Thailand's venture capital (VC) landscape is dominated by corporate venture capital (CVC) firms that chiefly aim to invest in later-stage startups, leading to an investment gap for early-stage startups, according a new report by global business advisory Deloitte.
"The struggles Thai startups face are part of a chicken-and-egg conundrum," said Metinee Jongsaliswang, country consulting leader at Deloitte Thailand.
"Startups need capital to grow and become unicorns, but many venture capital firms see this ecosystem as too nascent. They are uncomfortable providing capital without proven ecosystem success stories."
The country's startup ecosystem was ranked 53rd in the world and 11th in Asia-Pacific, according to Global Startup Ecosystem Index 2022, commissioned by startup research centre StartupBlink.
Citing Deloitte's "Future of the Thai startup and venture capital ecosystem" report, Ms Metinee said Thailand's startup ecosystem remains relatively young, with only 35 startups that have successfully exited to date.
The majority of local startups are still in the early stage, working on their product development and looking for opportunities to bring in their first group of customers, she said.
Many local startups were established as spin-offs from large corporates, said Ms Metinee.
According to the report, fintech was the top startup category in Thailand in 2022 in terms of numbers, followed by e-commerce and business solutions. The fintech sector accounts for 60% of total capital funding since 2020.
The most active firms in the Thai market are CVC firms, which have nearly twice as many deals as institutional VC firms, according to the report, which cited Crunchbase.
CVCs normally focus on making strategic investments in later-stage startups, particularly startups whose businesses align with the CVC parents' corporate strategy, the report said.
CVC firms as well as institutional VC firms are more likely to direct their investments towards middle- or later-stage startups such as Series A and above than towards seed-stage startups.
"This has resulted in a funding gap for many startups looking to raise capital in the seed stage," the report said.
The report mentioned three key obstacles that hinder the Thai startup ecosystem.
The first concerns a lack of access to early-stage VC financing. According to the report, the number of seed-stage funding rounds has decreased since 2019 from a high of 33 to less than half of that in 2020, based on information from Innovation Club Thailand.
This decline is in part because of the disappearance of non-specialised, early-stage accelerators and the market dominance of CVCs, who tend to focus on later-stage funding rounds, said the report.
The second obstacle is limited government support.
The report said existing government schemes lack adequate funding and have operational challenges.
The hindrances for many government grant programmes include requiring paper-based applications and receipt-based reimbursements, with slow or delayed disbursement processes -- putting an undue strain on applicants' operating cash flow as startups are typically cash-strapped, said the report.
The final obstacle involves a lack of mentoring opportunities for new founders.
"With few homegrown entrepreneurs, there is a lack of successful mentors that can guide younger startup founders through industry challenges," according to the report.
The government can help address these obstacles by launching a well-funded equity matching fund by working with the private sector, said Deloitte.
The government could also increase grant amounts and streamline existing government grants, making sure the amount is adequate to match startups' burn rate for more than a year, according to the report.
A new government agency is needed with the power to oversee startups and VC programmes in the market, centralising innovation efforts and enabling cohesiveness of a national innovation vision while providing structure for cross-ministry innovation schemes, concluded the report.
