Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from around the world. If you enjoy and gain value from my work, feel free to share and subscribe!

A singular path

Compared to its neighbors, Thailand has a relatively unique history. The country was known as the Kingdom of Siam until it changed its name to Thailand in 1939 under Luang Phibunsongkhram’s rule. Phibunsongkhram set his sight on “modernizing” the country, which included adopting European-style customs and institutions. His rule can be compared to Atatürk’s rule in Turkey; while Atatürk banned the Fez (a traditional hat) and romanized the Turkish alphabet, Phibunsongkhram adopted the Gregorian calendar and incited Thais to wear “western” clothing.

Thailand, due to its strategic positioning between the British colonies in Burma and the French colonies in Indochina, means the country was never colonized, although French colonial forces did gobble up some Thai territory on the western front. Thailand’s “buffer state” status explains why its national identity is strong, compared to other nations that were almost entirely invented by Western powers during the infamous 1884 Berlin conference.

Since then, Thailand has oscillated between periods of military dictatorship, kingdom-ship and democracy, with one those three pillars dominating the country depending on the period. In recent years, youth-led protests have demanded the resignation of Prime Minister Prayut Chan-o-cha’s government and the reform of the Thai monarchy, to no avail.

Today, Thailand is home to 70 million people and is the second largest economy in South East Asia, with a rather mature consumer market marked by high mobile ( 137%) and internet (78%) penetration. Its startup ecosystem is considered to be the little brother to the region’s big three, namely Singapore, Indonesia and Vietnam.

Corporate dominance

One of the Thai startup ecosystem’s particularity is the preponderance of conglomerate activity. Indeed, it is estimated 80% of all start-up funding in Thailand comes from the country’s large corporate groups, with most of them having their own VC arm. While banks and telcos are obviously at the forefront, the trend is widespread across various industries. Thai Union Group, a seafood giant, invests in foodtech startups while the Siam Cement Group invests in B2B startups via its AddVentures CVC (Corporate Venture Capital).

And it’s not only investing. Big Thai corporates have decided to not get disrupted, sometimes even “becoming” startups themselves. Last year, Siam Commercial Bank (SCB) carried out a share-swap agreement whereby its public entity (the one listed on the stock market) wouldn’t be a bank but rather a tech company with banking as one of its components. The stated goal is to fortify the other sectors SCB is innovating in, which includes a number of “in-house” fintech startups as well as its highly active CVC, SBCx.

This distinctive ecosystem layout has its pros and cons, which are eloquently laid out in what Paul Ark dubs Thailand’s “Seattle Problem”. On top of the scarcity of early-stage funding, the dominance of conglomerates also disincentivizes young Thai talents to take risks:

“Large, sexy tech operations like Kbank’s Kasikorn Business-Technology Group (KBTG)  or SCB’s Digital Ventures are very attractive career options for young, Thai, risk-averse tech workers who want to work on cutting edge technology projects but with the security that a large cap, blue chip corporate can provide, in much the same way that Amazon and Microsoft are sexy-but-safe options for their Seattle counterparts.” - Paul Ark, Partner @Gobi Partners

Successes

Thailand had a couple early successes in the 2010’s through Ensogo and Priceza. Recently however, Thailand has birthed three interesting unicorns in the shape of:

• Flash Group, a logistics and transportation company that operates a door-to-door pickup and delivery service.

• Ascend Money, which offers a suite of fintech, ecommerce and data centers services.

• BitKub, Thailand’s leading crypto exchange.

The case of BitKub in particular is significant, as it achieved unicorn status through SCB (mentioned earlier) acquiring a controlling 51% stake in the company for $537 million. This acquisition means the cashing out of early-employee stock options, which will hopefully lead to the creation of a new “mafia”.

“Once Bitkub CEO Jirayut “Topp” Srupsrisopa and his fellow co-founders and early employees are able to monetize some of their equity, we might see several of them become super-angels, launch VC funds, or start new ventures, forming a “Bitkub Mafia” much in the same way that Paypal founders and executives such as Elon Musk, Peter Thiel, Reid Hoffman, Max Levchin, Keith Rabois, Dave McClure, Joe Lonsdale and others constituted the Paypal Mafia,” - Paul Ark, Partner @Gobi Partners

The ecosystem is already starting to produce more and more “soonicorns” so to speak, with fashion startup Pomelo and logistics platform aCommerce leading the pack.

The role of the Thai government

Compared to other emerging markets, Thailand has always had a relatively pro-business government, ranking as high as 21st in the now-defunct World Bank Ease of Doing Business Report.

