieved from https://www.greenqueen.com.hk/singapores-plant-based-maker-growthwell-secures-us8-million-to-bring-chickpea-protein-to-asia-region/
125. Sally Ho, Green Queen, Retrieved from https://www.greenqueen.com.hk/8-asian-food-tech-startups-innovating-the-future-of-food-and-sustainability/
126. Tanuvi Joe, Green Queen Retrieved from https://www.greenqueen.com.hk/singapore-startup-ai-vegan-eggs/
127. Sally Ho, Green Queen, Retrieved from https://www.greenqueen.com.hk/singapores-turtletree-labs-debut-lab-grown-breast-milk-in-2021/

State of Startup Ecosystem

Credits

Analysts
Mr Surendra Shenoy, Summer Analyst

Research
Mr James Tan

Overview

Called a “burgeoning startup economy” by TechCrunch, and home to seven unicorns (before the merger of Gojek and Tokopedia), the highest in Southeast Asia, the startup landscape of Indonesia has been the subject of a growing number of conversations. Prominent startups have been putting the archipelago on the map with their traction and innovation, especially during the COVID-19 pandemic, and this report covers a high-level overview of the state of the Indonesian ecosystem halfway through 2021.

Indonesia’s immense size and market potential continues to make it an attractive market for start-ups and investors, which in turn has allowed it to develop strong entrepreneurship ecosystems in major cities. However, key factors challenging this position are (1) the unequal development and ‘access gaps’ between different tiered cities; (2) key talent shortages undermining the ability of local start-ups to perform to their maximum potential; and (3) complexity in starting and operating a business in Indonesia.

On the other hand, ongoing trends, such as talent development initiatives, are quelling these challenges, and Indonesia overall remains a top entrepreneurship ecosystem, particularly in the areas of e-commerce, FinTech, and EdTech.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

In recent years, Indonesia has taken the limelight for its pace of development across many sectors of its economy including technology.

An enormous population and growing income levels are two of many factors that have powered this growth, resulting in many unicorns and game-changing startups.

Challenges exist. From income inequality to unequal distribution of talent across the archipelago, Indonesia faces challenges typical of many emerging economies. Time will tell if the valuations that are placed on many startups justify the lofty expectations.

In the meantime, we believe that the Indonesian startup ecosystem is strong and, barring any systemic influences, will continue to grow in its influence across Southeast Asia.

---

Indonesia: The Perfect Market?

Size and Market

The largest and most obvious pull factor of the archipelago lies in its sheer size. Indonesia hosts Southeast Asia’s largest population and economy, with over 270 million residents and a nominal GDP of over USD 1.1 trillion.[1] The country’s demographics also make it an attractive market. With a median age of 29.7 years, and 60% of the country under the age of 40, its young population is also especially open and welcoming of new tech-adoption.[2] Furthermore, as much as 95% of Indonesia’s internet users consume their content primarily on mobile, and average daily mobile use exceeds 5 hours, amongst the highest in the world, making the country particularly attractive for mobile-first start-ups.[3]

Internet and mobile penetration rates have also seen an uptake in recent years, with the number of internet users jumping from 30 million to over 150 million in the last decade due to long-term trends, construction of new telecommunication infrastructure and improved internet connectivity.[4] Moreover, this growth is expected to continue, and Indonesia’s internet economy, currently estimated at USD 44 billion, is expected to see double digit growth and reach 124 billion by 2025, setting it as the largest and fastest-growing Internet economy in Southeast Asia.[5]

Investment Hub of Emerging Asia

Indonesia’s attractiveness as an entrepreneurship ecosystem has also been bolstered by the inflow of capital funding into the country, with over USD 5.7 billion being raised in 2020, equalling 70% of SEA’s capital share.[6] Indonesia’s tier one cities in particular have stood out to investors, with ecosystems like Jakarta attracting over USD 845 million in early-stage funding alone, the highest amongst all emerging ecosystems. In fact, Jakarta’s ecosystem itself was valued at an estimated USD 26.3 billion, positioning the city as the world’s most valuable emerging ecosystem.[7] Moreover, Indonesia is likely to see continued good capital inflow, given the prevailing geopolitical tensions and increased investment risks involving popular destinations like China, the U.S., India, etc.[8, 9]

---

Key Inherent Challenges

Disproportionate Development Across Cities

However, as hinted earlier, ecosystem development across its cities has been far from homogeneous. Outside of tier one cities, particularly Jakarta, entrepreneurs have limited access to capital, expertise, mentorship and other resources which are crucial ingredients in early-stage start-up success.[10] Moreover, even though cities like Yogyakarta, Bandung, Semarang and Surabaya have been recognised for their flourishing start-up ecosystems in their own right, only Jakarta has been ranked amongst the top 500 cities for start-ups.[11]

Furthermore, Indonesia’s unique geography, demographic diversity and relatively weak connectivity further exacerbates this problem of limited shared access to existing resources, and supports the continuation of an “access gap”. This “access gap” flows both ways; it not only limits in-roads for entrepreneurs in larger cities to their potential user bases in smaller ones, but also limits potential entrepreneurs in smaller cities who would be the most inclined to solve their local problems.[12]

Key Talent Shortages

Similarly, a challenge for entrepreneurs across Indonesia has been reliable access to crucial talent. The 2020 Talent in Asia study reported that over 50% of Indonesian employers face talent shortages, with the primary cause being an inability to find candidates with the right knowledge and experience.[13] Moreover, in the start-up space specifically, 90% of respondents believed that the skills gap was a major issue.[14] Structural issues like a relatively low tertiary education rate, as well as a documented ‘brain drain’ of qualified talent, has resulted in consistent shortage of talent, which in-turn has driven up the salaries and expectations of local talent.[15] Recent figures estimate that software engineers and other crucial start-up roles, such as digital marketers, often command salaries three to five times higher than the median wage in Southeast Asia.[16]

The inability of startups to sometimes afford required talent, especially early on in their development, has thus led to buried start-up ideas, early start-up deaths or underperformance. Even in later stages, rapid-scaling due to internal talent shortages has emerged as a serious challenge. Moreover, even when employers do hire talent, frequent complaints have risen of quick turnarounds, employee job-hopping, and moonlighting.[17] Furthermore, the lack of an ESOP culture, a crucial get round for most of these problems, has hampered employer’s abilities to attract and keep talent.[18]

Business Complexity

The last major challenge plaguing the Indonesian start-up ecosystem has been the complexity of setting up and running businesses in the country. The Global Business Complexity Index ranked Indonesia as the world’s most complex jurisdiction across their 77 analysed major countries.[19] Similarly, the World Bank’s ease of doing business index ranked Indonesia as 73rd across 190 global economies. The presence of neighbours with significantly better rankings, such as Singapore (2nd), Malaysia (12th) and Thailand (21st), further challenges Indonesia’s position as the regional business destination of choice.[20] Key issues that have been highlighted include difficulties in starting businesses, accounting & taxation, contract enforcement, trading across borders, and rigid employment regulations. A secondary concern has also been the government’s focus on local start-ups, with limited support for international start-ups entering Indonesia.

---

Major Trends to Look Out For

Strong Growth in Lagging Cities

Nonetheless, optimism remains high around the Indonesian ecosystem due to ongoing trends, which are countering some of the aforementioned key challenges. While current ecosystem development has been disproportionate across cities, growth in tier two and three cities is actually outpacing growth in tier-one cities, a trend that is likely to continue for the next decade.[21] Moreover, these markets are by no means sub-par or unattractive to start-ups and investors. For example, by some estimates, adoption rates for e-commerce, e-payments, and lending in tier two and three cities is expected to grow up to 46% YoY towards 2025, and some investors foresee these ecosystems hosting the next Indonesian unicorns.[22] As such, the large and untapped potential across these segments in Indonesia will likely push more and more ambitious investors to these areas, and existing entrepreneurs will rise to build strong ecosystems across the archipelago.

Talent Development Initiatives

Similarly, all over Indonesia, various stakeholders are also engaging in top-down and bottom-up initiatives to breed technopreneurs and talent. The Indonesian government has openly declared its interest and priority in developing the entrepreneurship ecosystem and has engaged in initiatives like the 1001 Digital Startup Movement, BEKRAF, and KIBAR to assist entrepreneurs in different parts of their journey.[23, 24] On the other hand, startups like Glints and Hacktiv8 are offering bootcamps, courses and programs to upskill Indonesians with in-demand skills at a fraction of the time and cost of traditional degrees.[25] Similarly, larger players like Gojek and Tokopedia are taking active steps to alleviate talent shortages and investing in developing reliable talent pipelines by building internal capabilities through initiatives like GoAcademy and Tokopedia Academy.

Lastly, efforts are also being made to attract foreign talent, the Indonesian diaspora or ‘sea turtles’ (referring to Indonesians who return after studying and working overseas) to Indonesia. The government has indicated interests in developing Indonesia’s human resources as its priority target for 2020-2024, and is proposing initiatives such as strengthening the Ministry of Manpower and Transmigration’s purview, increasing benefits and incentives for returning Indonesians in public roles or universities, and increasing scholarship opportunities for locals and foreigners with bonds to return or work in Indonesia.[26, 27]

The impact of a reverse brain drain on the Indonesian start-up ecosystem cannot be overstated. Currently, over 90% of Indonesian unicorns and start-ups with valuations exceeding USD 100 million have co-founders or top leaders who have studied or worked overseas for a period of time.[28] Similar trends were also seen in other entrepreneurship hubs during their initial boom, such as Israel in the 1980s, or China in the early 2000s.[29] ‘Sea turtles’ and the wider Indonesian diaspora bring a perfect mix of good local understanding and strong international exposure, which in turn allows for the rapid development and success of the ecosystem. The trend of an increasing number of ‘sea turtles’, diaspora members and foreign talent coming to Indonesia thus foreshadows strong prospects for the local ecosystem.

---

Notable Industries

E-Commerce

E-commerce and FinTech are amongst the two largest and fastest growing sectors in Indonesia, which are expected to continue seeing higher growth and entrants due to the growing internet economy and large unbanked or underbanked population. E-commerce sales currently only accounts for approximately 5% of Indonesia’s total retail volume, but is expected to more than quadruple within the next five years according to estimates by McKinsey.[30] The market has a mix of early, growth and late-stage players, including unicorns like GoTo, Bukalapak and Shopee (under Sea Group), making space for tough competition.

FinTech

As aforementioned, the mobile-centric and underbanked population has made FinTech a major market in Indonesia. Only 12% of SMEs have access to credit, and over 65% of the population is totally unbanked.[31] As such, investors have flocked to start-ups solving these problems and FinTech was the highest-invested single space by VCs in 2020.[32] Multiple solutions and sub-verticals currently exist, including P2P lending solutions, digital payments, earned wage access, personal finance management, alternative credit scoring, etc. However, as opposed to e-Commerce, the FinTech space has much fewer mature players, with a majority still in early stages, and the market appears to be highly fragmented with few dominant players. Consolidation is underway, further boosting the attractiveness of the industry, but the heavy involvement of the government and regulators also adds a layer of unpredictability.[33]

EdTech

The COVID-19 pandemic has also accelerated adoption and normalisation of EdTech solutions, which also cover many sub-verticals ranging from online learning platforms to AR/VR, for user bases ranging from pre-school children to post-graduate students. The market currently has a mix of early, growth and late-stage players, of which a significant number grew massively and raised multiple funding rounds during the pandemic. Even outside the pandemic, long-standing trends such as unequal or substandard teaching resources across the country, and the aforementioned skills gap or talent shortage, make EdTech an attractive industry full of opportunities.[34]

---

Conclusion

Major prevailing trends are reducing some of the traditional challenges typically associated with the Indonesian ecosystem, such as strong growth within lagging cities countering ‘access gaps’ within these locations, or human resource development initiatives by various stakeholders alleviating talent shortages. However, some challenges such as Indonesia’s long-standing business complexity still remain, further exaggerated by the presence of business-friendly neighbours around it. 

Nonetheless, the overwhelming opportunities and potential in the Southeast Asian giant are making up for these shortcomings, and the ecosystem appears to be stronger than ever, particularly in comparison to other emerging markets. The COVID-19 pandemic has accelerated technology acceptance and adoption, and players from e-commerce, FinTech and EdTech have leveraged these circumstances to grow further, and look well-poised to continue doing so. Both investors and start-ups remain optimistic of growth in the future, with frequent talk of 10 more Indonesian unicorns in the next decade being floated as the new target, which for the most part, seems to be becoming more and more realistic with time.

---

Citations

1. World Bank. (n.d.). GDP (current International $) – Indonesia. The World Bank. https://data.worldbank.org/indicator/NY.GDP.MKTP.PP.CD?locations=ID
2. Statista. (2021, March 29). Median age SEA 2020 by country. https://www.statista.com/statistics/590942/median-age-of-the-population-in-south-east-asia/
3. App Annie. (2021). State of Mobile 2021. https://www.appannie.com/en/go/state-of-mobile-2021/
4. Google, Temasek, & Bain & Company. (2019). e-Conomy SEA 2019. Bain & Company. https://www.bain.com/globalassets/noindex/2019/google_temasek_bain_e_conomy_sea_2019_report.pdf
5. Google, Temasek, & Bain & Company. (2020). e-Conomy SEA 2020. Google. https://storage.googleapis.com/gweb-economy-sea.appspot.com/assets/pdf/e-Conomy_SEA_2020_Report.pdf
6. Lee, Y. (2021, March 26). Southeast Asia Tech Startups Ride Out 2020, Raising $8.2 Billion. Bloomberg. https://www.bloomberg.com/news/articles/2021-03-26/southeast-asia-tech-startups-ride-out-2020-raising-8-2-billionhttps://www.bloomberg.com/news/articles/2021-03-26/southeast-asia-tech-startups-ride-out-2020-raising-8-2-billion
7. Startup Genome. (2020). Rankings 2020: Top 100 Emerging Ecosystems. https://startupgenome.com/article/rankings-top-100-emerging
8. Hu, Y. (2021, April 15). Southeast Asia venture funding totalled $8.2 billion in 2020, with Indonesia leading. The Low Down – Momentum Works. https://thelowdown.momentum.asia/southeast-asia-venture-funding-totalled-8-2-billion-in-2020-with-indonesia-leading
9.  Ballentine, C. (2021, July 28). China’s Crackdown Has Made Its Stocks Cheap. But Should You Buy? Bloomberg. https://www.bloomberg.com/news/articles/2021-07-27/why-investing-in-chinese-stocks-is-risky-even-though-they-re-cheap
10.  Failory. (2021, April 29). The Indonesian Startup Landscape in 2021. https://www.failory.com/blog/indonesian-startups
11. Ng, M. (n.d.). Indonesia Startup Ecosystem Report: An Overview | ACE – Action Community for Entrepreneurship. ACE. Retrieved July 30, 2021, from https://ace.org.sg/indonesia-startup-ecosystem-report-an-overview/
12. Failory. (2021, April 29). The Indonesian Startup Landscape in 2021. https://www.failory.com/blog/indonesian-startups
13. RGF International Recruitment. (2020, October 20). RGF Talent in Asia 2020 at a glance. https://www.rgf-hr.com/insights/rgf-talent-in-asia-2020-at-a-glance-367810b6-cbdf-46b9-8a5c-a222d367aab6
14. Maulia, E. (2019, May 22). Southeast Asian “turtles” return home to hatch tech startups. Nikkei Asia. https://asia.nikkei.com/Spotlight/The-Big-Story/Southeast-Asian-turtles-return-home-to-hatch-tech-startups
15. Global Business Guide Indonesia. (2014, March 17). Indonesia Brain Drain | GBG. http://www.gbgindonesia.com/en/main/business_updates/2014/upd_indonesia_s_brain_drain_pains.php
16. Maulia, E. (2019, May 22). Southeast Asian “turtles” return home to hatch tech startups. Nikkei Asia. https://asia.nikkei.com/Spotlight/The-Big-Story/Southeast-Asian-turtles-return-home-to-hatch-tech-startups
17. Greenhouse Team (2021, January 25). Startup Ecosystem in Indonesia: Ingredients, Challenges, Strategies. Greenhouse. https://greenhouse.co/blog/indonesias-startup-ecosystem/
18. Pratama, A. (2020, August 4). Tech in Asia – Connecting Asia’s startup ecosystem. Tech in Asia. https://www.techinasia.com/esop-culture-indonesia
19. Press Release. (2020, July 15). Indonesia ranked as world’s most complex place to do business – while US now seen as one of the easiest. TMF Group. https://www.tmf-group.com/en/news-insights/press-releases/2020/june/indonesia-ranked-most-complex-place-to-do-business/
20. World Bank Group. (2020). Doing Business 2020. https://documents1.worldbank.org/curated/en/688761571934946384/pdf/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies.pdf
21. Tjan, C. (2021, April 26). The land of unicorns: The rise of startups in Indonesia. TechNode Global. https://technode.global/2021/04/27/the-land-of-unicorns-the-rise-of-startups-in-indonesia/
22. AJWC editor. (2021, June 8). The Land of Unicorns : The Rise of Startups in Indonesia. Alpha JWC Ventures. https://www.alphajwc.com/en/chandra-tjan-the-land-of-unicorns-the-rise-of-startups-in-indonesia/
23. Ng, M. (n.d.). Indonesia Startup Ecosystem Report: An Overview | ACE – Action Community for Entrepreneurship. ACE. Retrieved July 30, 2021, from https://ace.org.sg/indonesia-startup-ecosystem-report-an-overview/
24. Umali, T. (2019, May 24). Indonesia’s 1001 Digital Startup Movement to boost digital economy. OpenGov Asia. https://opengovasia.com/indonesias-1001-digital-startup-movement-to-boost-digital-economy/
25. Maulia, E. (2019, May 22). Southeast Asian “turtles” return home to hatch tech startups. Nikkei Asia. https://asia.nikkei.com/Spotlight/The-Big-Story/Southeast-Asian-turtles-return-home-to-hatch-tech-startups
26. Stiaji, I. (2020, January 3). Merajut Diaspora Indonesia Guna Membangun Sumber Daya Manusia Indonesia Unggul. Lembaga Ilmu Pengetahuan Indonesia. http://lipi.go.id/publikasi/merajut-diaspora-indonesia-guna-membangun–sumber-daya-manusia-indonesia-unggul/31784
27. Setijadi, C. (2017, December). Harnessing the potential of the Indonesian diaspora. Singapore Management University. https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=4145&context=soss_research
28. Maulia, E. (2019, May 22). Southeast Asian “turtles” return home to hatch tech startups. Nikkei Asia. https://asia.nikkei.com/Spotlight/The-Big-Story/Southeast-Asian-turtles-return-home-to-hatch-tech-startups
29. Sun, W. (2013, April 25). The productivity of return migrants: the case of China’s “Sea Turtles.” IZA Journal of Development and Migration. https://izajodm.springeropen.com/articles/10.1186/2193-9039-2-5
30. McKinsey & Company. (2018, August). The digital archipelago: How online commerce is driving Indonesia’s economic development. https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Asia%20Pacific/The%20digital%20archipelago%20How%20online%20commerce%20is%20driving%20Indonesias%20economic%20development/FINAL_The-digital-archipelago-How-online-commerce-is-driving-Indonesias-economic-development.ashx
31. Fintechnews Indonesia. (2020, December 3). Indonesia Fintech Report and Map 2020. Fintech Singapore. https://fintechnews.sg/45513/indonesia/indonesia-fintech-report-and-map-2020/
32. Greenhouse Team (2021, January 25). Startup Ecosystem in Indonesia: Ingredients, Challenges, Strategies. Greenhouse. https://greenhouse.co/blog/indonesias-startup-ecosystem/
33.  KPMG. (2017, September). Finance in Indonesia: Set for a new path? https://assets.kpmg/content/dam/kpmg/id/pdf/2017/09/id-finance-in-indonesia-set-for-a-new-path.pdf
34. Huang, S. (2020, September 30). Indonesian edtech’s unexploited opportunities. Tech in Asia. https://www.techinasia.com/indonesian-edtechs-unexploited-opportunities

A close look at China’s lead in the digital currency race and the countries primed to follow China’s footsteps

Credits

Analysts
Mr Stan Wong, Summer Associate

Research
Mr James Tan

Overview

Digital Currency has been a hot topic in recent years, with its growth being driven by rapid advances in internet speeds, global connectivity and data storage capabilities. While many different types of digital currencies have emerged, this report will focus on a specific sub-type of digital currency, Central Bank Digital Currency (CBDC). CBDC refers to a digital form of fiat money – a currency which is established as money by a country’s government.

