The Effects of a Coup D’état on Startup Funding

Earlier this month, the military in Myanmar staged a coup against the National League for Democracy (NLD) party. You can read more background on the situation here. The short of it is this: after over 60 years of alternating between military and civilian leadership and decades of sanctions used to incentivize the country to enact pro-democracy reformations, Myanmar finally began this process in 2011, leading to its first official democratic election in 2015. During the second election held in 2020, party leader Aung San Suu Kyi ran on a campaign to further restrict the military’s role in the government, leading to current events.

There are many takeaways from this situation, but today’s newsletter will focus on how it will affect the country’s startups, funding, and the broader region. Since opening the country, digital technologies and tourism have eased business conditions and allowed for better foreign relations and direct investment. According to information by the World Bank, initiatives in the country resulted in over 7% YoY rapid economic growth during the years that followed 2011. In 2017, poverty levels were 25%, almost half the 48% level of 2005. As I’ve written about many times before, these trends are needed to grow a consumer market, increase education levels, and create an ecosystem ripe for entrepreneurship.

The infrastructure and education system has lagged behind the growing economy, leaving the country in a nascent stage compared to other Southeast Asian economies like Thailand, Singapore, Vietnam, and Indonesia. Even though Myanmar is a “frontier” market, recent year trends (before Covid-19) for Myanmar startups were vibrant and promising. Like much of the broader economy, international donors, development programs, and venture capital have supported Myanmar’s startup scene and paved the way for large funding rounds from global investors, various startup acquisitions, and even Myanmar-focused venture funds.

The unfortunate reality is that the recent military takeover will have extended impacts on an already crippled economy from Covid-19. The country’s internet was unavailable and intentionally shut off several times, blocking services from digital startups who rely on that revenue stream. More importantly, investors are pulling out due to the current risks associated with the government takeover. Furthermore, sanctions on the country will hinder foreign investments, and the lack of government stability likely means a lack of policies to improve innovation and technological progress. The military intends to stay in power for at least a year (probably longer). Suppose foreign investors cut off financing, government initiatives stall completely, and there is a lack of consistency in digital services access for the entire duration of military control. Many of the companies started in recent years will be forced to shut down, new companies will not have the resources necessary to launch, and worst case, the middle class declines to where there isn’t a customer base for digital services. Myanmar will be back at square one, having to restart their startup ecosystem from scratch. Just this weekend, the military leadership proposed a cybersecurity bill that would lead to broad censorship in the country.

This event doesn’t exist in a vacuum, and it is likely to have multiple regional impacts. Southeast Asia has already witnessed democratic regression in the Philippines, Cambodia, Indonesia, and Thailand. The coup could also push Myanmar closer to China; whose growing influence has in the region has concerned the West. Even though China built ties with the NLD in recent years, they also had influence and working relations with Myanmar’s military leadership in the past. It’s known that neither party particularly enjoyed working with the other, but to maintain stability in the region, China may have incentives to cooperate with them. And if other countries cut off ties, then Myanmar wouldn’t have anywhere else to turn.

It’s important to note that these events are still unfolding, and new information comes out daily. What started as a “peaceful” movement has led to violence in recent days, and it’s difficult to predict all of the outcomes. Regardless, I think it still stands that a return to democracy is the country’s best bet for continued economic progress, technological innovation, and a thriving startup and venture investment ecosystem.

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