Comparatively lagging behind some of the region’s other startup ecosystems, the Thai government has sought to consolidate the importance of digital innovation through the creation of the National Innovation Agency as well as the Digital Economy Promotion Agency. Alongside private sector actors, the Thai government has developed PromptPay, which enables citizens to send and receive money using their Citizen ID and phone number, heralding Thailand’s move to a cashless society. Initiatives such as PromptPay are a component of the so-called “Thailand 4.0” strategy, which aims to transition the country’s economy from a heavy industry focus to an innovative and value-based one.

An interesting move recently has been the launch of the so-called “LiVE Exchange”, which aims to enable local startups to list on the Thai stock market while alleviating the regulatory complexity of a traditional IPO. The goal is to boost both liquidity for early-stage investors (who can exit faster) while freeing up more capital for Thai startups that need to scale up. Similar policies have also been undertaken in Morocco, with the stated ambition to strengthen links between the general population and their local startups.

Advantages of the Thai ecosystem

Thailand has always been attractive to foreigners, first as a popular tourist spot and now as a place where many “digital nomads” take advantage of the high connectivity and low price of living. This attractiveness is crucial to the Thai ecosystem, as the ecosystem’s youth makes for a scarcity of experienced, startup talent. Potential collaborations between young Thai talent and foreign startup veterans could give a real boost to the ecosystem as a whole. This would also help fill the gap of Thailand’s lackluster diaspora engagement, which pales in comparison to Indonesia who even gave returning diasporas a name (sea turtles).

The Thai consumer market’s high internet and mobile penetration also makes it ready to receive digital innovation. Bolstered by the pandemic and the subsequent consensus that the future was inevitably digital, digital adoption trends are only expected to grow even further.

Lastly, while the dominance of the ecosystem by big corporates might be excessive, it has undeniably been a force forward. Indeed, the involvement of corporates in the startup ecosystem revitalizes local industries, culturally normalizes startups, and provides ready exit opportunities.

Areas of improvement

While Thailand has a developed business legislation environment, it has the blessing and the curse of being located next to Singapore, one of the world’s most dynamic and performant startup ecosystems. For that reason, many of the best Thai founders decide to set base in Singapore instead of Bangkok. While improving, the legislative environment for Thai founders still isn’t ideal, with changes needed in stock option laws for example.

Thai startups suffer from a talent crunch caused by two underlying factors: the dichotomy between what universities teach and what startups need, as well as the omnipotent presence of corporates who attract a majority of the best Thai talent. Furthermore, the Thai education has traditionally pumped out more humanities than STEM majors (the opposite of Vietnam), a disadvantage considering the immense bottleneck for coding talent around the world.

Due to the youth of the ecosystem, idea-stage capital usually disbursed by previous, exited founders is lacking. With most of the funding coming from corporates, it is also hard for founders with truly disruptive ideas to get the money they need to grow.

“The lack of exit opportunities shapes founders’ entrepreneurial mindsets. Ideally, founders should seek to innovate in order to alleviate market pain points. Why bother if their businesses are destined to become part of a corporate bureaucracy? Entrepreneurs may be dissuaded from market innovation in favor of products and services that merely attract larger corporations. In the end, it’s the entire ecosystem that suffers” - Pongnut Thanaboonchai, Thailand Fintech Association

Early-stage angel investment is also severely lacking. This poses two major problems: young, talented Thais are discouraged to start their companies, and some angels offer predatory terms to inexperienced founders, profiting off their monopoly (although not all are like that).

Lastly, although this isn’t really in anyone’s control, the shaky domestic political situation always complicates foreign VC investment, a major growth component that has recently transformed Pakistan’s ecosystem for example. The correlation between political instability and investment attractiveness is clearly exemplified in the recent capital and talent flight from Hong Kong following China’s crackdown.

Conclusion

Benefitting from a unique setup, with corporates a the forefront, Thailand faces pretty different challenges than other emerging markets. The ecosystem flywheel, whereby former founders re-inject knowledge and capital into new founders, should start to accelerate in the upcoming years following success stories such as BitKub.

Learning from and collaborating with Singapore’s startup ecosystem could turn out to be very beneficial to the Thai startup scene, similar to the way in which Mexico is increasingly connected to the US’s venture capital scene. Thailand’s aging population, which is estimated to increase social spending from 1.4% of GDP in 2017 to 5.6% of GDP in 2060, demands for a revamp of the Thai economy. Startups can prove to be an essential piece of the puzzle in that transformation.

Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from around the world. If you enjoy and gain value from my work, feel free to share and subscribe!