With many countries already looking at developing their own CBDC, China has recently emerged as the frontrunner to roll out its own national digital currency – the “Digital Yuan”. The focus of this report is, therefore, on the viability of CBDCs. This report will – (1) trace the development of the “Digital Yuan” in China; (2) examine the key takeaways from China’s digital currency – such as, the requirements for a successful digital currency as well as the potential risks of adopting a digital currency; and (3) highlight countries which are primed to start a digital currency.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

This forward looking report traces the development of China’s digital currency – Digital Yuan – and considers the implications of such a tool if the world’s second largest economy were to adopt – and embrace – it. While other countries are also at varying stages of development for their CBDCs, China’s early start provides valuable lessons. Concerns have surfaced in the areas of cyber security, privacy, legality and financial inclusion.

China, as the first mover in the CBDC world, has set the bar high in terms of successful development of a digital currency. Its success is attributable, in part, to (i) its careful recruitment of highly qualified individuals; (ii) its strategy in easing the transition from the use of physical currencies to digital  currencies; and (iii) its extensive pilot programme and thoughtful selection of commercial giants as participants in the programme. We believe that China’s digital currency development will be modelled after by countries intending to launch their own digital currencies.

---

Introduction to Digital Currency

What is digital currency?

Digital currency – otherwise called digital money, electronic money, electronic currency or cyber cash – is a term used to include the meta-group of sub-types of digital currency, including virtual currency, cryptocurrency, e-Cash and Central Bank Digital Currency (CBDC). It is a form of currency available only in digital or electronic form.

A key difference between digital currency and physical currency lies in their tangibility. Unlike banknotes and minted coins, digital currencies do not have a physical form – they are intangible and can only be owned and accessed using computers or mobile phones. This difference is instrumental in conferring digital currencies with numerous advantages unattainable by traditional payment methods. For instance, while the latter always involves banks or clearing houses, digital currency transactions can be made directly between transacting parties, rendering obsolete the need for intermediaries. This in turn facilitates instantaneous and more cost-efficient transactions.

Differences in tangibility aside, digital currency is intrinsically similar to standard fiat currency in that both may be used to purchase goods and services – although, the use of digital currency may be limited in certain contexts such as payment on gaming and gambling sites. In addition, just like physical currency, digital currency enables cross-border transactions as long as the transacting parties are connected to the same network required for transacting in the digital currency. It is therefore possible for Person A in Country A to make payment in digital currency to Person B in Country B.

How is digital currency being used around the world today?

Given the viability of digital currencies, it is no surprise that a myriad of different types of digital currencies have since emerged and thrived. Of the many different types of digital currencies which currently exist, a small handful have established themselves as the foremost digital currencies in use today. These include cryptocurrencies such as Bitcoin, Ethereum and Zcash.

CBDCs – otherwise called digital fiat currency or digital money – on the other hand, are not as widely used. CBDC is potentially a new form of digital central bank money or fiat money that can be distinguished from reserves or settlement balances held by commercial banks at central banks. There are, understandably, concerns associated with the use of CBDCs. However, interest in CBDCs has risen in recent years. In fact, the People’s Bank of China (PBoC) now leads the world in the development of national digital currencies – this year, screenshots emerged of a “Digital Yuan” interface being piloted at the Agricultural Bank of China (ABC), one of four state-owned banking giants. Moreover, in its 2019 White Paper, the PBoC noted that the “Digital Yuan” or Digital Currency Electronic Payment (DCEP) has potential to replace cash and make peer-to-peer transactions more secure and efficient.[1]

Other major economies such as Japan and the United Kingdom (UK) have also formed working groups to explore the potential use of CBDCs in the foreseeable future. Significantly, the “Digital Dollar” idea, which first appeared in the original form of the “Take Responsibility for Workers and Families Act” in the United States (US), has been re-introduced under the Automatic BOOST to Communities Act (ABC Act). Under the ABC Act, Congress would authorise the Federal Reserve to create “Digital Dollar Account Wallets” to allow US residents, citizens and businesses located in the country to access financial services.[2]

In this regard, the race to create the future of money is already on, with China currently leading the pack in the CBDC race. The focus of this report is, therefore, on the viability of CBDCs. This report will – (1) trace the development of the “Digital Yuan” in China; (2) examine the key takeaways from China’s digital currency – such as, the requirements for a successful digital currency as well as the potential risks of adopting a digital currency; and (3) highlight countries which are primed to start a digital currency.

---

The Development of the “Digital Yuan” in China

Why did China start planning for the “Digital Yuan”?

One reason why China wants to have its own digital currency is the ability for regulatory authorities to better track how money is used by its citizens and in turn, a revolutionisation of the ability of China’s regulatory authorities to scrutinise the nation’s payment and financial system. As noted by Xu Yuan, a senior researcher with Peking University’s Digital Finance Research Centre, the emergence of a digital currency will enable payment transactions to be made online, making all cash flow in society traceable. As more business activities are now conducted online such that cash flow information and credit data are stored on databases, the credit structure of the overall society becomes easier to determine. Crucially, the database can be checked in real time and can play an integral role in keeping checks against citizens who have committed money laundering, tax evasions or other related offences.[3]

Another equally, if not more, important reason for the development of the “Digital Yuan” is the rise of Bitcoin – China has itself acknowledged that the rise of cryptocurrencies like Bitcoin has spurred a call to action to really take control of the money supply and different currencies that are entering the modern world. As Lucy Gazararian – co-chair of the blockchain committee of the FinTech Association of Hong Kong – notes, the rise of Bitcoin is a real trigger because central banks soon realised that the technology underpinning cryptocurrencies could be modified for the fiat world. Central banks also appreciate that this is an exceptional new innovation that has the ability to upgrade payment infrastructure.[4]

What exactly is the “Digital Yuan” and how does it work?

The “Digital Yuan” is China’s version of a sovereign digital currency and will be used to stimulate everyday banking activities including payments, deposits and withdrawals from a digital wallet. It is set to be a part of the most liquid form of money supply that includes notes and coins in circulation in the society, known as M0, but in a digital form. It will be issued and backed by the PBoC. Once launched, consumers may download an electronic wallet application authorised by the PBoC which can be linked to a bank card to (i) facilitate payments or receipts of digital yuan using a mobile device with merchants or (ii) make transfers with an ATM machine or other users. The money from the linked bank account will then be converted into digital cash on a one-to-one basis. An alternative option which does not require a bank account to hold and facilitate transactions in the digital yuan also exists.

Significantly, unlike other existing online payment platforms such as Alibaba’s Alipay and Tencent’s WeChat Pay, the DCEP system allows transactions to be made even in the absence of internet connection. This function, termed “touch and touch”, enables users to simply touch their mobile devices together in order to make a transfer. This leaves no payment record with third parties or the banking system.

Tracing the development of the “Digital Yuan”

In recent years, the high penetration rate of smartphones, and therefore electronic payments, has resulted in a significant decrease in the use of physical cash. Coupled with the success of e-commerce platforms such as Alibaba, the PBoC began exploring the concept of a national virtual currency in 2014. After China’s State Council included blockchain technology in its 13th Five Year Plan in 2016, the PBoC established in 2017 the Digital Currency Research Institute, which is responsible for China’s digital currency development and testing, to further its efforts in the development of the “Digital Yuan”. In December 2019, Mu Changchun – Director of the Institute, noted that the new sovereign digital currency would be “a digital form of the yuan”. There would be no speculation on the value of the “Digital Yuan” and according to the Shanghai Securities News, it would not need the backing of a basket of currencies.

The coronavirus pandemic has arguably served as a catalyst for accelerating contactless payments, and in turn the effort to move to a digital currency, because of concerns that physical cash can transmit Covid-19. In this regard, as of April 2020, the PBoC confirmed that some state-owned banks are conducting internal trials of the digital currency in four Chinese cities – Shenzhen, Suzhou, Chengdu and Xiong’an – and is considering its usage during the 2022 Winter Olympics in Beijing. The PBoC has also begun selecting the first merchants for testing the DCEP. These include Starbucks, McDonald’s, and other major firms such as ride-hailing company Didi Chuxing, food delivery giant Meituan Dianping and streaming platform Bilibili. The choice behind these entities can be explained by the fact that their users make transactions worth several billion dollars daily. For example, Didi Chuxing has a client base of about 550 million while Meituan Dianping currently has almost 450 million customers and about 6 million companies using it to sell their products. Such volumes can significantly accelerate the popularity and subsequent adoption of the digital yuan.

The goal of China’s pilot programme is to test for the digital currency’s theoretical reliability, system stability, functional availability, process convenience, scenario applicability and risk management.[5] However, it is unclear how long the testing period of the digital yuan will last. Jianing Yu, president of Huobi University, also noted in a conversation with Cointelegraph that China may still be far from completing testing and that in any case, “these current tests are actually still in the research stage, not preparing for immediate launch”. Therefore, as of now, it remains unclear what China’s next step will be. It is also worth bearing in mind that user adoption of any currency is going to take time. However, this does not in any way detract from the fact that we now live in a digital economy and that, therefore, the adoption of a digital currency is only a matter of time. It also remains true that China now leads the world in the CBDC race.

---

Lessons Learnt from China’s Digital Currency Development

What are the requirements for a successful digital currency?

To successfully launch a digital currency, central banks need to be well-versed with the relevant technology and must have in place advanced technologies, a reliable team of professionals as well as secure and reliable infrastructure. This is not least because the entire economy of the country will be dependent on such a system and it is not impossible that hackers will attempt to penetrate the system in place. In this regard, countries which intend to introduce digital currencies have much to learn from China’s digital currency development. For a start, the PBoC has in place a specialist research team to discuss technical and regulatory issues in relation to the development of a state digital currency. Prominent members of the Digital Currency Research Institute include Mr Mu Changchun – Director of the Institute. Mr Mu’s financial background commands respect in the corporate world and places him in a good position to lead the Institute to launch the digital yuan. Shanghai Securities Daily has itself noted that Mr Mu’s appointment as Director brings hope that the Chinese national cryptocurrency will make an official appearance in the near future.

Further, China’s efforts at testing the reliability of its newly developed digital currency system certainly contributes a great deal to its success. As noted by Matthew Graham, CEO of Sino Global Capital, a private equity firm in Beijing, China has substantial research and development efforts and has placed the project high on its priority list.[6] Moreover, China’s choice of institutions for its digital currency trials is highly strategic. By including commercial giants such as Didi Chuxing and McDonald’s in its trial programme, data collected can better and more accurately reflect areas for improvement in the existing system. This will go a long way in fine-tuning the reliability of the DCEP system which will in turn ensure the success of the digital yuan. Countries seeking to launch a successful digital currency should consider adopting China’s approach towards trialling the digital currency system.

In addition, arguably, the biggest hurdle that any country will face in rolling out digital currencies is getting its citizens to use the very currency. As with all else, change takes time. However, the more necessary the change is, the lower the levels of inertia to change. In this regard, China’s choice of means of integration of the digital currency into the economy is one very important reason for its successful digital currency development – and is something that countries wishing to introduce a digital currency should seriously consider. Indeed, the Chinese authorities have chosen the easiest way to integrate the digital currency into the economy – implementation through the social and budgetary sphere. For instance, as of May 2020, officials working in Suzhou started receiving half of their transport subsidies not in traditional renminbi (RMB) but in digital yuan.[7] Crucially, in order to receive these subsidies, recipients are required to install a special application – an electronic wallet that can be linked to an existing bank account – on their smartphones. Coupled with the possibility of using this new digital currency for payment at popular chains like McDonald’s, Starbucks and Subway in China, the Chinese authorities are ingeniously easing the transition from traditional cash or payment methods to digital currency.

Potential risks of a digital currency

Whilst the introduction of a digital currency could bring a number of potential benefits to payment, clearing and settlement systems, it could also pose several risks and challenges. An initial exploration and experimentation conducted by the Bank for International Settlements (BIS) identified a number of legal, technical and operational issues that central banks and other relevant parties must consider. [8]

First, cyber-security is one of the most important operational challenges for central bank systems. Cyber-threats, such as malware and fraud are risks for nearly every payment, clearing and settlement system. They pose a particular challenge for a general purpose CBDC which is open to many participants and therefore many points of attack. The potential effect of fraud in the context of a digital currency system could be more significant because of the ease with which large sums may be transferred via electronic means.

Second, privacy issues are also another paramount concern. The use of central bank and commercial bank deposits usually provides some level of privacy (for individual banks and agents, respectively). In a similar vein, the use of cash provides anonymity to all users. In stark contrast, according an appropriate degree of privacy to users in a digital environment is a very real challenge. Ensuring sufficient privacy in a CBDC context entails careful and difficult public policy design choices for a central bank. It is therefore no surprise that critics of CBDC suggest that a digital currency could pose a threat to citizens’ privacy when deployed by authoritarian governments – a state-operated payments system would enable the government to track all of its citizens’ purchases.

Third, although not applicable to all countries, there may be legal considerations associated with the development of a digital currency. Indeed, not all central banks have the authority to issue digital currencies and expand account access. The issuance of such authority may require legislative changes and may therefore not be feasible, in the short term at least. Other pivotal, and fundamental, legal questions include whether a CBDC constitutes a legal tender – i.e. a legally recognised payment instrument to fulfil financial obligations – and whether existing laws pertaining to transfers of value and finality are applicable.

Fourth, concerns have also been raised that the introduction of a digital currency could spell bad news for financial inclusion. As Ola Nilsson, a specialist in consumer policy at the Swedish National Pensioners’ Organisation, explained to European CEO magazine, a cashless society may disadvantage those who live in rural areas, the disabled and the elderly.[9] He also noted that a completely cashless society may mean that older people will no longer be able to do things in everyday life that they have always managed before – this includes buying a ticket for the bus or train or even paying for a coffee at a cafe. However, Nilsson has also himself acknowledged the possibility of creating a digital currency that is accessible to all – this is especially feasible if the digital currency is developed with vulnerable groups in mind.

Fifth, central banks must also take account of AML/CFT concerns and requirements if they were to issue a digital currency. Issuing a digital currency which does not adequately comply with these and other supervisory and tax regimes is not advisable. To date, it is unclear how AML/CFT requirements can be implemented practically for anonymous forms of CBDC. Forms of CBDC that can be easily transferred across borders or used offshore are especially likely to present significant challenges in this respect. Therefore, as noted by the Bank for International Settlements, the reputational risk to the central bank from a general purpose CBDC must be considered.

Finally, more generally, the robustness of possible new technologies in ensuring a sound risk management framework is uncertain. Given that central bank services are essential to the smooth functioning of an economy, very robust requirements for reliability, scalability, throughput and resilience are integral. Central banks therefore typically have very rigorous operational requirements for their systems and services. The Bank for International Settlements rightly notes that some of the proposed technologies for issuing and managing CBDC (such as DLT) are still relatively untested, and even the private sector is in the early phase of developing and applying for DLT for commercial use. Many questions surrounding operational risk management and governance need to be answered before deployment can be envisioned.

---

Countries Primed to Start a Digital Currency

Sweden

Few countries have embraced the drive towards a cashless society with as much enthusiasm as Sweden. Sweden’s Riksbank data shows that only one percent of the Swedish gross domestic product (GDP) existed in banknotes in 2018. Further, more than fifty percent of banks in Sweden do not have physical cash in their vaults. Payments also usually take place with credit, debit cards or mobile payment apps. For this reason, it does not come as a surprise that a study conducted by Niklas Arvidsson and Jonas Hedman, researches at the KTH Royal Institute of Technology and Copenhagen Business School respectively, found that Swedish retailers could stop accepting cash as early as 2023.[10] These render Sweden one of the least cash-dependent countries in the world.[11] It is therefore only appropriate that the Scandinavian country soon becomes one of the first nations to start a digital currency.

In fact, as of February 2020, Riksbank has been assessing e-krona, a new form of digital currency which aims to take the country one step closer to the creation of the world’s first central bank digital currency. This pilot programme will be in operation for one year, until February 2021. Riksbank notes that the e-krona could eventually be used for banking functions, such as payments, deposits and withdrawals, from a digital wallet.[12] It is clear then that Sweden is well suited to launch a digital currency and that, in this regard, China is hot on Sweden’s heels in the race to create the world’s first CBDC.

The Bahamas

The Bahamas’ digital currency pilot project went live in Exuma on 27 December 2019. Residents of the island were allowed to enrol in the Central Bank of The Bahamas’ “Project Sand Dollar” – they received mobile wallets the Bahamian government sees as facilitating the future of payments on the island chain. As noted by bankers, the “Sand Dollar” is a digital fiat currency – it is a digital version equivalent in every respect to the paper currency.[13] This is a major step toward the Bahamas’ long-term goal of launching a fully-fledged CBDC. John Rolle, the governor of the Central Bank of the Bahamas (CBOB), has also reportedly confirmed that the Bahamian digital dollar initiative will be introduced across all islands in the second half of 2020.[14] Once fully launched, residents can pay retailers through wallet-linked QR codes, with banks moving funds in digital form. The central bank believes this could ultimately cut currency printing costs and transaction fees while enhancing financial inclusion.

While the sand dollar faces restrictive limits from the government – for instance, businesses cannot hold more than B$1 million in their digital wallets and cannot transact more than one-eighth of their annual business through wallets in any given month – the central bank “will vary these limits over time as may be necessary”. It also remains the case that the Bahamas is increasingly ready and well-suited to start a digital currency of its own.

---

Conclusion

Digital currencies present many advantages and are also a means to prevent cryptocurrencies like Libra, a digital currency put forward by social media giant Facebook, from undermining central banks’ control over money creation. On this note, it is no longer a question of whether governments will introduce CBDCs, but rather when CBDCs will be introduced. For instance, the Bank of France has put out a call for applications from firms interested in experimenting with the use of a digital euro for interbank settlements, while the Dutch central bank has announced that it wants to play a “leading role” in the research and development of both its own CBDC and a digital euro.

