Southeast Asian Startups: Bridging the Gap to the U.S. Market
Yoeven Khemlani’s entrepreneurial journey began with a realization shared by many in the tech space: the ongoing battle against code maintenance and the need for automated solutions. As a Singaporean engineer, he noticed that his friends were frustrated with time spent on web scraping and adapting their products for various markets. This concern inspired him to launch JigsawStack in July 2024, aiming to create compact models that could streamline these labor-intensive tasks. Interestingly, Khemlani discovered that the majority of his initial users were not from Singapore, but from the United States.
The Rise of JigsawStack
"Seeing a huge uptake of users from the U.S. was an eye-opener for us," Khemlani noted. His venture raised $1.5 million in pre-seed funding through Antler’s Southeast Asia fund in October and February, highlighting the potential of Southeast Asian startups targeting U.S. markets. This trend is not just a stroke of luck; it signals a strategic shift in how Southeast Asian startups operate.
Embracing the U.S. Market
Historically, Southeast Asian founders focused on local or regional markets to solve specific challenges. Jussi Salovaara, a co-founder of Antler, pointed out that successful companies like Grab and GoJek were primarily created to meet local demands. Yet, he observes a growing trend where entrepreneurs are eyeing the U.S. market. "Their attention is a blend of opportunity and necessity," Salovaara stated, emphasizing that an increasing number of startups are designed with the U.S. as a primary market.
The Economic Landscape of Southeast Asia
Southeast Asia, comprising 11 countries, has demonstrated impressive economic growth recently. Since 2015, the region’s GDP skyrocketed by over 62% to reach $4.12 trillion, largely driven by a burgeoning middle class. During the same period, the number of venture capital deals in the region more than tripled, signaling heightened interest in tech startups.
Despite this regional growth, many entrepreneurs are prioritizing the U.S. market. They find the American landscape more concentrated and less price-sensitive, which often results in higher margins. "In an AI-first world, the U.S. is leading in groundbreaking advancements," said Shailendra Singh, a managing director at Peak XV, reinforcing that U.S. businesses are keen to partner with startups offering high-quality, cost-effective solutions.
Challenges of Operating in Southeast Asia
Operating solely within Southeast Asia presents considerable challenges. The region features a remarkable diversity in languages, business practices, and household incomes. Khemlani remarked, "You’re spending five times more because you’re entering five different markets," indicating the complexities of multi-market strategies. In contrast, the U.S. provides a more consolidated customer base, fostering the growth of startups focused solely on American consumers.
Furthermore, having U.S. customers greatly benefits fundraising. According to Nataliya Wright, an entrepreneurship professor at Columbia Business School, startups often face "foreign discounting," where VCs undervalue foreign startups. By showcasing U.S. clients, founders can counteract this bias, improving their chances in future funding rounds.
The Underdog Mentality
Notably, Southeast Asian founders bring a unique underdog mindset to the table. Singh noted that entrepreneurs from this region typically strive to work harder and learn faster, motivated by the perception that U.S. competitors are more polished and better funded. This desire to excel in a competitive market spurs innovation and drives these startups toward success.
A Hotbed for AI Innovation
Take Realfast, a Peak XV-backed startup that develops AI agents for IT systems. Co-founder Sidu Ponnappa attests that the U.S. is unmatched in its business dynamics. "Everything from deal velocity to deal size operates at a completely different level in the U.S.,” he said, further highlighting the immense opportunities present.
Another example is Patsnap, a software company focusing on R&D projects. Guan Dian, who leads its Asia Pacific operations, said that American markets have consistently been a priority for the company’s founders, and over half of its 5,000 customers are based in the U.S.
Cost Sensitivity in Southeast Asia
Cost consciousness is another reason many startups are eyeing U.S. markets. Khemlani stated, "Southeast Asia is a little bit more price-sensitive," where customers often negotiate intensely. The more affordable labor in the region can lead customers to initially shy away from high-tech solutions. Yet, as complexities and costs of AI models increase, there is a noticeable shift in preferences toward more advanced offerings.
Balancing Local and Global Operations
Interestingly, while founders from Southeast Asia are venturing into the U.S. market, many prefer staying rooted in their home countries due to benefits like tax incentives and a supportive business environment. Sagar Khatri, CEO and co-founder of Multiplier, noted that Singapore’s favorable geopolitical relations and business-friendly tax policies make it an attractive location. Despite deliberating on moving their headquarters to the U.S., the benefits of operating from Singapore continue to win out.
Some startups are even splitting operations, with co-founders divided between the U.S. and Southeast Asia. Khemlani emphasized the importance of being physically present in the U.S. for networking and market penetration, stating, "You can’t sell to the U.S. when you’re not there."
The landscape of Southeast Asian startups is shifting dynamically, transforming challenges into opportunities by embracing the U.S. market as a viable source for growth and innovation.
