Deal Street Asia: Startup Fundraising In SEA Dipped To Two-Year Low In Q1 This Year
Source: Deal Street Asia
Edited by: Deepshikha Monga
27 April 2023
Fundraising by Southeast Asia's privately-held companies dropped to the lowest level in the two years as the funding winter showed no signs of thawing, finds the latest report from DealStreetAsia DATA VANTAGE.
Homegrown firms raised $2.08 billion in Q1, down 25% from the previous quarter and 52% from the same period in 2022. The quarterly haul is comparable to the second quarter of 2020, when the pandemic-induced social and travel restrictions began to impede dealmaking in parts of the region, according to SE Asia Deal Review: Q1 2023.
Startups in the region clocked 195 equity funding deals in the first quarter, marking a sequential increase but a 37% drop on a year-on-year basis.
Singapore continue to account for the majority of deals in the region, with a total of 103 transactions in Q1. However, the total proceeds raised by startups in the city-state dropped by 49% from the previous quarter and 63% from Q1 last year.
Charles Wong, the co-founder and managing partner of Southeast Asia-focused venture capital firm TNB Aura, sees the drop in deal value as a reflection of higher standards in the region's startup ecosystem.
"Gone are the years of unsustainable 'value-transer' from one stakeholder to the next... via extreme discounts and promotions. If companies are not generating a step-change in terms of value for their ecosystems, they do not deserve to extract any of said value from it." he said.
Indonesia losing its sheen
The decline in funding levels was particularly concerning in Indonesia. The largest consumer market in the region saw its quarterly deal value down by 41% relative to the previous quarter and 55% on a year-on-year basis.
In contrast, Thailand saw a significant increase in funding, with starups raising more than half a billion dollars. This marks the first time Thailand has outranked Indonesia in funding proceeds.
"It's possible to argue that Indonesia was the most overfunded market in Southeast Asia at the peak of 2020/2021. A great deal of this investment was driven by crossover funds, who were pulled in by Indonesia's highly attractive macro demographic story," said Jessica Huang Pouleur, a general partner at Openspace Ventures.
But the "tourists" have left, Pouleur said, while companies with overhauled funding rounds have yet to grow into their valuations.
"Since last year, we have seen some market correction in terms of valuations, and where that correction lands still remains to be seen," noted Alpha JWC Ventures co-founder and general partner Jefrey Joe.
Joe added that the changing investment landscape is a welcome development as it will instil sustainability among startups.
Fund managers who were interviewed for the report generally agree that the "winter sentiment" in Southeast Asia's venture capital industry may well continue until 2024 as the market will need to go through reset to align with economic fundamentals.
"White it is great for investors who are willing to deploy and demonstrate conviction, many will wait for the market to heat up and miss out on many opportunities. Off-cycle investing is an art form as it requires funds to adopt a non-concensus approach and not wait for the typical signals of what makes for a 'hot' deal," said Eddy Chan, the founding partner of Indonesia-only venture capital firm Intudo Ventures.
Separately, AC Ventures managing partner Helen Wong argued that Indonesia and the region will see a positive turnaround once publicly listed tech giants have achieved their profitability targets.
"In Southeast Asia, Gojek and Grab's stocks fell to new lows, which is unsurprising given that they are the industry benchmarks. Consequently, the overall funding amount decreased. However, despite this setback, we've seen fundamental improvements, and the ride-hailing giants have accelerated their timelines for profitability, with Sea Group announcing profitability in Q1. Therefore, we expect sentiment to improve once these internet giants achieve profitability," Wong said.
The SE Asia Deal Review: Q1 2023 report covers fundraising by startups in the fourth quarter and the previous quarters. It covers:
- Funding trends across quarters, sectors, and countries
- Deal volume and value across funding stages
- Median and average deal value across stages
- Investor perspectives, and more.