Whilst a cashless society will in many ways prove to be a more convenient one, there are inevitably risks associated with a cashless society. Therefore, in developing CBDCs, central banks must engage in careful planning to ensure that the introduction of digital currencies strengthens rather than weakens the financial system. In this regard, China – the first mover in the CBDC world – has set the bar high in terms of successful development of a digital currency. Its success is attributable, in part, to – (i) its careful recruitment of highly qualified individuals; (ii) its strategy in easing the transition from the use of physical currencies to digital  currencies; and (iii) its extensive pilot programme and thoughtful selection of commercial giants as participants in the programme. China’s digital currency development will likely be modelled after by countries intending to launch their own digital currencies.

Finally, countries like Sweden and the Bahamas are already well-equipped and well-positioned to adopt a digital currency of their own. With China’s success in digital currency development, it is also likely that many other countries will gradually begin launching digital currencies of their own. Therefore, there is no reason to seriously doubt that digital currencies will be the future.

---

Citations

1. CoinDesk 50: How the People’s Bank of China Became a CBDC Leader <https://www.coindesk.com/coindesk-50-how-peoples-bank-china-became-cbdc-leader>.
2. ‘Digital Dollar’ Reintroduced by US Lawmakers in Latest Stimulus Bill <https://www.coindesk.com/digital-dollar-reintroduced-by-us-lawmakers-in-latest-stimulus-bill>.
3. What is China’s cryptocurrency alternative sovereign digital currency and why is it not like bitcoin? <https://www.scmp.com/economy/china-economy/article/3083952/what-chinas-cryptocurrency-sovereign-digital-currency-and-why>.
4. ‘An absolute necessity:’ Why this expert says China desperately needs a digital currency <https://fortune.com/2020/07/30/china-digital-currency-yuan-cbdc/>.
5. Digital Yuan CBDC Momentum Grows as More Chinese Firms Get to Testing <https://cointelegraph.com/news/digital-yuan-cbdc-momentum-grows-as-more-chinese-firms-get-to-testing>.
6. People’s Bank of China kicks off digital currency trials <https://www.zdnet.com/article/peoples-bank-of-china-kicks-off-digital-currency-trials/>.
7. How National Digital Currencies Will Change Our Lives <https://www.finextra.com/blogposting/18765/how-national-digital-currencies-will-change-our-lives>.
8. Committee on Payments and Market Infrastructure (Central bank digital currencies) dated March 2018 <https://www.bis.org/cpmi/publ/d174.pdf>.
9. The risks (and benefits) of Sweden’s proposed e-krona < https://www.europeanceo.com/finance/the-risks-and-benefits-of-swedens-proposed-e-krona/>.
10. Sweden could stop using cash by 2023 <https://www.weforum.org/agenda/2017/10/sweden-could-stop-using-cash-by-2023/>.
11. The risks (and benefits) of Sweden’s proposed e-krona <https://www.europeanceo.com/finance/the-risks-and-benefits-of-swedens-proposed-e-krona/>.
12. Sweden’s Central Bank Floats E-Krona As Digital Currency <https://www.pymnts.com/news/b2b-payments/2020/swedens-central-bank-floats-e-krona-as-digital-currency/>.
13. Project Sand Dollar: A Bahamas Payments System Modernisation Initiative <https://cdn.centralbankbahamas.com/download/022598600.pdf>.
14. Bahamas Digital Dollar to Roll Out Across All Islands in H2 2020, Governor Says <https://cointelegraph.com/news/bahamas-digital-dollar-to-roll-out-across-all-islands-in-h2-2020-governor-says>.

Delving into the CLMV Start-Ups’ Realm of Possibilities

Credits

Analysts
Mr Jonathan Lau, YLP Analyst

Research
Mr James Tan

Overview

The CLMV countries, namely Cambodia, Laos, Myanmar and Vietnam, have traditionally been overshadowed by its more buoyant ASEAN neighbours. However, the pandemic-induced economic doldrums now pose a giant hurdle in ASEAN’s endeavour toward becoming the fourth largest economy in the world by 2050. This is a rallying call-to-action for CLMV, whose growth is a key factor in that goal.

Startups, the seeds from which major corporations sprout, are the linchpin of economic revitalisation and a burgeoning investor hub. With a relatively raw entrepreneurial scene, CLMV has immense potential for growth and should strive to proliferate strong SMEs and local industries within the next few decades.

This report shall thus focus on the startup ecosystems of CLMV. This report will – (1) unpack outstanding features of the CLMV startup community; (2) examine the respective growth obstacles; and (3) highlight promising sectors that CLMV can dive deeper into.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

Cambodia, Laos, Myanmar and Vietnam, commonly known as CLMV, is an eclectic grouping of long histories and rich cultures. With a sizable combined population of 175.7 million, the market in CLMV is challenging and exciting.

The technology startup scene in these countries has blossomed over the decade. In preceding years, our research and networks on the ground show the rapid growth in the amount of funding, number of startups created, and overall development of the ecosystem.

Even with COVID-19 as an important consideration, we remain bullish on the potential of CLMV. Barring major shifts in political direction, we expect growth in technology startups in CLMV to continue unabated.

---

Cambodia

Overview

Cambodia has had a turbulent history. 40 years on, Cambodia is still reeling from the effects of the Khmer Rouge regime, responsible for the mass killings of millions. Despite its past which has left a significant number of its population in poverty, the country has been striving to escape this state. Its poverty rate has in fact more than halved from 2004 to 2018, with the percentage of citizens under the national poverty line decreasing significantly from 47.8% in 2007[1] to 12.9% in 2018[2]. The economy has primarily been driven by industries such as Agriculture and Garments[3]. Tourism is another leading source of income for the nation as many tourists flock to the country for its magnificent Angkor Wat, contributing 12.1% to the nation’s GDP in 2019[4].

However, the negative impact of COVID-19 on its core sectors has once again highlighted the importance for the country to focus less on traditional sectors that rely heavily on manual labour or external derived demand[5]. Instead, they need to shift their priorities to the digital economy which is often better able to weather heavy storms, and which is largely driven by young budding entrepreneurs in the community.

Startup Community and Ecosystem

1. Co-working Spaces

More than 23 co-working spaces and innovation labs have been established in Cambodia since 2011[6] – a considerable number considering the early stage of the startup ecosystem in the country. In fact, these spaces cater not just to startups, but also to bigger names in the tech community. SmallWorld Realty, a partnership between SmallWorld Venture and Raintree, is one of the newest spaces launched in the country[7]. Its tenants include Microsoft and Grab, thus bringing together opportunities for large collaborations between tech companies and startups. As startup founders continue to grow their business and build their network while working at these collaborative spaces, the startup ecosystem in Cambodia is sure to continue growing and shows no signs of slowing down.

2. Mentorship and Training

Cambodia has a considerable number of incubators and accelerator programmes although its startup ecosystem is still in a rather early stage of growth. The economy is slowly transforming from one heavily dependent on physical labour to one geared towards building skills and knowledge[8], tapping on the youthfulness and vibrancy of its population.

One such accelerator programme available to budding entrepreneurs include the BIO Accelerator Program, launched by the Cambodia Investor Club Association. It provides several months of intense training and mentorship for SMEs chosen to be part of their holistic programme. Entrepreneurs who undergo this programme learn to develop their businesses in a sustainable manner in order to achieve financial independence. SHE Investments has also delivered similar programmes, namely the SHE Incubator and Accelerator. What differentiates them is their specific focus towards women entrepreneurs whom they found are often unable to grow past the micro stage of business[9]. Hence, they aim to help women obtain the same resources and attain the same status as men in this developing economy.

Additionally, a major milestone for the startup community was the launch of the Techo Startup Centre, an incubation centre that aims to further the development of Cambodia’s digital economy[10]. Being government-funded, this signalled the government’s recognition for such innovative efforts and its willingness to dedicate resources to further the development of early businesses. Its location within the Royal University of Phnom Penh also increases its proximity to youths, allowing the community to harness the benefits of its young population.

3. Funding and Investments

Cambodia’s business environment has been known for its openness to foreign companies and investors. The country has designated Special Economic Zones which provide tax benefits on imports and exports, and also permits full foreign ownership of most companies[11]. Although its investment law is already touted to be friendlier than its neighbours’, the country is in the midst of revising its investment law in order to increase its competitiveness and attractiveness among foreign investors[12]. With fewer restrictions and greater protection for investors as compared to other countries, investors will be more incentivised to consider investing in startups in Cambodia.

Its open business environment has evidently reaped benefits, with the country’s investment value increasing from USD 2.9 billion in 2012 to USD 9.4 billion in 2019[13]. The number of publicly-disclosed startup investments has also risen over the years, doubling to more than 10 between the years of 2015 and 2018[14]. This is a vast improvement as startups in Cambodia generally find it difficult to receive seed funding, let alone larger funds[15]. A greater diversity of funding sources has attributed to this rise in investments.

The increase in funding in the last few years has originated from both public and private sources. In the private sector, the USD 5 million Smart Axiata Digital Innovation Fund was launched in 2017 to provide more funding options for local startups[16]. Additionally, Octane, a local venture capital firm backed by Worldbridge Group, closed its first investment fund in 2019 with a total of USD 55 million aimed at tech investments in Cambodia[17]. In the public sector, the government launched a USD 5 million annual fund at the 2019 Cambodia Outlook Conference which aims for “Digital Transformation toward Industry 4.0”[18]. The increase in financial support for local tech startups has thus shifted the country’s focus away from traditional businesses and business models towards those in the digital economy. As the number of funding opportunities increase over the years, startups will be able to gain greater access to capital which will in turn propel further growth and development of the local startup ecosystem.

Challenges

1. Poor Governance

Cambodia has been criticised for not being a true democracy due to the absence of a credible opposition. Kem Sokha, the former leader of the Cambodia National Rescue Party (CNRP), was arrested in 2017 for treason, and the CNRP was dissolved[19]. This enabled Hun Sen’s party to win all parliamentary seats in the 2018 elections with a one party rule. However, no evidence has supposedly been found against Kem Sokha for the last two years, strengthening the theory that he was wrongly accused[20]. Beyond the conjectured corruption involved are dated political ideologies that may hinder the country from advancing together with global trends. The absence of an effective opposition questions the ability of the ruling party to accept foreign trends and practices, thus suppressing the introduction of new developments and perspectives. This may also instil fear in the locals to introduce new ideas to the community that may not be very welcomed by the government as they may risk being criminalised. These considerations may cause Cambodia to strive towards economic and political progress without any effective advancements, affecting all realms in the community including the startup ecosystem. The lack of a strong governmental structure and concerns of corruption may also in turn deteriorate trade relations and hinder foreign investors from entering the country, as already seen by the European Union’s withdrawal of the Everything But Arms’ trade scheme due to concerns of human rights violations[21].

2. Startups’ Limited Access to Capital and Professional Services

One common problem that startups in Cambodia face is their inadequate access to capital and professional services. While strides have been made to promote and boost the local startup scene, these fundamental resources are required by the startups when developing their business.

The poor access to capital is a problem not only faced by startups, but by businesses in general. With high interest rates, undesirable loan terms, and high collateral requirements, local businesses find it difficult to receive capital financing. This has been highlighted as a problem by the Cambodian government under the Cambodia Industrial Development Policy 2015-2025[22], reinforcing the need to improve the country’s banking system in order to support local businesses and further economic growth in the country. While a new fund dedicated to capital financing for SMEs was set up in 2020 by the Rural Development Bank[23], it specifically targets SMEs in the agricultural sector which has traditionally been the backbone of the Cambodian economy. As a result, SMEs in other rising sectors are still left behind.

SMEs have also had limited access to professional services, which are the key to establishing their businesses within the country’s regulatory framework. Over 60% of founders have struggled to find sufficient information related to legal and tax advice24[24], thus posing an obstacle to their awareness of the latest updates or actions that they are required to take. Several firms have noted the importance of improving startups’ access to professional services. In 2019, the first professional service alliance in the country was established, with a focus on the tech community which consists of many startups[25]. This marked a huge milestone for the startup community which will be able to receive more guidance and advice. To ensure that the startup community is able to continuously receive such crucial support, the alliance can consider bringing more professional services firms on board to expand the capacity that the fast-growing startup scene requires.

Rising Sectors

1. Fintech

Cambodia’s population is becoming increasingly tech-savvy, yet 78% of them remain unbanked and a mere 13% are acquainted with mobile payments as of 2019[26]. As few established foreign players have noticed this under-served market[27], startups can capitalise on this opportunity to meet the needs of the local population. These startups can provide mobile payment solutions and even address the very issue of the limited access to capital that many startups are facing today. Several startups, such as Morakot Technology and Clik have already entered the Fintech sector, carving a name and reputation for themselves. As new Fintech startups are sprouting quickly, founders that aim to address existing problems in the Fintech sector need to take quick action and launch their business soon in order to ride this wave.

2. Agritech

Agriculture made up 20.71% of Cambodia’s GDP[28] and employed 32.3% of the population in 2019[29]. As one of the key drivers of the country’s economy, it is understandable why it has been receiving a considerable amount of attention and resources from the government. Apart from the specific funding provided to Agriculture companies, the Ministry of Agriculture, Forestry and Fisheries has soft-launched a mobile application for the sector, tying it in with e-commerce to match farmers with consumers[30]. There is evidently still a gap in the Agriculture sector in terms of streamlining processes and there remains a lot of untapped potential in terms of the mechanisation of agriculture. Nevertheless, farmers increasingly understand the importance of moving away from traditional manual processes in order to improve productivity[31]. Agritech thus plays an important role in transforming the sector that has supported the country tremendously for it to remain as a driving force for the Cambodian economy.

Conclusion

Cambodia’s open business environment is definitely a strong pull factor for foreign investors and business owners, but changes in its complex political scene may affect foreigners’ perceptions of the country’s long-term stability. The government’s focus has appeared to be on traditional industries, such as Agriculture, Manufacturing, Garments, and Construction. While technology can play a significant role in digitising these industries and transforming them, it will be difficult for startups to enter these industries predominantly occupied by large players unless they are offered more opportunities to obtain the resources needed to compete effectively with these players. Although some of these efforts are targeted towards specific industries, it is heartening to know that there have been more initiatives from both the private sector and the government in the form of accelerators and funding.

Nevertheless, the startup ecosystem, while making significant progress over the years, may be at too early a stage for many foreign companies and angel investors to confidently enter and provide the resources it requires. It still needs greater support from the local community first before more foreign investors and companies are willing to step in and complement local efforts with their own.

---

Laos

Overview

A landlocked country with a small population of 7.2 million, Laos is often overshadowed by its neighbours, yet it has had comparable economic growth despite being one of the poorest countries in Southeast Asia. Having been given a status upgrade by the World Bank and transiting from a low income to a lower-middle income economy[32], Laos’ real GDP has been steadily rising[33].

Its small domestic market has raised investors’ doubts on whether the market is large enough to support sustainable growth[34]. To mitigate them, Laos has increasingly engaged in international trade, namely through its entrance into the World Trade Organization (WTO) in 2013. This has allowed the landlocked country to gain access to more trade partners and negotiate for more advantageous trade terms[35], introducing the closed economy to a trove of resources and opportunities. Yet at the same time, this may also expose the country to instability in the international economy that it was previously rather shielded from, especially if it becomes increasingly dependent on foreign consumption and investments. Nevertheless, it is undeniable that Laos has much to gain from greater international trade, and in particular, the startup ecosystem which has benefited both small and large countries all around the world.

Startup Community and Ecosystem

1. Co-working Spaces

Laos has progressively seen a stronger startup support system in its capital city, Vientiane, through the increased number of co-working spaces to facilitate interactions between startups. Modelled closely after other reputable co-working spaces in the world, Tohlao set up a co-working space in Vientiane in 2016, followed closely by Toong in 2019[36]. These spaces provide a conducive environment for intra and inter-party communication between startups, as well as invaluable opportunities for growth. Despite being a relatively new concept to the community[37], it has seen considerable success and support from local businesses.

2. Mentorship and Training

To tackle the lack of education and skills among the Laotian population, appropriate guidance needs to be provided as even startups with the most extensive resources will be unable to flourish without relevant expertise. While sufficient funding is indeed an enabling factor for businesses, mentorship plays a pivotal role in the long-term development of the business.

As part of Tohlao’s efforts to strengthen the local startup community and promote entrepreneurship, Startup Weekend[38], a competition for startups to hear from successful businessmen and develop a business plan, was organised. The winning teams will then be given the opportunity to participate in Tohlao’s startup incubation programme[39], which has birthed successful startups such as Book Delivery, Bizgital and LOCA. Similar programmes will definitely aid the growth of businesses in Laos, where there is still a weak presence of strong incubators and accelerators catered to small companies.

The importance of training and developing future generations of skilled workers has also been recognised. Such training has been particularly catered to the technology sector in order to enable strong growth in the digital economy. One notable training programme is the AC STEM Lab[40], supported by the United States Embassy and multinational technology companies including Facebook. While increasing the pool of skilled labour in Laos, such programmes also attract large conglomerates to its undervalued resources and diverse opportunities.

3. Funding and Investments

The limited investments in Laos has been attributed to the rather nascent stage of the startup scene in the country, where startup founders have little experience and resources. Angel investors thus often overlook the country in exchange for economic hubs in neighbouring countries, at the detriment of the startups in Laos.

Nevertheless, investors are starting to recognise the growth potential of the small country. In 2016, the Mekong Angel Investors Network (MAIN) created a new chapter in Laos, led by the Australian government and comprising investors from regions including Europe and Australia[41]. Although this signals positive change to the startup scene, more investment opportunities need to be created in Laos in order to retain and attract investors who will otherwise take off for more attractive deals in its neighbouring countries. Potential startups in Laos need to tap on their strengths which, unlike many startups in other countries, may not lie in the technology sector, at least not for now.

Potential Challenges

1. Lack of Sizeable Talent Pool

Laos’ small population has, from the start, restricted its talent pool of knowledgeable and skilled workers. This is further dampened by the poor financial literacy and financial inclusion among its citizens. The unbanked population in Laos makes up more than 60% of its total population[42], as they mainly engage in informal financial services. As a result, they are largely unaware of the functioning of the financial markets and the proper processes needed to secure funding for their business.

The language barrier also poses an issue for local startups to secure foreign funding, whose founders may be unable to eloquently present their business plan to overseas investors in English[43] – the dominant language of businesses[44]. This thus reduces their ability to facilitate communications and build relationships with foreign investors whose primary means of communication could be in English. Consequently, there needs to be greater investments in human capital by the local government in order to attract long-term foreign investors to the country.

2. Underdeveloped Technological Infrastructure

The underdeveloped technological infrastructure is exceptionally evident in two areas: (1) internet usage and (2) financial technology (Fintech) solutions.

The internet penetration rate in Laos is one of the lowest in ASEAN – a mere 39% in 2019[45]. This low take-up rate has hindered businesses from harnessing technology to maximise efficiency, and has reduced their ability to raise awareness of their business ideas through social media and networks. A stronger technological infrastructure is needed to support businesses through their conceptualisation and operational phases, and help them compete with similar companies in the global arena.

Fintech advancements in Laos are also scanty, signalling the lack of exploration into the field by individuals and small businesses. The financial services sector in the country is still in its infancy stage, with advancements mainly led by financial institutions. The state-owned commercial bank, Banque pour le Commerce Exterieur Lao (BCEL), partnered with CyberSource in 2013 to offer a secure online payment gateway for merchants and customers[46]. But such developments are few and far between, and may be deemed insufficient to keep Laos up with the pace of global technology advances, contributing to its large unbanked population as well.

Rising Sectors

1. Edtech

Edtech is one sector poised for growth, and whose growth has been accelerated in this COVID-19 landscape. Laos’ neighbouring countries, including Vietnam and Thailand, have implemented several of such solutions including Topica and OpenDurian even before this pandemic. As the adult literacy rate in Laos remains the lowest among the CLMV countries at 58.3%[47], there definitely remains a gap in the education market that startups have the ability to fill although Laos’ technological infrastructure and uptake needs to increase tremendously.

The need for localisation and customisation of this sector raises the barrier to entry to foreign companies, who may also overlook Laos’ underserved market in favour of other larger markets. This represents a good opportunity for local startups as education solutions need to be tailored to local needs. Such needs are best understood by the locals, rather than foreign companies that may not have a good grasp of the market unless they have local staff on the ground. Locals who are looking to set up a business can definitely consider delving into this space with the lack of competition in Cambodia.

2. Agritech

Agriculture is still one of the main drivers of the Laotian economy although it is gradually contributing less to the economy over the years, making up 15.29% of its GDP in 2019[48]. Due to the unpredictability of the weather and other natural variables in the region, Agritech can mitigate the impacts of these variables and help farmers improve their productivity. The use of drones is a cost-efficient way to monitor the condition of crops over vast areas of land, yet this has hardly been implemented in Laos due to low uptake and regulatory restrictions[49]. Farmers in the country make up a large underserved group that startups can definitely target and aid in the process. Should startups be able to roll out solutions that are able to bypass these regulations and raise greater awareness of their benefits, they will definitely be able to reap the potential of the shift from traditional agricultural methods to digitalised ones.

Conclusion

Laos’ small domestic market may be seen as an impediment to growth in the eyes of foreign investors, but its size should not be the ultimate obstacle to its growth. Laos can learn from the successes of small, developed nations like Singapore – whose population is even smaller – in terms of harnessing the full potential of its population through greater dedication of financial and physical resources to its human capital.

In order to further its pursuit for economic growth, Laos needs to contribute more towards startups who may have brilliant solutions to its long-standing problems and which are scalable in nature. Currently, the infrastructure and resources required to create a robust startup ecosystem in Laos are still lacking. There are few available incubators and accelerators that would otherwise immensely benefit the locals in terms of the capital and mentorship they require. Moreover, only 39% of the Laotian population had subscription to internet services as of 2019[50]. A larger proportion of the population needs to have regular access to the internet in order for companies to reach out to them with new technological solutions. Only when these issues are addressed can the startup ecosystem truly flourish.

---

Myanmar

Overview

As the largest country in mainland Southeast Asia, Myanmar is a country known for its long history and rich culture. The country stands to benefit from its large young population where 55% of its population is aged under 30[51], thus granting them access to a large talent pool who can enact various changes in the future and bring about stability to its social structure.

The country has experienced positive GDP growth every year for the past 30 years ever since its liberalisation[52], and it is expected to remain positive at 1.8% in spite of the pandemic’s effect on the global economy[53]. Myanmar’s economy has traditionally been centred around Agriculture, which hires 48.85% of its working population[54] and provides a stable contribution to the country’s GDP[55], although this number is now on a decreasing trend. Its Industrials sector, consisting of manufacturing, mining and hydropower, is another key source of revenue for the country as it harnesses the benefits of its natural endowment.

Startup Community and Ecosystem

While the startup ecosystem is still in its early stages, it has made significant headway in generating acceptance of innovation and entrepreneurship within the community. Digitalisation has played a great role in expediting this progress, with the SIM penetration rate in Myanmar multiplying from 10% in 2013[56] to 105% in 2019[57]. Greater digital connectivity has enabled startups to connect with a larger target audience and expand their reach, contributing to the digital economy in return[58].

1. Co-working Spaces

The first co-working space established in Yangon was Phandeeyar[59]. Since its establishment, the importance of such cost-efficient spaces for freelancers and startups has been recognised. This has led to more co-working spaces being set up over the years to meet the demand for flexible work arrangements and locations. Another similar space is Seedspace Yangon, an entrepreneurship hub opened in 2019 which offers co-working spaces and boosts collaboration among startups and with external partners[60].

2. Mentorship and Training

Many incubators and accelerators have been established in the local community in order to support startups in their early phases. Incubators, such as Impact Hub Yangon and Kanaung Hub, organise workshops for entrepreneurs in order to realise their ideas. Accelerators, such as Phandeeyar Accelerator[61], help startups at a slightly later stage of development by organising various programmes and competitions to provide them with resources to further their growth. The GSMA Ecosystem Accelerator Innovation Fund also provides grants and equity-free funding to the startups selected for its annual programme[62]. Such programmes provide tangible benefits to startups who lack the resources and expertise to grow their innovative ideas, and are particularly important for the emerging economy.

Several facilities in Myanmar also dedicate themselves to the training and development of the population’s skills in order to equip locals, especially youths, with the necessary knowledge and mindsets to launch a successful business. One example is the Myanmar Young Entrepreneurs Association (MYEA) which aims to empower youths to pursue entrepreneurship[63]. The Myanmar Women Entrepreneurs Association (MWEA), which promotes women entrepreneurship and gender inclusivity, recently established the Women’s Entrepreneurship Development Center to further encourage women’s pursuit of entrepreneurship through their ability to balance work and family[64]. It is commendable to note that organisations are putting in immense effort and resources to enhance the entrepreneurial ecosystem in the country while pursuing sustainable development goals at the same time. Some of these initiatives have been set up by foreign companies as part of their corporate social responsibility programme. For example, the Samsung Tech Institute launched by Samsung Myanmar in 2016 provides vocational training to high school students in various technology fields, exposing them to more career options and linking them up with networks of successful entrepreneurs.

3. Funding and Investments

The amount of private investments in Myanmar has been expanding, in the form of private equity, venture capital, and angel investors. The number of private equity deals has been steadily increasing for the past five years, from just three deals in 2015 to 15 deals in 2019, although the size of the deals has largely varied especially in 2016 and 2018 which received mega-deals[65].

Several companies have led these private investments in Myanmar. Delta Capital Myanmar has been at the forefront of the scene since its establishment in 2013 with USD 120 million of assets under management, making it the largest asset manager in the country[66]. Its second fund has had a large focus on economic, social and governance (ESG) investments[67], taking advantage of the increasing popularity of impact investing in Southeast Asia[68]. Venture capital firms have also been reaping the benefits of investments in early-stage companies and startups. Seed Myanmar and EME Asia are two such companies that have concentrated their portfolio solely on Myanmar startups, as they believe in the startups’ deep knowledge of the challenging local market and ability to leverage their networks.

Angel investors make up another group of private investors that has contributed to the accelerating growth of the economy by investing in seed stages of startups. These investments are often made through angel investment networks such as the MYEA Angel Network, or the ASEAN Angel Alliance. Myanmar is in a strong position to benefit from this group of investors as angel investors have begun eyeing the Southeast Asian region for growth opportunities[69].

Challenges

1. Slow Acceptance of International Trade

Myanmar’s slow acceptance of international trade has largely been attributed to its large domestic market, the main source of its current economic growth. Its exports as a percentage of its GDP, at just 30.4% in 2019[70], is among the lower percentages in ASEAN, including landlocked Laos which arguably has less access to international economies due to its geographical positioning.

Trade is a factor crucial for economies to thrive and will prove to be beneficial in the long run. Given its strategic location, Myanmar should harness its geographical advantage to become a key exporting hub in the region. As the regulations surrounding exports become more relaxed and Special Economic Zones (SEZs) are established, there is greater incentive for both trade and investments. These developments signal that the importance of trade is gradually being recognised in Myanmar, with new bilateral projects and agreements being established regularly. The liberalisation of Myanmar’s economy is quickening, and will soon achieve rapid growth should it be able to sustain its existing momentum and should local companies be able to gain greater traction in foreign markets.

2. Political Instability

Politics in Myanmar has long been rife with corruption, control, and power. Being poorly ranked at 130 out of 180 countries on the 2019 Corruption Perceptions Index by Transparency International[71], Myanmar’s relatively high levels of corruption could pose an obstacle towards attracting foreign direct investments (FDI) to the country, as investors question the legitimacy and transparency of the bureaucracy.

Though significant political headway was finally made in 2015 after half a century, the NLD has seen its support dwindle due to its poor relations with minority groups[72]. While initially revered as a public icon, Aung San Suu Kyi has been criticised for her dealings with the minority ethnic groups in the country. Internal clashes have intensified instead of ameliorating, even requiring interference from the International Court of Justice[73]. Fighting in the Shan and Kachin states, as well as the Rohingya crisis in the Rakhine state, have displaced minority groups and disrupted internal peace – a factor crucial to stimulating the country’s tourism industry. It is likely that these conflicts will have an impact on other aspects of the economy too, including the inflow of FDI. For Myanmar to sustain strong economic support from the international community, it is imperative for it to continue working towards political stability through collaboration agreements between the NLD and the Tatmadaw, and with minority ethnic groups.

Rising Sectors

1. Healthcare

The ongoing pandemic has reinforced the need for reliable healthcare services. Myanmar’s health worker density of 1.49 health workers per 1,000 people[74] is well below the World Health Organization’s recommendation of 2.3 health workers per 1,000 people[75], thus necessitating more resources to be allocated to the sector in order to compensate for its low healthcare coverage.

Several large pharmaceutical companies, including DKSH Group, have already entered into partnerships with the government to embark on programmes that aim to increase access to high-quality healthcare among the local population[76]. Likewise, there have been startups who are developing solutions to back-end issues in the healthcare sector such as poor custody of patients’ medical records and personal data. Klenic Software Co. is one startup that has aimed to protect such information through digital solutions and Software as a Service (SaaS) technology[77], adding value to the support network. With a growing need for a strong healthcare system, startups can capture the opportunity and bridge the gap between the existing healthcare infrastructure and those not covered by the healthcare network.

2. Financial Services

Myanmar’s low financial inclusion has made Financial Services a rising sector. Currently, more than 70% of Myanmar’s population remains unbanked[78], a far cry from the much lower 31% of unbanked global population recorded in 2018[79]. At the same time, the country has had a high smartphone penetration rate of 80%, signalling the potential to gain the population’s acceptance of such under-explored services through the digital realm.

Several companies have tried to bridge this gap in Myanmar, including Wave Money, a joint venture between Telenor, Yoma Bank, and First Myanmar Investments, which allows for quick and secure electronic funds transfer across the country[80]. Myanmar’s Central Bank has also piloted MMQR, which enables the use of QR code payments at local businesses and banks, bringing it a step closer to digitalising payments and becoming a cashless society[81]. Nevertheless, the outreach by existing providers needs to be greater – a gap which can be further narrowed by startups.

Conclusion

With greater liberalisation of the economy and advancements in the political scene, Myanmar is now making its way to become an attractive destination for investors. The nascent startup scene in Myanmar is gaining a lot of attention not just within the domestic economy, but also among the international community. Currently, the economy has a greater focus on the development of early-stage businesses, and the community has benefited from startups who have developed solutions to solve local problems which they have personally experienced. As such early-stage startups grow and prove profitable, investors will be more willing to dedicate capital and resources to later-stage developments in the economy, enabling the ecosystem to flourish as a whole.

---

Vietnam

Overview

Vietnam has achieved immense success over the past three decades, experiencing rapid economic growth and establishing strong relationships with other countries. The introduction of the Doi Moi Policy in 1986 during the country’s economic crisis shifted them from being a communist economy to a “socialist-oriented market economy”[82]. Consequently, their private sector has become a large contributing factor to their economy, and the country’s GDP is projected to grow 2.8% this year in spite of the ongoing pandemic, ranking it the fifth in the world in terms of speed of growth[83].

Its strong growth can be attributed to its healthy relationships with large global economies as it strives towards achieving an open economy. The many foreign agreements signed by Vietnam have enabled its admission into the ASEAN Free Trade Area, World Trade Organization, and the recent EU-Vietnam Free Trade Agreement[84]. Such agreements have allowed the country to enjoy tax benefits, thus promoting the implementation of pro-business regulations and policies in order to attract foreign investment and facilitate trade.

Startup Community and Ecosystem

As one of Southeast Asia’s fastest growing economies, the startup ecosystem has been a great contributor to its dynamic nature. The country has been constantly improving its ranking on the Global Innovation Index, achieving 42nd place out of 129 countries in 2019 and exceeding expectations for its “Lower-middle Income” group[85].

1. Co-working Spaces

Vietnam is increasingly being dotted with startup facilities, especially startup hubs and co-working spaces. They are mostly found in Hanoi and Ho Chi Minh City in order to cover ground in both the North and South of the country. Familiar names in the field include WeWork, Dreamplex, and Toong. UPGen is also another local co-working space that has thrived over the past few years, opening its first workspace in 2016 and 17 more in the following years. In fact, it caters its space to both startups and corporations as it often dedicates around half of each space to an anchor tenant, who will then occupy a greater space as it grows larger over the years[86].

The growth of co-working spaces has been phenomenal, with the sector growing 55% annually from 2013 to 2018, pushing Vietnam into the top 50 global rankings in 2019 for coworking growth[87]. Such a business model has gained significant traction among the Vietnamese, where its youthful population has a strong entrepreneurial mindset and thirst for success. These facilities catered especially to startups and SMEs will provide them with greater flexibility and a conducive environment to exchange innovative ideas.

2. Mentorship and Training

Mentorship to startups in Vietnam have mainly come in the form of accelerators and conferences. These involve different types of exposure, ranging from seminars to hands-on workshops and networking sessions. Techfest Vietnam is a prominent conference organised for the startup community which attracts thousands of attendees, enabling startups to expand their network and outreach[88].

A tremendous amount of support has been provided by the government in terms of building accelerators and forming partnerships with innovation hubs worldwide to encourage and grow entrepreneurship. One fresh example is Grab Ventures Ignite, Grab’s newly launched accelerator programme under their “Grab for Good” development plan, which is partnering with Vietnam’s National Innovation Center among other prestigious names[89]. Saigon Innovation Hub, a government-backed agency, has also facilitated a partnership with Quest Ventures and Enterprise Singapore as part of the Global Innovation Alliance (GIA) network which increases awareness of both countries’ startup ecosystems through exchanges and market access programmes[90]. Such cross-border collaborations will definitely spur startups to explore new frontiers and boost innovation within the ecosystem.

3. Funding and Investments

With many initiatives from both the public and private sectors, Vietnam’s startup ecosystem is certainly experiencing rapid growth and attracting various types of investors. These include private equity firms and angel investors. In the case of angel investors, their investments are made via networks such as the Vietnam Angel Investor Network (iAngel) and Vietnam Angel Network (VAN), or perhaps even through the angel investment reality show Shark Tank Vietnam.

Private equity plays a pivotal role in advancing the innovation ecosystem in Vietnam. With a mix of domestic and foreign players respectively making up 36% and 64% of private equity investments[91]. In Vietnam, between 2017 and 2019, private equity firms had reaped USD 1.8 billion from 139 deals across the country[92]. They are now on par with Indonesia in terms of deal value and their growth is projected to accelerate in the years to come. Key players in private equity include Mekong Capital and Vietnam Investments Group.

There has also been a strong presence by venture capital firms in particular. IDG Ventures Vietnam (IDGVV) spearheaded the development of venture capital in Vietnam in 2004, with its 35 portfolio companies today including notable investments like VNG, Webtretho, and Vietnamworks[93]. Ever since, Vietnam has seen the entry of multiple funds from all over the world, especially in recent years. Silicon Valley-based venture capital fund 500 Startups began its Vietnam chapter in 2016 and was oversubscribed with a fund size of USD 14 million and 42 portfolio companies as of May 2019[94]. Regional venture capital firms such as Quest Ventures, Cento Ventures, and Monk’s Hill Ventures have also been actively involved in investing in early-stage companies in Vietnam.

Challenges

1. Slow Regulatory Reforms

Vietnam’s economy is fast-growing, yet its regulatory reforms seem to be lagging behind and are still unable to keep up with those of developed countries. Vietnam’s ranking in the Ease of Doing Business under the World Bank’s Doing Business Report has somewhat stagnated for the past few years, hovering around 68th place in 2017 and dropping to 70th place in 2019[95]. Its current economic prosperity is mostly attributed to past economic reforms such as the Doi Moi policy, and current reforms need to work in tandem to support this boom. New regulations need to be consistent and transparent to the masses[96]. It is imperative to continue providing assistance and greater protection for investors and taxpayers in order to entice them to local businesses[97].

2. Poor Enforcement of Intellectual Property (IP) Rights

The enforcement of IP rights is crucial for an economy to continue developing and attracting investors. While more than 300 businesses in Vietnam have made their first moves in legalising softwares, thousands continue to stick with piracy softwares[98] – a red flag for poor enforcement and abuse of rights despite existing regulations[99]. Without strong protection of IP rights, businesses may be deterred from conducting research and development as their new solutions can easily be copied by competitors. This in turn results in a vicious cycle where innovation is hindered, causing the economy’s growth to slow down and plateau. Fortunately, this has been recognised as a problem and the government has released a national Intellectual Property Strategy till 2030 as it works towards sustainable growth and development[100]. Government agencies need to be proactive when enforcing IP rights and also aim to build respect and awareness of the importance of such rights within the community[101].

Rising Sectors

1. Fintech

The Fintech sector in Vietnam is rapidly growing, with Vietnam’s growing middle class contributing to an increase in internet usage and demand for such services. Vietnam’s Fintech Startup Map 2019 shows the many companies in each Fintech segment, of which Payments and Peer-to-peer lending are the two largest segments[102].

However, a whopping 69% of its population remains unbanked[103]. Despite the many Fintech companies in Vietnam aiming to bridge this gap, there is evidently a still a need for more companies to serve the local population in the financial services field. The sector has been receiving strong support from investors, increasing its share of Southeast Asia’s total Fintech investments from 0.4% in 2018 to 36% in 2019[104]. With the strong support from investors and with the government working towards building a cashless society[105], businesses who aim to venture into this sector are thus poised for growth.

2. E-commerce

With the rising smartphone and internet penetration rates in Vietnam, e-commerce is becoming an increasingly common mode of transaction among the local population. The Vietnamese e-commerce market amounted to USD 5 billion in 2019 and is projected to hit a staggering USD 23 billion in 2025, with a compound annual growth rate of 7.1% for its revenue[106]. This has put it as one of the fastest-growing internet economies in Southeast Asia alongside Indonesia[107], presenting a significant opportunity for online marketplaces and local merchants. While international companies such as Shopee and Lazada are large players in the Vietnamese market, local platforms including Thegioididong and Tiki are faring strongly as well by improving their value propositions to customers[108]. The government has also laid out an e-commerce development plan for the nation, focusing on the sector’s growth while also keeping sustainability in sight[109]. Companies that are able to incorporate these goals in their business while keeping costs low and remaining competitive will eventually emerge out top.

Conclusion

Vietnam is on an upward trajectory, showing no signs of faltering. Their startup ecosystem is at a relatively advanced stage as compared to Cambodia, Laos, and Myanmar, and the entrepreneurial mindset is being ingrained in a larger proportion of its population. Vietnam is constantly ahead of its neighbours, and its growth is even expected to overtake several developed economies in the region too.

With its strong human capital and governmental support, more local and foreign investors view it as a vibrant hub and emerging market that is worth exploring. Certainly, failures are inevitable along the way and businesses need time to harvest the fruits of their labour. However, opportunities await investors who are willing to invest in patient capital and who believe in the country’s long-term prospects.

---

Citations

1. World Bank. (2019, October 29). Cambodia: Reducing Poverty and Sharing Prosperity. Retrieved from https://www.worldbank.org/en/results/2019/10/30/cambodia-reducing-poverty-and-sharing-prosperity
2. Asian Development Bank. (2020, April). Poverty Data: Cambodia. Retrieved from https://www.adb.org/countries/cambodia/poverty#:~:text=Poverty%20Data%3A%20Cambodia&text=In%20Cambodia%2C%2012.9%25%20of%20the,Cambodia%20is%200.7%25%20in%202019.
3. ASEAN Briefing. (2019, March 1). Cambodia’s Investment Outlook for 2019. Retrieved from https://www.aseanbriefing.com/news/cambodias-investment-outlook-for-2019/
4. Xinhuanet. (2020, February 26). Cambodia’s tourism makes 4.92 bln USD revenue last year. Retrieved from http://www.xinhuanet.com/english/2020-02/26/c_138820873.htm
5. EastAsiaForum. (2020, June 12). Cambodia’s COVID-19 success and economic challenges. Retrieved from https://www.eastasiaforum.org/2020/06/12/cambodias-covid-19-success-and-economic-challenges/
6. Khmer Times. (2019, July 4). American Tech Companies Grow Cambodia’s Digital Economy. Retrieved from https://www.khmertimeskh.com/620474/american-tech-companies-grow-cambodias-digital-economy/
7. e27. (2019, October 22). Cambodian tech ecosystem adds new co-working space SmallWorld Realty, collaborating with creative office development Raintree. Retrieved from https://e27.co/in-photos-cambodian-tech-ecosystem-adds-new-co-working-space-smallworld-realty-collaborating-with-creative-office-hub-raintree-20191022/
8. e27. (2018, June 27). Young but growing, Cambodia startup ecosystem is ready to step up. Retrieved from https://e27.co/young-growing-cambodia-startup-ecosystem-ready-step-20180627/
9. United Nations Development Programme Cambodia. (2020, February 19). The Launching of “SHE Incubator and Accelerator Program”. Retrieved from https://www.kh.undp.org/content/cambodia/en/home/presscenter/speeches/2019/remarks–by-dr–rany-pen–assistant-resident-representative–und.html
10. Khmer Times. (2019, April 10). Government-funded business startup centre launched. Retrieved from https://www.khmertimeskh.com/595046/government-funded-startup-incubation-centre-launched/
11. ASEAN Briefing. (2019, March 1). Cambodia’s Investment Outlook for 2019. Retrieved from https://www.aseanbriefing.com/news/cambodias-investment-outlook-for-2019/
12. Khmer Times. (2020, July 10). New investment law to attract more investments. Retrieved from https://www.khmertimeskh.com/50743474/new-investment-law-to-attract-more-investments/
13. Council for the Development of Cambodia. (n.d.). Investment Trend. Retrieved from http://www.cambodiainvestment.gov.kh/why-invest-in-cambodia/investment-enviroment/investment-trend.html
14. Kem, B., Sou, J., Ng, Z., & Chan, P. (2019, January 1). Startup Kingdom: Cambodia’s Vibrant Tech Startup Ecosystem in 2018. Retrieved from https://static1.squarespace.com/static/56a87acd05f8e263f7b16c7f/t/5c9b0762085229887ba9af72/1553663849501/Cambodian_Tech_Startup_Report_Final_250319.pdf
15. The Phnom Penh Post. (2018, March 6). Funding is the biggest hurdle for Cambodia’s technology startups. Retrieved from https://www.phnompenhpost.com/supplements-special-reports/funding-biggest-hurdle-cambodias-technology-startups
16. Southeast Asia Globe. (2017, November 15). Smart Axiata announces the first three investees of its digital innovation fund. Retrieved from https://southeastasiaglobe.com/smart-axiata-innovation-fund/
17. e27. (2019, March 1). Cambodia-grown VC firm Ooctane secures US$55M from country’s logistic giant. Retrieved from https://e27.co/cambodia-grown-vc-firm-ooctane-secures-us55m-from-countrys-logistic-giant-20190301/
18. KrASIA. (2019, March 27). Cambodia pledges $5m to strengthen tech startups. Retrieved from https://kr-asia.com/cambodia-pledges-5m-to-strengthen-tech-startups
19. Forbes. (2020, January 22). Cambodia’s Democracy On Trial. Retrieved from https://www.forbes.com/sites/oliviaenos/2020/01/22/cambodias-democracy-on-trial/#3df5e1a0158b
20. The Japan Times. (2020, January 21). Cambodia is criminalizing democracy. Retrieved from https://www.japantimes.co.jp/opinion/2020/01/21/commentary/world-commentary/cambodia-criminalizing-democracy/
21. European Commission. (2020, February 12). Trade/Human Rights: Commission decides to partially withdraw Cambodia’s preferential access to the EU market. Retrieved from https://ec.europa.eu/commission/presscorner/detail/en/ip_20_229
22. Royal Government of Cambodia. (2015, March 6). Cambodia Industrial Development Policy 2015 – 2025. Retrieved from https://policy.asiapacificenergy.org/sites/default/files/IDP-English-Version-FINAL1.pdf
23. SME Magazine Asia. (2020, February 26). Cambodia sets up Fund to Enhance SMEs’ Access to Finance. Retrieved from https://sme.asia/cambodia-sets-up-fund-to-enhance-smes-access-to-finance/
24. The Phnom Penh Post. (2019, February 13). First startup professional service alliance launched. Retrieved from https://www.phnompenhpost.com/business/first-start-professional-service-alliance-launched
25. e27. (2019, February 14). Cambodia catches up with launching of startup professional service alliance. Retrieved from https://e27.co/cambodia-catches-up-with-launching-of-startup-professional-service-alliance-20190214/
26. Fintechnews Singapore. (2019, May 1). Fintech is the Single Largest Sector in Cambodia’s Startup Scene. Retrieved from https://fintechnews.sg/30413/cambodia/fintech-cambodia-startup-largest/
27. Khmer Times. (2019, July 4). American Tech Companies Grow Cambodia’s Digital Economy. Retrieved from https://www.khmertimeskh.com/620474/american-tech-companies-grow-cambodias-digital-economy/
28. World Bank. (n.d.). Cambodia: Agriculture, forestry, and fishing, value added (% of GDP) – Cambodia. Retrieved from https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?locations=KH
29. Trading Economics. (n.d.). Cambodia – Employment In Agriculture (% Of Total Employment). Retrieved from https://tradingeconomics.com/cambodia/employment-in-agriculture-percent-of-total-employment-wb-data.html
30. Phnom Penh Post. (2020, January 23). App to connect farmers to millions. Retrieved from https://www.phnompenhpost.com/national/app-connect-farmers-millions
31. Khmer Times. (2020, January 27). Farmers need new skills, technology and research to become international. Retrieved from https://www.khmertimeskh.com/50683980/farmers-need-new-skills-technology-and-research-to-become-international/
32. The World Bank. (2011, August 17). Lao PDR Now a Lower-Middle Income Economy. Retrieved from https://www.worldbank.org/en/news/press-release/2011/08/17/lao-pdr-now-lower-middle-income-economy
33. The World Bank. (n.d.). GDP growth (annual %) – Lao PDR. Retrieved from https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=LA
34. Good News From Southeast Asia. (2017, March 10). Startups in Laos on the Rise. Retrieved from https://seasia.co/2017/03/10/startups-in-laos-on-the-rise
35. The Diplomat. (2013, February 7). What Will WTO Membership Mean for Laos?. Retrieved from https://thediplomat.com/2013/02/what-will-wto-membership-mean-for-laos/
36. The Laotian Times. (2019, August 16). Toong: a Hub for Progressive Entrepreneurs in Vientiane. Retrieved from https://laotiantimes.com/2019/08/16/toong-a-hub-for-progressive-entrepreneurs-in-vientiane/
37. Vietnam Economic Times. (2018, February 28). BIM & Toong to open first co-working space in Laos. Retrieved from http://vneconomictimes.com/article/business/bim-toong-to-open-first-co-working-space-in-laos
38. Champa Meuanglao. (2017, May 1). On the table: building a startup community in Vientiane’s first co-working space. Retrieved from https://champameuanglao.com/on-the-table-building-a-startup-community-in-vientianes-first-co-working-space/
39. Investvine. (2019, May 8). Laos Set To Build Up A Startup Community. Retrieved from https://investvine.com/laos-set-to-build-up-a-startup-community/
40. Lao News Agency. (2019, August, 26). U.S. Supports Tech Skills Training For Lao Youth. Retrieved from http://kpl.gov.la/En/Detail.aspx?id=47744
41. Malcolm Turnbull. (2016, September 7). Opening remarks at the Launch of the Laos chapter of the Mekong Angel Investors Network. Retrieved from https://www.malcolmturnbull.com.au/media/opening-remarks-at-the-launch-of-the-laos-chapter-of-the-mekong-angel-inves
42. BOL, GIZ, OECD, & ADBI. (2018). Conference on the Role of Financial Education and Consumer Protection in Supporting Financial Inclusion . Retrieved from http://www.oecd.org/finance/financial-education/Lao%20PDR%202018%20Summary%20Record.pdf
43. OECD, & Economic Research Institute for ASEAN and East Asia. (2018, September 1). SME Policy Index: ASEAN 2018 Boosting Competitiveness and Inclusive Growth. Retrieved from https://books.google.com.sg/books?id=nHhsDwAAQBAJ&pg=PA299&lpg=PA299&dq=Few+startups+with+founders+who+can+pitch+in+English+laos&source=bl&ots=nPA-f5D6bC&sig=ACfU3U2BkOqytDBjeP9EYTRYHnOyOCtmOw&hl=en&sa=X&ved=2ahUKEwik3vmItLDpAhVJlEsFHdvdAtkQ6AEwAXoECAoQAQ#v=onepage&q=pitch%20convincingly%20in%20english&f=false
44. Harvard Business Review. (2012, May). Global Business Speaks English. Retrieved from https://hbr.org/2012/05/global-business-speaks-english
45. DataReportal. (2019, January 31). Digital 2019: Laos. Retrieved from https://datareportal.com/reports/digital-2019-laos?rq=digital%202019%3A%20laos
46. Fintechnews Singapore. (2017, June 2). The State of Fintech in Laos. Retrieved from https://fintechnews.sg/9709/laos/fintech-laos/
47. KrASIA. (2019, March 11). Edtech firms are filling crucial gaps in Southeast Asia. Retrieved from https://kr-asia.com/edtech-firms-are-filling-crucial-gaps-in-southeast-asia
48. World Bank. (n.d.). Agriculture, forestry, and fishing, value added (% of GDP) – Lao PDR. Retrieved from https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?locations=LA
49. ASEAN Today.(2019, February 1). Is ASEAN doing enough to harness agritech’s potential?. Retrieved from https://www.aseantoday.com/2019/02/is-asean-doing-enough-to-harness-agritechs-potential/
50. DataReportal. (2019, January 31). Digital 2019: Laos. Retrieved from https://datareportal.com/reports/digital-2019-laos
51. Oxford Business Group. (2019). Growth of incomes and Myanmar’s young population drive demand for nonessential goods. Retrieved from https://oxfordbusinessgroup.com/overview/buyers%E2%80%99-market-expanding-young-population-and-rising-incomes-drive-demand-non-essential-goods
52. GDP growth (annual %) – Myanmar. (n.d.). Retrieved from https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?display=graph&end=2018&locations=MM&start=1991
53. Asian Development Bank. (n.d.). Economic indicators for Myanmar. Retrieved from https://www.adb.org/countries/myanmar/economy
54. World Bank. (n.d.). Employment in agriculture (% of total employment) (modeled ILO estimate) – Myanmar. Retrieved from https://data.worldbank.org/indicator/SL.AGR.EMPL.ZS?locations=MM
55. Food and Agriculture Organization of the United Nations. (n.d.). Myanmar at a glance. Retrieved from http://www.fao.org/myanmar/fao-in-myanmar/myanmar/en/#:~:text=Myanmar%20is%20an%20agricultural%20country,percent%20of%20the%20labour%20force.
56. Oxford Business Group. (2019). Growth of mobile and internet usage make Myanmar ICT more competitive. Retrieved from https://oxfordbusinessgroup.com/overview/tech-transformation-mobile-and-internet-usage-rise-sector-set-expand-and-become-more-competitive
57. DataReportal. (2019, January 31). Digital 2019: Myanmar. Retrieved from https://datareportal.com/reports/digital-2019-myanmar?rq=digital%202019%3A%20myanmar
58. Asian Nikkei Review. (2018, June 12). Startups thrive in Myanmar as smartphone usage skyrockets. Retrieved from https://asia.nikkei.com/Business/Startups-thrive-in-Myanmar-as-smartphone-usage-skyrockets
59. Myanmar Times. (2019, June 24). The thriving co-working space industry. Retrieved from https://www.mmtimes.com/news/thriving-co-working-space-industry.html
60. Seedstars. 2019, March 22). Yangon, Myanmar: Seedstars announces its first hub in Southeast Asia. Retrieved from https://www.seedstars.com/magazine/yangon-myanmar-seedstars-announces-its-first-hub-southeast-asia/
61. SMyanmar Times. (2019, September 19). A cradle of local tech innovation. Retrieved from https://www.mmtimes.com/news/cradle-local-tech-innovation.html
62. GSMA. (2018, December 12). Announcing the third cohort of the GSMA Ecosystem Accelerator Innovation Fund. Retrieved from https://www.gsma.com/mobilefordevelopment/blog/announcing-the-third-cohort-of-the-gsma-ecosystem-accelerator-innovation-fund/
63. ThaiBiz Myanmar. (2019, September 6). Myanmar Young Entrepreneur Association launched a new portal which is called MYEA Member Portal in order to create a world class entrepreneurial ecosystem in Myanmar. Retrieved from http://www.thaibizmyanmar.com/en/news/detail.php?ID=2523
64. ThaiBiz Myanmar. (2019, May 14). Women Entrepreneur Association is planning to set up Women’s Entrepreneurship Development Centre in Yangon with the aim to make women’s lives better and provide the economic information in real time. Retrieved from http://www.thaibizmyanmar.com/en/news/detail.php?ID=2168
65. Private Equity International. (2019, November 13). Myanmar pins hopes for nascent PE market on ESG. Retrieved from https://www.privateequityinternational.com/myanmar-pins-hopes-nascent-pe-market-esg/
66. Delta Capital Myanmar. (n.d.). About Us. Retrieved from https://www.deltacapital.com/about-us/
67. DealStreetAsia. (2019, November 27). Delta Capital Myanmar to focus on ESG investing with second fund. Retrieved from https://www.dealstreetasia.com/stories/delta-capital-myanmar-esg-164293/
68. Nikkei Asian Review. (2019, November 23). Southeast Asian companies jump on impact investment bandwagon. Retrieved from https://asia.nikkei.com/Business/Business-trends/Southeast-Asian-companies-jump-on-impact-investment-bandwagon
69. KrASIA. (2020, January 31). What angel investors look for in the SEA market, according to industry insider Jiaway Koh. Retrieved from https://kr-asia.com/founders-are-key-for-angel-investors-says-banseas-associate-director
70. The World Bank. (n.d.). Exports of goods and services (% of GDP). Retrieved from https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS
71. Trading Economics. (n.d.). Myanmar Corruption Index. Retrieved from https://tradingeconomics.com/myanmar/corruption-index
72. The Business Times. (2018, November 5). Aung San Suu Kyi’s NLD party slapped down in by-elections. Retrieved from https://www.businesstimes.com.sg/government-economy/aung-san-suu-kyis-nld-party-slapped-down-in-by-elections
73. The Guardian. (2019, December 12). Aung San Suu Kyi pleas with court to dismiss genocide claims. Retrieved from https://www.theguardian.com/world/2019/dec/12/myanmar-military-incapable-of-looking-into-abuses-court-told
74. Asia IoT Business Platform. (2017, May 31). Tech-gather, we can find innovative solutions to improve Myanmar’s healthcare quality. Retrieved from https://iotbusiness-platform.com/blog/tech-gather-we-can-find-innovative-solutions-to-improve-myanmars-healthcare-quality/
75. World Health Organization. (n.d.). Density of community health workers (per 1 000 population). Retrieved from https://www.who.int/data/gho/indicator-metadata-registry/imr-details/85
76. DKSH Group. Making healthcare accessible to all in Myanmar. Retrieved from https://www.dksh.com/global-en/insights/tl-hec-making-healthcare-accessible-to-all-in-myanmar
77. Myanmar Times. (2019, June 20). Tech start-up offers solution for medical record-keeping. Retrieved from https://www.mmtimes.com/news/tech-start-offers-solution-medical-record-keeping.html
78. PaymentsJournal. (2019, April 29). Myanmar Drives Towards QR Codes With 74% Unbanked, This is a Large Step for Financial Inclusion. Retrieved from https://www.paymentsjournal.com/myanmar-drives-towards-qr-codes-with-74-unbanked/
79. The World Bank. (2018, April 19). Financial Inclusion on the Rise, But Gaps Remain, Global Findex Database Shows. Retrieved from https://www.worldbank.org/en/news/press-release/2018/04/19/financial-inclusion-on-the-rise-but-gaps-remain-global-findex-database-shows
80. Fintechnews Singapore. (2019, November 21). With 70% Unbanked Population, Myanmar Bets on Fintech to Improve Financial Inclusion. Retrieved from https://fintechnews.sg/35276/myanmar/myanmar-fintech-financial-inclusion/
81. Deloitte. (2020, January). The Myanmar Consumer Survey. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/sg/Documents/consumer-business/sea-cb-myanmar-consumer-survey-2020.pdf
82. The ASEAN Post. (2018, August 27). Vietnam’s reforms paying off. Retrieved from https://theaseanpost.com/article/vietnams-reforms-paying
83. Hanoi Times. (2020, July 30). Vietnam forecast to be fifth fastest growing economy in 2020: World Bank. Retrieved from http://hanoitimes.vn/vietnam-forecast-to-be-fifth-fastest-growing-economy-in-2020-world-bank-313569.html
84. AEC News Today. (2020, June 22). Why the EU-Vietnam Free Trade Agreement (EVFTA) is such a big deal. Retrieved from https://aecnewstoday.com/2020/why-the-eu-vietnam-free-trade-agreement-evfta-is-such-a-big-deal/
85. Cornell University, INSEAD, & the World Intellectual Property Organization. (2019). The Global Innovation Index 2019: Creating Healthy Lives – The Future of Medical Innovation. https://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2019.pdf
86. AllWork. (2020, July 28). Scaling a coworking brand in Southeast Asia: A Q&A with Nam Do, co-founder of UPGen. Retrieved from https://allwork.space/2020/07/scaling-a-coworking-brand-in-southeast-asia-a-qa-with-nam-do-co-founder-of-upgen/
87. Vivid Invest. (2020, March 10). Vietnam’s Coworking Boom. Retrieved from https://www.vividinvest.com/2020/03/vietnams-coworking-boom/#:~:text=From%202013%20to%202018%2C%20the,the%20opening%20of%20new%20spaces.
88. e27. (2020, January 9). Is Vietnam the new golden child of tech startups in SEA?. Retrieved from https://e27.co/why-vietnam-needs-to-embrace-technology-20200106/
89. Fintechnews Vietnam. (2020, February 28). Grab Launches Early-Stage Startup Accelerator in Vietnam. Retrieved from https://fintechnews.sg/38034/vietnam/grab-launches-early-stage-startup-accelerator-in-vietnam/
90. The Business Times. (2019, August 7). Govt support and young population set Vietnam’s startup scene abuzz. Retrieved from https://www.businesstimes.com.sg/asean-business/govt-support-and-young-population-set-vietnams-startup-scene-abuzz
91. Private Equity International. (2019, July 10). Vietnamese private equity: A beginner’s guide. Retrieved from https://www.privateequityinternational.com/vietnam-beginners-guide/
92. Private Equity International. (2020). Covid-19 calms Vietnam’s feeding frenzy. Retrieved from https://www.privateequityinternational.com/covid-19-calms-vietnams-feeding-frenzy/
93. Preqin. (n.d.). IDG Ventures Vietnam. Retrieved from https://pro.preqin.com/fundmanager/13582/dealsAssets#Venture%20Deals%20Breakdown
94. The Investor. (2019, May 17). What made 500 Startups invest in Vietnam. Retrieved from http://www.theinvestor.co.kr/view.php?ud=20190517000488
95. Trading Economics. (n.d.). Ease of Doing Business in Vietnam. Retrieved from https://tradingeconomics.com/vietnam/ease-of-doing-business
96. Cekindo. (2019, June 12). What are the Challenges of Doing Business in Vietnam?. Retrieved from https://www.cekindo.vn/blog/doing-business-in-vietnam-challenges
97. Viet Nam News. (2019, October 29). Regulatory reform a must to improve business conditions. Retrieved from https://vietnamnews.vn/economy/537581/regulatory-reform-a-must-to-improve-business-conditions.html
98. Open Gov. (2020, February 22). Businesses in Vietnam do away with pirated software. Retrieved from https://opengovasia.com/businesses-in-vietnam-do-away-with-pirated-software/
99. TMF Group. (2019, February 15). Top challenges of doing business in Vietnam. Retrieved from https://www.tmf-group.com/en/news-insights/articles/2019/february/top-challenges-business-vietnam/
100. Ministry of Science and Technology. (2020, May 14). Viet Nam’s Intellectual Property Strategy until 2030: Driving force for development of intellectual property assets. Retrieved from https://www.most.gov.vn/en/news/753/viet-nam%E2%80%99s-intellectual-property-strategy-until-2030–driving-force-for-development-of-intellectual-property-assets.aspx
101. Vietnam Law & Legal Forum Magazine. (2018, May 3). IPR protection and enforcement in Vietnam is not as strong as it should be. Retrieved from https://vietnamlawmagazine.vn/ipr-protection-and-enforcement-in-vietnam-is-not-as-strong-as-it-should-be-6217.html
102. Fintechnews Vietnam. (2019, June 11). New Vietnam Fintech Startup Map Showcases Vietnam’s Growing Fintech Landscape. Retrieved from https://fintechnews.sg/31122/vietnam/fintech-vietnam-startup-map-2019/
103. Today. (2019, October 30). 4 in 10 Singaporean adults ‘underbanked’; SE Asia ripe for picking by digital financial firms: Report. Retrieved from https://www.todayonline.com/singapore/4-10-singaporean-adults-underbanked-south-east-asia-ripe-picking-digital-financial-firms
104. ASEAN Today. (2019, December 19). Vietnam’s fintech industry growth is a model for Southeast Asia. Retrieved from https://www.aseantoday.com/2019/12/vietnams-fintech-industry-growth-is-a-model-for-southeast-asia/
105. Viet Nam News. (2020, January 6). SBV sets cashless payments as top priority for 2020. Retrieved from https://vietnamnews.vn/economy/570713/sbv-sets-cashless-payments-as-top-priority-for-2020.html
106. Tech Collective. (2020, April 24). Vietnam’s booming e-commerce market and the emergence of a “rising tiger”. Retrieved from https://techcollectivesea.com/2020/04/24/vietnams-booming-ecommerce-market-emergence-of-a-rising-tiger/
107. Think with Google. (2019, October). e-Conomy SEA 2019: Swipe up and to the right: Southeast Asia’s $100 billion internet economy. Retrieved from https://www.thinkwithgoogle.com/intl/en-apac/tools-resources/research-studies/e-conomy-sea-2019-swipe-up-and-to-the-right-southeast-asias-100-billion-internet-economy/
108. Vietnam Insider. (2020, March 10). What e-commerce marketplaces in Vietnam look like in 2020?. Retrieved from https://vietnaminsider.vn/what-e-commerce-marketplaces-in-vietnam-look-like-in-2020/
109. Tech Wire Asia. (2020, June 17). Vietnam is ready to supercharge its e-commerce market. Retrieved from https://techwireasia.com/2020/06/vietnam-is-ready-to-supercharge-its-e-commerce-market/

Understanding the Successes and Potential of Impact Investing in Southeast Asia

Credits

INSEAD Analysts
Ms Arushi Mehta
Mr Ethan Zhang
Mr Sanya Goyal
Ms Paula van Brakel

Quest Ventures Analysts
Ms Elizabeth Tan
Ms Michelle Quek

Research
Mr James Tan, Singapore

Overview

This study is done as part of the INSEAD MBA Private Equity course and in cooperation with Quest Ventures, a VC fund that invests in technology startups that have scalability and replicability in the Digital Economy. It focuses on backing Southeast Asia and Emerging Asia’s startups in the post-seed to Series A stages in Southeast Asia and Emerging Asia. Main Purpose of the Project: Quest Ventures is launching a new sustainable impact fund, which actively invests in early stage, high growth and impact-driven startups in Emerging Asia (comprising Southeast, South and Central Asia). Through this project, we hope to assist Quest Ventures in raising further interest in its impact fund (targeted at $30mm) by providing a research-based study on the attractiveness of impact investing in Southeast Asia. We are looking for companies that have demonstrated track records of achieving dual sustained success of financial and social or environmental returns in the region.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

This impact research by INSEAD is an informative look at the nascent impact investment landscape in Southeast Asia. In collaboration with Quest Ventures sustainable impact team, the report evaluated investments in the region, their performance and most importantly, their impact.

This collaboration between the analysts of INSEAD, a top business school in Europe, and Quest Ventures, a top venture fund in Asia was, by all accounts, enjoyed by the analysts as they tapped into one another’s experience and perspective. We look forward to more joint collaborations.

---

Problem analysis

Given that impact investing in Southeast Asia is still a relatively nascent and niche space, there is limited data and publicly available information. Despite this we managed to conduct a research into the following:

• Which companies have successfully achieved strong financial returns, while remaining authentic to their impact intent?
• Which countries and sectors are these success cases concentrated in?
• What are key success factors of such firms?

Methodology and Approach

In our analysis, we have used a combination of approaches entailing both primary and secondary resources. We have conducted market, investing landscape and specific enterprise research to identify a few key success stories in the region. In order to do so, we primarily relied on well-known databases and other publicly available information. However, to substantially and meaningfully address the third issue of drivers of success for these enterprises, we reached out to 12 such companies and spoke to the founders of one.

Key Findings

Impact investing is becoming hot in the past years, and investors only recently started explicitly focussing on impact and financial returns. This is also why the number of impact businesses in Southeast Asia that received Series C+ funding or had a successful exit are still few. Most of the demonstrated successes so far are in Indonesia. Although sectors like Agri are big in Indonesia, it is remarkable that amongst the companies that received round C+ funding or did a successful exit, nearly all are in the tech space (fintech, health-tech or ed-tech).

The examples and particularly the deep dive into the CXA Group case study show how important the value proposition with a sound business model, the right partners and an excellent and driven team are. This does not sound surprising, since these are key success factors in any starting business. However, in similar businesses in other regions like the USA or India, where the space is more mature, companies and founders do not need to struggle as much to hit all criteria to the same extent as in Southeast Asia.

There is an emerging trend towards investing in education and healthcare as the middle class in the SEA countries expands and demands better basic services like education and healthcare. The ICT or tech component is underlying most of these ventures as access to internet and smartphone technology grows in the region.

---

Impacting Investing in Southeast Asia: An Introduction

The below is a summary of relevant insights of Southeast Asia’s impact investing landscape based on the extensive research done by the Global Impact Investing Network1.

Impact investing relatively new, growing market in SEA

SEA is a diverse region, consisting of 11 countries at different stages of economic development. Although the economic growth in SEA has been strong in recent years and shows great potential in the post-pandemic future, the imbalanced development among the countries faces a wide range of socio-economic challenges. Thus, such an imbalance creates a huge potential for impact investing in the years to come.

Despite its current relatively small size, the SEA’s impact investing ecosystem has developed significantly in the past decade. Since 2007, Private Impact Investors (PIIs) have injected more than USD 904 million through 225 direct deals, while Development Financial Institutions (DFIs) have deployed USD 11.3 billion with 289 deals. Just as the different economic stages, the entrepreneurial activities among the countries vary at a distinct maturity level so that the impact investing remains highly fragmented. Each country faces context-specific challenges.

The challenges can be further decomposed at the level of political freedom of the relevant country. Looser control, such as in Cambodia, leads to more PII investments. On the contrary, tighter control, such as in Malaysia, requires much more creative investment strategies and creates higher barriers for PII to enter and thereby invest. To bypass restrictions and have a stable operating environment, many social investors and enterprises choose Singapore as their home-base.

Large differences between countries – Indonesia ‘longest’ track-record

As the previous reasoning points out, the various stages in the countries brew divergent sectors to focus on. Indonesia has the highest GDP (PPP) in this region and a large and young population. The key sectors in Indonesia currently heavily skew to agriculture and financial services, with a promising future for workforce development, fisheries, education, and healthcare. DFI has traditionally been the major source for Indonesia. DFI activity has both the highest number of deals and the deployed amount in microfinance, commercial banks, and the energy sector.

Because of the long track record of impact investing and the more mature intermediate infrastructure, supply-side opportunities have emerged in Indonesia, which has the only impact-focused angel network in the SEA region. The network strives to fill the funding gap in the country and sets a good example for others to follow.

Early stage investments seem underfunded due to challenges

Like many other investment opportunities, impact investing in SEA faces problems as well. For instance, the seed funding investment does not seem to be widely available for social enterprises. The difficulty can be largely divided into 3 perspectives:

1) Supply-side: poor corporate governance, high cost of deal sourcing and due diligence, and the lack of sufficient local investors, all create a harsh environment to get funding

2) Demand-side: Many social entrepreneurs still see their effort as a charity and rely on grant capital, instead of focusing on organic financial sustainability. Furthermore, the new market does not provide enough network opportunities to connect entrepreneurs and investors. And, many early-stage enterprises cannot even pay for support services such as an incubator

3) Ecosystem: Fund managers currently lack local knowledge to make necessary judgements and, as a result, forbid themselves to invest continuously in the region. Additionally, most of the VCs investing in the region don’t have local offices making it even more difficult to understand the local culture and landscape. Lastly, most of the governments here are outside the rank of “top 100 on the Ease of Doing Business rankings”. These facts work together to disincentivize many investors.

The market is looking for more evidence of ‘double bottom line’ success

Quest Ventures believes that there is immense potential at the intersection of financial stability and social or environmental impact. However, it remains challenging to create more interest in this space from investors and push for more capital. Quest Ventures has asked for our support in a study that underlines the attractiveness of the impact space. The main goal of the study is to attract more investment interest and capital in early stage impact startups by showing successful investments are possible in terms of both financial returns as well as social or environmental impact returns (‘double bottom line’).

GIIN and Quest Ventures also signal that there is a lack of demonstrated success cases: “Although several exits have been disclosed since 2017, the industry needs more examples of success”.

---

Defining Success: The Double Bottom Line

Looking for the holy grail: good social AND financial returns

“Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.”

Website of the Global Impact Investing Network (GIIN)

It sounds like a dream. However, there is more and more evidence that impact and financial returns can be mutually reinforcing, for example shown by the importance of focus on ESGs for corporations. On top of that, the trend in the current world is increased attention for these aspects. But what is a measurable social and environmental impact and what is a good financial return?

Defining impact: broad definition using SDGs, just ‘jobs’ not enough

A complication is that the space of social and environmental impact is hard to define, because of the definition of what this impact is and what it is not. Many agree that measurement of this impact is one of the key factors, which can be very challenging. Greenstone, a provider of non-financial reporting solutions, recently conducted an extensive research on social and environmental impact reporting. They conclude that the application of qualitative techniques would be a safe starting point for many organizations2. In this early phase, organizations should not limit themselves to specific techniques and methods, but rather an individual customized approach should be applied to different projects, programs, investments and activities. It is then important to understand the differences and relationships between outputs, outcomes and impacts of activities for businesses: e.g. number of people trained is an output, number of jobs created an outcome, improvements in community well-being and impact (Figure 1).

Source: Private Equity & Venture Capital Benchmarks: Southeast Asia3

Another difficulty with the definition of impact is, as Claudia Zeisberger, Senior Affiliate Professor of Entrepreneurship and Family Enterprise and Academic Director, Global Private Equity Initiative at INSEAD, puts it, “As a private equity investor in an emerging market, by definition you have impact.” So how to differentiate between ‘regular’ and ‘impact’ investing in these regions? Elizabeth Tan, Venture Partner for Sustainable Impact at Quest Ventures, says that it is important to weigh the intentionality and expertise of any founding team. “We have a hands-on approach in helping our startups go to market and in this case, to scale impact. When considering the latter, we look at which segment their product or service targets and if positive impact is woven in the underlying fundamentals of the business model. The entire process is screened with this lens at every stage.” Quest Ventures measures impact on a case-by-case basis, relating it to the 17 SDGs of the United Nations, because many of the more sophisticated metrics that may exist are difficult to standardize and apply across early stage startups, which may need a more subjective and customized lens to assess impact. What is important is that the founders have a strong intention and drive to make a positive impact. We will use this broad definition of impact with a case-by-case assessment, not just on output but towards the impact, and the input (steering direction). The impact explicitly must go beyond the mass of companies, so just broad ‘job creation’ is not enough.

Defining financial success: growth and successive investments

Many impact investing funds have target returns close to average returns of non-impact funds in the same region. The logic: the positive impact and image will cost effort but will also reinforce financial returns. In the years 2011-15, median return of venture and private equity capital in Southeast Asia varied between 10-30% in the region (Figure 2). According to Bridgestone and their experience, most venture investors seek a 30% IRR on their successful investments4.

Title: Examples of social enterprises with successful series C funding or exit through
M&A | Source: Crunchbase16

However, there is often lack of data to enable measuring successes in terms of return, particularly for early stage investments and over the typical 5-10-year time span. Therefore, we will focus on successful growth of the investments. Growing and being able to attract successive investments is an indicator of the success of a company. If a company can get at least round C funding or exit successfully via M&A/ IPO within 10 years of the early-stage investment, the investment was likely successful for the investors, the business and the magnitude of their impact.

---

Recent Trends in Countries and Sectors

Microfinance receives most impact capital, growing interest in ICT & Agriculture

The SEA impact start-up landscape is varied as the definition of ‘impact’ itself is quite broad. However, there are some clear observable trends in the space. As mentioned previously, there are two major categories of investors – PIIs and DFIs. The former category includes a range of investors funnelling private capital into impact start-ups, while the latter are government backed financial institutions that provide capital to start-ups to promote development. The top two sectors of investment for both investor types in the region have been financial services and clean energy1.

The financial services sector has received the most impact capital, accounting for roughly 60% of all private capital deployed. Microfinance institutions account for over 80% of the capital deployed in financial services, while some capital has been allocated to insurance and commercial banking for SMEs1. Most of the start-ups in this space either operate in the micro-finance space or work with the rural and poorer regions in their country to provide access to basic financial services. For example, FinAccel is a fintech that provides access to retail credit and unsecured lending across South East Asia.

It is interesting to note the divergence in the sector preference between private and public investing after financial services and clean energy. The private sector prefers Information and Communications Technology (ICT) and Agriculture. For example, ImpactTerra based out of Myanmar is a venture that exists at the intersection of agriculture, ICT and financial services. It is a platform for farmers which offers real-time, personalised information about local crop prices, weather-based advice like flood or drought warnings, and pest risks. The platform also collects data on farmers, such as their location and details about crops, which helps financial service providers deliver financial products that meet their needs and correspond to their specific risks. This enables these farmers to get the capital they need to improve or expand their farms at accessible rates. Another example is EcoZen, an agritech startup based in Kerala, India but targeting the SEA market. It aims to improve farm-to-fork movement of perishable goods by providing solar-based cold rooms at the farm level (The Independent, 2018)

Alternatively, the public sector prefers to invest in manufacturing and infrastructure. This is understandable as both manufacturing and infrastructure are CAPEX-heavy sectors where investment periods might be considerably longer.

While social impact ventures are growing across SEA, we looked at shifting trends in two major countries in the region: Vietnam and Indonesia.

Vietnam taking off, recent trend towards health-tech and ed-tech

Traditionally, private money went into financial services and health care. There are multiple examples of health tech platforms like MediTank which provides a data management platform for medical practitioners to classify and store medical data and Vicare which is a listing and discovery platform for health care facilities, health care service providers as well as testing facilities in Vietnam14.

However, there has been a recent boom of education/ ed-tech platforms. Vietnam has 17 million K-12 students, making it a massive market for ed-tech. Investors are noticing the potential in the country’s e-learning market and a growth of 50% is expected annually. Some examples of ed-tech platforms to watch for are Edmicro, Everest Education, ELSA speak, and Tesse10.

Indonesia further developing, expanding agri-& fintech to also health-& edtech

In a country where agriculture contributes to almost 14% of its GDP growth, it is not surprising that impact ventures and funding have been focused on agriculture/ agri-tech. An example is Vasham, which assists smallholder farms with financing, technical expertise and income security, has created a vertically integrated agribusiness model that can be replicated by smallholder farmers3.

There is no dearth of fintechs in SEA and Indonesia is no exception. There is a boom of fintechs aiming to provide everything from basic banking services to the majority of the population to more complicated lending products to support employment. Along with FinAccel, mentioned earlier, Akulaku which is an e-commerce platform with a specific focus on card-less instalment shopping on products like car loans, bill payment, top-ups, travel and other leisure packages. Cashlez offers a mobile POS sales system, which allows SMEs and smaller vendors to accept card-based transactions (including Visa and Mastercard) on card readers which are connected to their smartphones12.

However, like Vietnam there is an increased preference for health-tech and ed-tech in Indonesia. As these economies develop and the population has access to more resources, the demand for better health care and education is increasing exponentially. It is therefore not surprising that back in October 2018, Indonesia’s Minister of Communication and Information Rudiantara mentioned that both health-tech and ed-tech verticals are set to become the country’s next unicorns11.

Some well-known names in the health-tech space are HaloDoc, AloDokter, PesanLab and Homecare24. In the ed-tech space, enterprises like Ruangguru, PT Zenius, and HarukaEdu have gained substantial recognition14.

However, even as the impact venture activities in the SEA grow, Singapore remains the hub for start-up and funding activity for the region. It is the market of choice for most ventures looking to expand and a lot of VC funding in the neighbouring countries is managed through Singapore.

To summarize, there is an emerging trend towards investing in education and healthcare as the middle class in the SEA countries expands and demands better basic services like education and healthcare. The ICT or tech component is underlying most of these ventures as access to internet and smartphone technology grows in the region.

---

Successes Stories in SEA

Number of success stories still limited, mainly because space still nascent

Although there has been growth in impact investing firms in Southeast Asia, the market is still largely very nascent and fragmented. The growth of this space in SE Asia is evinced by a rising demand from early-stage (typically Seed and Series A) impact enterprises across the region. In spite of this trend of growth, impact ventures in the region still remain grossly underinvested in and lack adequate visibility. Particular challenges that lead to these are:

• Lack of adequate demonstrated success in the region: While there are several cases of enterprises that successfully raise multiple rounds of funding, and even manage to raise Series B funds, there are very few demonstrated success stories of firms that have managed to either exit successfully or raise funds Series C and beyond. Part of the reason for this is simply that it is a young space and most of the start-ups have been around for less than a decade. Companies making it up to round C+ have been around for 7.3 years on average (based on our sample). In order to bolster investments in impact enterprises in the region, more data is required and perhaps it may be more relevant to look at evidence on returns and impact performance.
• High risk perception: Traditionally, impact initiatives and strong financial returns have not been considered to go hand-in-hand. This is because most social enterprise ventures rely on grants and this prevents them from focusing on independent financial sustainability. Further, because social entrepreneurship is so nascent in the region, there is a high-risk perception associated with it.
• Lack of incentive to invest: The sparse data on returns of social enterprises coupled with the fact that the cost of conducting due diligence on these early stage ventures requiring relatively small investments is very high, dissuades investments in the space.

Yet, in spite of these challenges, a few key sectors in the region have managed to successfully expand (i.e., raise Series C or more) and exit (M&A, etc.). We have identified three such sectors (Healthcare & Wellness, Fintech and Financial Services, Ed-tech & IT) in a sample study of the top three countries (Indonesia, Singapore, Vietnam) with an actively growing portfolio of for-profit social enterprises in SE Asia.

---

Companies making it up to round C+: 7 examples of success stories

PT Ruma (now Mapan) – fintech in Indonesia

Headquartered out of Jakarta, Indonesia and founded in 2009, PT Ruma is a leading seller of mobile minutes, community-based lending and savings networks in rural areas of Indonesia. At the moment, it has over 3 million members and about 115 branch offices in Java and Bali. Its objective is to enable low-income communities to access products that they couldn’t previously afford by building upon technology that leverages the bonds within these communities.

It is one of the few firms in Southeast Asia that has been able to successfully exit via acquisition by Gojek in December 2017. Prior to its acquisition, Mapan had successfully raised a Series B round of funding from a.o. Patamar Capital. According to Beau Seil, partner at Patamar Capital, the deal is their most successful one. “There is now a chance for Gojek to become the most impactful company in SEA, but the question is do they have that mindset.”

It had several key reasons for its successes, which eventually enabled it to become a strong acquisition target:

• Backed by strong investors like Omidyar Network and Patamar Capital
• Measurable and tangible track record of financial and social returns
• Unique product and niche positioning within region / country of operation
• Strong team; culture for innovation and commitment to mission
• Proof of synergies and past collaboration with acquirer – Gojek

Ruangguru – Ed-tech in Indonesia

Ruangguru is a leading education-technology start-up headquartered out of Jakarta, Indonesia. Founded in 2014, by Adams Belva Syah Devara and Iman Usman, the company offers online video subscriptions, a marketplace for private-tutoring, on-demand tutoring services, online mock exams and corporate learning. It has grown to serve more than 15 million students and actively manages more than 300K teachers. The firm raised $150mm in its Series C fundraising effort and has expanded into the Vietnamese market in 2019 through its platform called Kien Guru. The firm’s focus is to expand its products and services in the Southeast Asian region and it further plans on providing artificial intelligence-driven personalized teaching. This Uber-like model for online learning in Southeast Asia has immense potential and Ruangguru, if it continues on its projected trajectory, is well-poised for successful exits whether through acquisitions or an IPO.

Alodokter – health-tech in Indonesia

Alodokter is fully integrated healthcare ecosystem, where patients can connect with doctors, handle their medical records, schedule appointments, access content and maintain their lifestyle. Headquarter in Jakarta, Indonesia, the firm is looking to address the problem of access to quality and unbiased information pertaining to healthcare providers, medical services and doctors. Alodokter is in both English and Bahasa and is backed by Softbank Ventures Korea. It has up to 16mm users and has expanded its service to Thailand under the name Pobpad.com. Again, with an Uber-like model for the healthcare ecosystem, Alodokter’s biggest challenge was obtaining buy-in from consumers for a combination of artificial-intelligence driven chatbot and real-doctor interaction. It has raised a total of $45.1mm in funds so far with Series C being $33mm. Again, given its focused growth, strong leadership and impact-driven approach, it is another venture that may be well-suited for an exit in the near term.

FinAccel (Kredivo) – fintech in Indonesia

FinAccel is a financial technology company that is disrupting the financial services landscape by providing meaningful and relevant products in retail credit. It is currently focusing on disruption in the unsecured lending space for the underbanked in Southeast Asia through its credit app – Kredivo. FinAccel successfully raised $90mm in Series C funding for Kredivo only 3.5 years into its existence. Further, as of 201916, Kredivo had acquired over a million customers in Indonesia and was noted to be growing at a staggering 300% YoY. FinAccel has already evaluated more than 3 million applications and granted approximately 30 million loans. For further expansion and to promote financial inclusion, FinAccel is also working on low-interest education and healthcare loans. It is projected to expand its users to at least 10 million and gain strong footholds in other Southeast Asian markets like the Philippines, Thailand and Vietnam. With its fundraising success, broad product portfolio and proof of business model, it can be expected that FinAccel has the potential to be a rewarding investment as it may see future exit opportunities.

Akulaku – fintech in Indonesia, Malaysia, Philippines and Vietnam

Akulaku is a financial services provider for the urban working class in the South East Asian market. Although headquartered in Indonesia, Akulaku also operates in Malaysia, Philippines and Vietnam. It is a multinational e-commerce platform that offers online services such as card-less instalment shopping, cash loans, bill payments, etc. It has disbursed around $850mm in loans and has an employee strength of nearly 2,500. So far, it has raised about $220mm in funds, out of which $100mm was raised via Series D in early 2019. Backed by giants like Alibaba, Alukaku has already begun to invest in local banks (PT Bank Yudha Bhakti TbK) in Indonesia and help them digitize7. Through integrating its platform and technology with local banks, not only is Alukaku’s survival guaranteed in the face of increasing competition in the fintech landscape, but also its ability to thrive is practically made certain. It would be unsurprising to see the young enterprise IPO in the near future.

CXA Group – health- and insurtech in Singapore

CXA Group is on its way to become Asia’s leading Insurtech start-up. A one-stop shop, it enables employers to provide employees to proactively manage their health through a self-service platform with access to an increasing range of health, wellness and wealth offerings personalized to the individual’s own health data. By eliminating middlemen such as brokers, etc., CXA allows more efficient use of employer-provided insurance policies, wherein employees can directly draw down on the existing policies provided by their employers and the funds can be accessed via the platform’s e-wallet to make transactions efficient and effective. It serves more than 500 enterprises: servicing around 800K employees in Southeast Asia, Hong Kong and China. The company’s mission is to go global with capturing all of Asia and then expand to North America and Europe as well. It has already acquired two brokerages and raised about $58mm in financing. It is amidst raising a bridge round before raising Series C early next year. They are backed by powerful investors like Gojek’s early investor Openspace Ventures, HSBC, etc. The firm is well-positioned for a successful exit via either an IPO or trade sell in the future.

Pharmacity – health in Vietnam

Pharmacity is Vietnam’s largest pharmacy retail chain and is dedicated to improving the quality of healthcare for each customer. As of March 2020, it has more than 280 stores in the 6 major cities of Vietnam; and the company aims to achieve 1,000 stores across the country by the end of 20218. Pharmacity has witnessed a growth of 127% in sales in 2019 vis-à-vis 2018. For 2020, prior to the COVID-19 crisis, the company had set a revenue target of around $130mm. Backed by private equity firms like Mekong Capital, Pharmacity has succeeded in raising $31.8mm for Series C funds.

In the next chapter we will deep dive in one of the success cases – CXA group.

Successes so far mainly Tech in Indonesia – with clear market need

Although sectors like Agri are big in Indonesia, it is remarkable that amongst the companies that received round C+ funding or did a successful exit, nearly all are in the tech space (fintech, health-tech or ed-tech). According to Beau Seil, Partner at Patamar Capital, this may be due to the scalability. The problem with more traditional vertical integrated companies, like Big Tree Farms, is that they are much slower to grow. These businesses take much longer to scale, and the scale is not anywhere near the same as a tech-company like PT Ruma, reaching thousands of people rather than millions.

Crucial with all businesses seems addressing a true market, that can actually pay for the product or service, not just an idealistic viewpoint like the original underpinning of how many impact companies have started in the past. The philosophy is that by not just focusing on the very low-income population, the businesses are much more sustainable, and the eventual developmental impact is likely higher. These are great business ideas within the area of social impact.

---

MINI CASE: CXA Group

CXA Group is a transforming healthcare and health insurance in SEA

CXA Group is a unique venture that stands at the intersection of healthtech, insurtech, fintech and social impact. It attempts to lower the rising cost of healthcare in SEA by eliminating the traditional one-size-fits-all benefits structure of employer covered insurance. It is digitizing the benefits and wellness value chain and connecting all the players in the wellness ecosystem like health check- ups, screening, clinics, insurance reimbursement, maintenance of medical records, etc. on one platform and eliminating the need for insurance middlemen/ brokers that drive up health costs.

Founded in 2013, CXA Group has grown from just three Fortune 500 clients to having over 500 clients and 350,000 enterprise clients. It can be safely said that CXA is a start-up that has moved into the scale-up stage.

As CXA Group gets ready for its next round of funding, we had an opportunity to speak with founder and CEO, Rosaline Chow Koo who helped us understand the unique challenges a firm like hers faces in this region.

Key challenges around funding, sufficient talent and geographical expansion

Like any start-up, CXA Group faced several challenges in all spheres of the business, be it fundraising, recruiting top talent, expanding, regulation, repeated product iterations and even more recently the consequences of the COVID-19 crisis.

Funding: After investing a very sizable amount from her own savings to start CXA Group, Rosaline admits that fund raising was quite challenging especially for a novice like her. She laughed about how she spent time googling term sheets to understand what to expect. The fact that she had made a massive personal investment ~$10mm to start the firm made it impossible in her mind to let the venture go belly-up. During a very painful 9-month period in 2017-2018, CXA Group came very close to this scenario with funds that would last only 2 more weeks. Thankfully, HSBC stepped in as both clients and investors. While she is more comfortable with fundraising now than her first round, she refuses to pigeon-hole herself in any one specific category or sector, in order to maximize her access to available investors and funds.

“Knowing that product is all you have, and you know that it will work, then you keep going and see it through!”

– Rosaline Chow Koo, Founder & CEO

Talent Resources: Having lived and worked in Iowa, New York, and Los Angeles, Rosaline mentioned that it is generally easier to acquire and retain talent in the U.S. versus in Southeast Asia. Most students are awarded for compliance and risk averse behaviour, making start-ups an unfavourable employment opportunity. However, she did acknowledge that this is changing and the landscape for start-ups is becoming more positive.

Geographic Expansion: Rosaline has a laser sharp focus and wants to capture the Southeast Asia market completely before moving to the rest of Asia and then Europe and North America. However, with a limited team and constrained time she wonders how she will achieve this expansion without overextending herself. Additionally, HSBC now a major client and investor wants her to expand her platform in the UK, Mexico, India and France which puts further pressure on her limited resources. At the same time, she is already exploring opportunities in Thailand, the Philippines, Indonesia and India, while already having presence in Singapore, Hong Kong and China.

Regulation: Trying to simplify healthcare, insurance and banking may sound like a pipe dream but that is exactly what Rosaline is attempting to do with CXA Group. However, there is no denying the fact that all three industries come with heavy regulation that vary significantly based on the country of operation.

Competition and Internal Resistance: At the same time when CXA Group was struggling with funding in 2017, insurance companies had started to build out their own claim-apps. In addition, one of the brokerage firms acquired by CXA had a 68-year old founder, who was extremely resistant to any automation and change. As a result, receipts were being lost and data-entry was a manual process and did not reconcile. Individuals were not being reimbursed for their claims and CXA lost some clients.

Product: As CXA Group transitions from the start-up to a scale-up, the challenge has shifted from that of survival to solving the pertinent question of how to streamline and create a modular product across the different enterprise clients and geographies. The product is already at version 3.0 and CXA Group is now building the product to seamlessly integrate payments, connecting with clinics, testing and screening, disease management – in essence the whole insurtech ecosystem. They anticipate having a completed product by the end of 2020.

Exit opportunities: While she is not actively thinking about an exit yet, Rosaline does wonder where she and CXA will be in the next 10 years. She believes that CXA has the potential to be a unicorn but sees an IPO as a potential exit down the line.

Key success factors: value proposition, partners and team

In the face of insurmountable challenges, Rosaline leads CXA Group to its success. Driving this success are a number of factors that come together to harmonize and balance each other. In addition to its strong value proposition, CXA Group not only found the right partners, but also benefited from a natural competitive advantage of being a first mover. Lastly, and perhaps most importantly, Rosaline created a team and culture that worked together for the success of the business.

Strong value proposition: CXA Group has identified a gap in the market and significantly lowers the cost of insurance for its enterprise clients. By eliminating middlemen and brokers, and further directly connecting the entire ecosystem through a single point, i.e., the CXA product, the firm is able to cut down costs from the traditional 30-35% of fee to only $2. Further, through automation and leveraging technology, the company has successfully reduced the insurance reimbursement window from 90 days to just 7 days. Moreover, the CXA product enables enterprises to tailor healthcare insurance to the wallet and needs of each individual by making available an ever- widening bouquet of options and having each individual choose directly.

Competitive advantage: CXA Group has a clear first mover advantage in Southeast Asia. There is currently no direct competitor for the firm, and it is precisely this unique positioning that Rosaline seeks to leverage and capture value from. In addition, since Fintech, healthcare and insurtech are all very highly regulated industries, the barrier to entry is relatively high. As such, CXA Group has the luxury to be somewhat protected from the threat of imitators and other competitors.

Right partners: Although CXA Group struggled severely for a period of 9 months with respect to fundraising, it did form strategic partnerships and find a fit with their investors. One of their investors is Openspace Ventures, an early backer of Gojek and they have been of immense assistance with respect to technology and building out the micro services for the Group. Additionally, banks like HSBC, serve as both investors and clients and are willing to sign long contracts (~11 years for $25mm). Such strategic alliances enable CXA Group to not only have a strong foundation as an enterprise through providing the firm with access to resources that go beyond the pure funds, but also enable it to traverse the scale-up phase relatively smoothly. CXA Group is currently closing out a bridge financing before raising Series C early next year.

Team and people: Rosaline is a visionary and knows the importance of streamlining leadership at CXA Group. She has a diversified C-suite with a 50-50 gender balance. CXA’s CTO came from Lazada and had scaled up 8 different start-ups before. The Head of HR had worked with Rosaline at 3 different companies before. Similarly, 75 of the firm’s current employees had all worked with Rosaline at Mercer previously and chose to move with her. Over time, CXA Group evolved its hiring-firing to match the dynamic environment of the firm. For instance, individuals who had performed terrifically during the early start-up phase of the Group were either re-staffed or let go. The individualistic workstyle and inability to work with / report to others was non-conducive to the scale-up and growth phase at the firm, which required increasing collaboration.

“If you don’t have the right people, you’re dead. If you do, it’s magic.”

– Rosaline Chow Koo, Founder & CEO

Key Lessons from Growth Successes in SEA

Social and financial impact not seen as trade-off anymore

The underpinning of companies and investors in the impact space is moving from a purely ‘we want to change the world’ towards sustainable and financially attractive business models. Social impact investing is becoming hot in the past years, and investors only recently started explicitly looking for tremendous impact and financial returns. Both should be evaluated, both have their own risks, but impact and financial returns should not be treated as a trade-off. Successes of that are only just starting to show.

Successes so far mainly Tech in Indonesia – with a clear market need

The number of impact businesses in Southeast Asia that received round C+ funding or did a successful exit is still small, but likely many more will follow in the near future. The companies making it up to round C+ have been around for ~7 years on average, based on our sample.

Most of the demonstrated successes so far are in Indonesia. Although sectors like Agri are big in Indonesia, it is remarkable that amongst the companies that received round C+ funding or did a successful exit, nearly all are in the tech space (fintech, health-tech or ed-tech). Crucial with all businesses seems addressing a true market, that can actually pay for the product or service.

Scalability is at the core of sustainability and attractiveness to investors. The digital-based and relatively light capital expenditure enables tech ventures to scale up rapidly in SEA. Business models with such characteristics are easier to achieve financial soundness.

Key success factors sound business model, right partners and team

The examples, and particularly the deep dive in CXA group, show the importance of the value proposition itself with a sound business model, the right partners and an excellent and driven team. This does not sound surprising, since these are key success factors in any starting business.

However, this may not be the case for social enterprises in the US or India. In both countries, the impact market is relatively more mature, and founders do not need to struggle as much to hit all three of the above criteria at the same time. While further investigation into this early hypothesis is required, it seems to be the case that social enterprises in more mature markets have an easier time to raise funding and therefore may get away with less. On the other hand, this would mean that there is still much more potential for successes in Southeast Asia.

In broader research for this report, it is apparent that the elite background of the founders and leadership team allows them to access precious entrepreneur resources such as early funding, government connection, and media coverage. Objectively, the access creates better M&A and exit opportunities for the ventures, thus ensuring continuous funding over different development stages.

Market opportunities looking forward likely in health- and ed-tech

There is an emerging trend towards investing in education and healthcare as the middle class in the SEA countries expands and demands better basic services like education and healthcare. The ICT or tech component is underlying most of these ventures as access to internet and smartphone technology grows in the region.

---

Citations

1. The Landscape for Impact Investing in Southeast Asia, GIIN, August 2018
2. Whitepaper ‘Beyond Sustainability Reporting’ by Greenstone, June 2018
3. Market in Focus: Private Equity & Venture Capital in Southeast Asia, Preqin, September 2019
4. Risk, Return and VC IRR Benchmarks, article by Bridgestone VC, February 2019
5. Who are the top EdTech startups in 2019, Tech Collective, January 2019
6. Kredivo’s parent firm FinAccel raises $90M…, TechCrunch, December 2019
7. Fintech Akulaku buys stake into a bank, Fintechnews Singapore, March 2019
8. Vietnam’s Pharmacity raises $31.8 million in a Series C funding round, Vietnam Insider, February 2020
9. Why the next wave of Vietnamese startups won’t be clones, TechInAsia, April 2019
10. Vietnam’s emerging edtech startups, TechCollectiveSEA, December 2019
11. Indonesia’s healthtech sector anticipates its first unicorn, e27.co, August 2019
12. 10 of the Top Fintech Startups in Indonesia for 2019, FinTechNews Singapore, April 2019
13. StartUp News Asia, Quarterly Archives, Q2 2019
14. HealthTech Startups in Vietnam, Tracxn Explore
15. EdTech Startups in Indonesia, Tracxn Explore
16. Crunchbase, consulted in March and April 2020

An approach for emerging Asia

Credits

Analysts
Ms Khor Qianyi, Senior Analyst
Mr Zhou Yang, YLP Analyst

Research
Mr James Tan

Overview

Impact investing is an area that is quickly gaining traction all over the world, with more than 450 investors allocating US$1.3 trillion to impact investing worldwide1. Seeking the dual goals of profit as well as social impact, it is a market based approach to resolving critical problems faced by communities worldwide – from access to education to poverty alleviation. By leveraging the power of the market, impact investments achieve outcomes that would have been enormously costly if attempted by traditional methods of philanthropy. Take d.light design for example, a startup that only had a solar lantern prototype when the Acumen Fund first invested in them, which has to date brought lighting to over 100 million people2.

While there have been many frameworks already crafted to guide the process, it is tenuous to apply existing frameworks directly to early stage investing due to the diversity of portfolio as well as limitations on quantitative data available. Moreover, there are many iterations of different frameworks, so impact measurement and reporting remains fragmented across different organisations. This report seeks to survey existing methods available and piece relevant metrics to guide impact investing in the different phases of early stage venture capital.

---

Foreword

Mr James Tan
Managing Partner
Quest Ventures

With more than US$1.3 trillion allocated to impact investing worldwide, the world is seeing an influx of capital that is increasingly comfortable with measuring successes and returns not by financial metrics alone but by a combination of that and other factors. The dual goals of profit and social impact are now broadly termed the double bottom line. While the financial element – profit – has clear measurement guidelines such as the IFRS or GAAP, the social impact element does not. In fact, many impact measurement frameworks are available and the world has not settled on a definitive one to use. To the detriment of meaningful projects, this means that when they fund raise across the globe, their definition of social impact success has to be explained ad nauseum.

This report aims to change that.

We fundamentally believe that if the measurement of success is correct, then the inputs will be correctly deployed. Conversely, if the measurement of success is wrong, then the inputs will be wrong. When outcomes are measured in lives and the betterment of lives, then getting the measurements correct could not be more important.

We are therefore “open sourcing” our investment measurement framework with this publication and welcome inputs from all interested parties to refine this. We are excited that we now have a measurement framework tailored to emerging Asia based on our experience in this region. We look forward to its implementation and continued refinement in many investments from here on now.

---

Overview of the Impact Measurement Process

The three main reasons to measure impact are firstly to guide investment decisions, secondly to determine and monitor how impactful the investments actually are and lastly to report to stakeholders in the impact fund. Different methods are used to serve each of these purposes at different phases of impact measurement. In the report “Measuring the “impact” in impact investing”, Ivy So & Alina Staskevicius of Harvard Business School accurately divided the process into 4 phases. Starting with Estimating Impact, followed by Planning Impact and Monitoring Impact, then finally Evaluating Impact3.

 

Firstly, estimating impact involves performing a thorough due diligence on the startup that the fund is investing in. The due diligence process is similar to traditional investing, but with an additional responsibility of analysing the potential impact of the investment. For early stage investing, there will not be an abundance of quantitative data that can be provided in the due diligence process so other objective standards have to be referenced. One standard that we have found to be useful is the Nesta Standards of Evidence4, which will be analysed in further detail in a later part of the report. This is the phase of impact measurement that will guide investment decisions.

Secondly, planning impact involves devising specific metrics for data gathering. This will depend on the portfolio of the fund, and its investment thesis. Once again for early stage investing there will not be much data initially, so this process is rarely used to guide investment decisions. However for startups that the fund has made an investment in, this phase will be relevant in monitoring its progress towards its impact goals, as well as in reporting to key stakeholders. While there are many different metrics available, we have found the IRIS catalogue of metrics by Global Impact Investment Network (GIIN)5 particularly useful in determining the areas of impact to monitor at a portfolio level. The IRIS standards provide a wide range of metrics, of which the most relevant ones to individual funds can be picked to form its own metrics. For example, a fund that specifically targets impact in the bottom of the pyramid sector can choose relevant metrics as such.

Thirdly, monitoring impact will involve data collection based on the metrics that were determined in the previous phase. Data collection would involve enforcing periodic impact reporting based on a template as provided by the fund. This phase is important for the fund to keep track of the progress of its investments, to ensure that its portfolio is in line with its initial mission. This data would also be useful in impact reporting to key stakeholders in the fund, and to justify the investment decisions that were made.

Lastly, evaluating impact involves a deeper analysis of the data collected. The purpose of this phase is to evaluate whether there has been real impact from the investment, taking into account factors including whether the impact outcomes would have been achieved with or without the investment into the startup.

These four phases will be further discussed in section 5.

Importance of measuring impact

Impact measurement and management (IMM) is an integral part of impact investing. If an impact fund has no protocol to track the impact of investments made then it is akin to a traditional fund not tracking their profit/loss. IMM allows impact investors to keep track of the progress towards its impact objectives. Consistent management of impact tracking directly shows what kind of investments work and what does not. Over time it allows the fund manager greater ability to discern the investments with better impact value6, and this is particularly important for early stage investing, when fund managers have to make decisions even when quantitative data is scarce.

Another purpose of IMM is to allow clear reporting of the progress of the fund. Investors into impact funds usually have their own impact targets as well, and when clear reporting standards are observed, it builds trust with investors. If this is communicated effectively, through yearly reports or other forms of outreach, it demonstrates the competency of the Impact Fund, which would naturally come in handy during the next capital raise phase.

---

Survey of existing frameworks

IRIS by Global Impact Investing Network (GIIN)

The IRIS catalogue of metrics provides a wide range of metrics which can be used to quantify the level of impact achieved in environmental and social factors. It originated from the GIIN, and is largely built upon existing industry accepted metrics, compiled together for fund managers to access7. It aims to increase the consistency of impact reporting methods, and to bolster the credibility of the impact investing sector as a whole.

In general, such methods involving assigning metrics and scoring the investee based on it can be referred to as Mission alignment methods8. Such methods track how the execution of a project measures against its mission goals over a period of time. They are relevant in the planning impact and monitoring impact phase of the impact process.

The IRIS framework is the closest we have towards a widely accepted standard for impact investing. According to a study published by GIIN in 2020, 65% of impact investors surveyed use the IRIS metrics in the impact measurement process9. One reason for its widespread adoption is that the diversity of metrics catalogued allows it to be adapted and used by a wide variety of funds with different impact objectives. A curated set of metrics also allows the impact fund to view, at a portfolio level its progress towards impact goals. It also allows the early stage investor to compare the growth of its portfolio companies using standardised yardsticks. For instance, a fund makes an investment of USD 500,000 into two different companies, and receives their impact report after a period of 1 year. One company reports that it created 100 jobs, while the other reports that it played a role in supporting 300 jobs. Due to different understanding of the terminology, it is difficult to compare the results of the 2 companies. It is also imprecise to add the 2 values together to gauge overall portfolio performance. This is where the IRIS metrics come into relevance, with its catalogue of metrics with standardised accounting methods.

Logical Framework Approach (LFA)

The logical framework approach is a general project management framework that is widely adopted internationally. It covers all phases of the project cycle, from design to implementation and monitoring and finally to evaluation, which makes it useful for impact measurement and management.

 

The Logical framework is able to communicate the essential elements of a complex project clearly and in simple terms for anyone to pick up10. Usage of such a framework by early stage startups is extremely beneficial in the growth stage. While using the LFA gives companies an efficient tool to clarify their goals and track progress, the measurables and outcomes are often unique to each startup, and cannot be collated with the results from other portfolio companies to give a portfolio level measurement of impact.

Thus while the LFA is a viable tool to track impact at the company level, additional frameworks are required to support such data in order to provide a portfolio overview of impact performance.

Nesta Standards of Evidence

The Nesta Standards of Evidence is a rough framework developed to gauge the levels of confidence in the evidence of an impact initiative, on a scale from 1 to 5. It was modified from the standards used in Greater London Authority’s Project Oracle11 to better fit the demands of venture capital.

 

In general the Nesta framework supports the strengthening of evidence to allow investors to be more certain that the intended impact outcome of investment is achieved. As a company moves up along the levels, more extensive data collection as well as external validation is expected. When a company reaches level 5, there is sufficient evidence that the business model is able to deliver strong impact at multiple locations – this means that it has achieved impact scalability, a key signal that venture capitalists look for13.

The Nesta Standards is useful for early stage venture capital in two phases: the estimating impact phase, as well as planning impact phase. Before committing an investment into a company that claims significant impact value, the investor can assess the evidence based on the Nesta scale to ascertain the strength of its claims. For a company to which an investor has already committed capital, the Nesta standards can guide the next steps in scaling impact planning.

However, at higher levels on the Nesta scale, more complex testing requiring external specialist assessment would be required. This is costly, and in many early stage startups not financially viable. Investors should consider whether to fund such assessments based on their priorities and cheque sizes.

---

Phase 1: Estimating Impact

Phase 1 of the impact investing process is where thorough due diligence is done on the potential investee to assess profitability and impact. As for the profit dimension we are looking for companies that are able to provide strong potential of generating risk adjusted market rate returns. We do not consider at all companies that have no promise of that, firstly to be responsible to our investors and secondly we do not intend to support ineffective business models that could bring more harm than good to the markets we want to grow. As for the impact dimension, we have found the Logical Framework Approach and the Nesta Standards of evidence particularly relevant, and have designed a simple matrix that draws on both frameworks to aid in decision making.

 

Companies that fall under the Impact Stars group have achieved a relatively high score on the Nesta scale, at 3-4. Based on their logframe, they have also demonstrated a potential to deliver high levels of impact in their respective areas. These are the prime targets of many venture capitalists, as they boast both high potential impact as well as the evidence to achieve it. However, few early stage startups will have the bandwidth to provide such robust standards of evidence, and we expect deals coming in from group A to be relatively scarce.

Safe bets on the other hand, while able to provide robust evidence for its impact, does not have an impact plan that can reasonably scale. We will still consider investments in this group, as they do have some degree of impact but we will have to look deeper into how closely linked it is to the fund thesis. The ability to administer such standards of evidence is also reflective of the financial ability of the company, which is a positive indicator for the profit dimension of the investment.

We expect most deals to fall under the Potential Impact Stars group where the company has fulfilled at least a level 1 on the Nesta scale, but provides an ambitious and realistic business plan with enormous impact upside. As with all early stage investments, it is understandable that there is not much quantitative evidence of either impact or profitability, which is why we are open to companies which have only achieved level 1 or 2 on the Nesta Scale. An example of a company that falls under this group would be a company with pioneering business models that have the potential to deliver sector level change. Due to the unprecedented nature of their business model, they usually have difficulty gathering evidence of their impact at the early stage. The company could be the first movers in a market with inadequate regulatory frameworks, consumers that are suspicious of the intentions and value of their product and a lack of industry specific talent. As the company ventures down this path, its efforts to de-risk the business pave the way for many future companies to follow, and while its own impact may be limited, the eventual scale of their impact brought about by future companies can be monumental. A prominent firm that has achieved this would be Grameen Bank with their pioneering microfinance model. These kinds of businesses are identified by Omidyar Network as “Market Innovators”14, and due to its high-risk nature, is where a huge funding gap lies. However we do expect them to move up the Nesta scale at an appropriate timeframe with the aid of our investment.

Common deals consist of companies with no significant impact plan, as well as weak evidence to prove they can achieve what little they have planned. We generally do not pursue investments in this group, save in exceptional situations where we are confident that the company is able to generate significant levels of profit.

Phase 2: Planning Impact

In the planning impact phase, the fund needs to devise the metrics which will guide the data gathering process for the firms. In this phase, it is important to ensure that the reporting criteria is not unnecessarily tedious, which would exhaust significant time and manpower resources and could prove to be a distraction from running the business. The fund also has to work on the appropriate reporting period, which can differ from startup to startup depending on the stage that the startup is at. There are two main frameworks which come into play in this phase – the Logframe and the IRIS metrics. It is important to note the distinction in the purposes served by the two frameworks – while Logframe is more applicable to planning impact at a company level, the IRIS metrics are more suited to providing a portfolio level overview of the fund performance.

Portfolio Level Planning – Usage of the IRIS Metrics

As the IRIS catalogue provides a comprehensive list of industry appropriate metrics, it is very helpful in guiding fund managers to come up with their own fund specific set of metrics, modified to suit the investment thesis of the fund. As our fund seeks to address problems faced by the Base of Pyramid in Southeast Asia, we have curated a set of metrics that we have found to provide the most accurate picture of our progress towards our goals. Our selection of cross-sector metrics, or metrics which can be applicable to any industry, is listed below. A mixture of IRIS metrics and Quest designed metrics are included, with metric IDs starting with “Q” denoting a Quest designed metric. The sector specific metrics covering education, healthcare, housing, agriculture, environment and financial services can be found in Annex A. These sectors are selected as we consider them most relevant to our impact mission – solving the problems faced by the Base Of Pyramid population in Southeast Asia. It is our hope that they can serve as a guide for funds with similar goals.

 

Company Level Planning – Logical Framework Approach

We rely on the Logical Framework Approach to plan impact in a more nuanced manner, at the individual company level. The company is expected to plan out their own logframe (Figure 2), and cover their impact plan at different levels, from the overarching goal, to the immediate purpose, then to the outputs required for the purpose and subsequently the activities required to produce the outputs. This allows the fund to have a more complete picture of the impact objectives, as a list of metrics may not be able to fully capture the level of real impact that is being delivered by the portfolio companies.

Specifically, at the planning impact phase we are looking at the second column “Indicators of Achievement”.

 

Phase 3: Monitoring Impact

Monitoring impact is a tricky task – we need a clear and standardised reporting framework which ensures accountability to our investors as well as guide us in future investments. Yet at the same time, excessive reliance on a checklist metric system can result in an overly narrow perspective on the performance of the company. To overcome this dilemma, we adopt two tiers of monitoring, one at the company level, another at the Portfolio level. At the company level we use the Logical Framework Approach to arrive at a more in-depth monitoring of the challenges and successes of each company, while at the portfolio level we use the IRIS metrics to provide a standardised overview of the performance of our portfolio.

Portfolio Level Monitoring

The metrics that decide the focus of monitoring has been curated in the previous phase, planning impact, and this phase will involve the collection of data based on those metrics. Typically this is done by providing the portfolio companies with a reporting template based on the metrics. While the cross-sector metrics (Table 1) are applicable across industries, the rest of the metrics are industry specific. Companies are only required to fill in a report on the industries relevant to their company.

In general, very early stage startups can take years to have a significant impact, so the timeline for reporting has to be adjusted as appropriate to the company. This is particularly so for our potential impact stars, which endeavour to bring brand new business models to the market.

As the reporting metrics are standardised, the individual reports can be simply added up to form the Portfolio level report, which can then be analysed to provide an overview of impact performance.

Company Level Monitoring

At the company level, we continue to monitor the impact progress of the company towards the goals, outcomes, and its indicators of achievement as outlined in the Logframe. This provides us with a more precise outlook on the company, covering areas which are unable to be captured by a general checklist. At this phase, it is also important to carefully analyse the sources and means of verification as outlined in the third column of the logframe.

 

Phase 4: Evaluating Impact

In this final phase of the impact investing process, we attempt to evaluate whether our investment has made a real change – whether the impact would have been achieved without our investment. Such evaluations involve experimental or quasi-experimental methods, which provide stronger justification of evidence of impact, and at the same time moves the company up on the Nesta Scale.

Experimental methods involve the use of Randomised Control Trials (RCTs), whereby a randomised control group, insulated from the effects of our investment is used as a counterfactual to assess the real impact of our investment. Other methods which utilise different counterfactuals are considered quasi-experimental, and are generally used when isolating the conditions for a randomised control group is not feasible, too costly or unethical, such as when random groups of people are denied access to healthcare15.

Both experimental and quasi-experimental methods are costly and manpower intensive – with experimental methods being the costlier of the two. It can seem hard to justify the relevance of this final phase in the impact investing process, especially for early stage startups which forms the focus of our thesis, but we maintain the stance that this phase is necessary, and will be beneficial to the fund in the long run.

Such methods build up our evidence of impact, bringing us higher up on the Nesta Scale, which is the evidence framework that we use to guide our companies’ impact assessment. Due to the high rigor of the experimental and quasi-experimental methods, it allows both ourselves, as well as our investors a greater level of confidence in the good work that we are doing. This would also serve us well in securing future funding to expand our impact.

That being said, investing in early stage startups can sometimes require up to years to see a degree of impact that justifies such a costly evaluation by external assessors. There is no need to rush to this phase, and the company should be allowed space to grow before we arrive here.

Conclusion

This framework has been crafted based on extensive research on existing Impact Measurement and Management (IMM) frameworks, as well as drawing on 9 years of experience in growing along with the startups we invest in. We are grateful for the resources provided by the Harvard Business School, the Global Impact Investing Network, the Omidyar Network as well the Acumen Fund from which we gleaned valuable insights that shaped the development of this framework. This framework is by no means a definitive rulebook for early stage impact investing, but we do hope that it demystifies the whole process, and lowered the barrier to entry for future early stage impact investors.

---

Citations

1. PRI, Impact investing market map. Retrieved May 13, 2019, from https://www.unpri.org/thematic-and-impact-investing/impact-investing-market-map/3537.article
2. D.light, About Us. Retrieved February 14, 2020, from https://www.dlight.com/about/
3. Ivy So & Alina Staskevicius, Measuring the “impact” in impact investing, Harvard Business School, 2015.
4. Nesta, Standards of Evidence for Impact Investing, 2012
5. IRIS+ System | Standards, Retrieved from https://iris.thegiin.org/metrics/
6. GIIN, A guide for impact investment fund managers. Retrieved from https://thegiin.org/integrating-impact-measurement-and-management
7. IRIS, Getting started with IRIS, 2013.
8. I. Soh, A. Staskevicius, Measuring the “Impact” in Impact Investing, Harvard Business School, 2015.
9. Rachel Bass et al., State of Impact Measurement and Management, GIIN, 2020.
10. World Bank, The Logframe Handbook, 2013
11. Investment & Performance Board, Project Oracle, 2013. Retrieved from https://www.london.gov.uk/moderngov/documents/s24085/11%20Project%20Oracle%20-%20Cover%20Report.pdf
12. R. Puttick, J. Ludlow, Standards of Evidence: An approach that balances the need for evidence with innovation, Nesta, 2013
13. R. Puttick, J. Ludlow, Standards of Evidence for Impact Investing, Nesta, 2012
14. M. Bannick & P. Goldman, Priming the Pump: The Case for a Sector Based Approach to Impact Investing, Omidyar Network, 2012.
15. Ivy So & Alina Staskevicius, Measuring the “impact” in impact investing, Harvard Business School, 2015.

---

Annexes

1. Sector Specific Metrics (Education)

2. Sector Specific Metrics (Healthcare)

3. Sector Specific Metrics (Housing)

4. Sector Specific Metrics (Agriculture)

5. Sector Specific Metrics (Environment)

6. Sector Specific Metrics (Financial Services)

7. Sector Specific Metrics (Energy)