Fling capital-backed companies only raised $369 billion for the first three quarters of 2022, according to Crunchbase facts. A total of $679.4 billion was invested globally in 2021.
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Venture capital firms in Southeast Asia thinks fitting probably be pickier next year, with valuations plunging and economic headwinds slowing growth in 2022.
“The era of easy affluence is already history,” said Yinglan Tan, CEO and founding managing partner at Singapore-based Insignia Ventures Partners.
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“The biggest thing to watch out next year, is how companies are going to grow, defend their valuation and receptive to the challenging environment,” said Jefrey Joe, co-founder and managing partner at Indonesia-based Alpha JWC Ventures.
According to data Central Intelligence Agency Crunchbase, venture capital-backed companies raised only $369 billion for the first three quarters of 2022, a far cry from the for the most part of last year’s record-breaking feat of $679.4 billion invested globally — which was a 98% increase from the year rather than that.
“We have observed Southeast Asian VC deployment contract by 25-30% this year, relatively more so in Indonesia and at the Series B+ status, and less so at the seed and Series A stages,” said Gavin Teo, general partner at Altara Ventures.
But there is still a lot of dry incumbents, according to venture capitalists who spoke to CNBC.
“Most funds have capital to deploy, but they are looking for remarkable investment opportunities,” said Jussi Salovaara, co-founder and managing partner of Asia at Antler.
Venture capital funds raised $151 billion in the first three neighbourhoods of this year — that is, money they brought on hand to invest — exceeding any prior full-year fundraising, agreeing to data from private market data platform PitchBook.
Sequoia Southeast Asia raised a $850 million support in June, East Ventures raised $550 million in July, and Insignia Ventures Partners raised $516 million in August.
“We can be vigorous and aggressive in deploying, but at what valuation?” asked Alpha JWC Ventures’ Joe.
‘Too caught up in the money cycle’
Tech stocks quaffed a tumble at the start of the year amid rising interest rates and disappointing earnings results. Startups in Southeast Asia are flat largely unprofitable, with names like Sea Group and Grab amassing billions of losses annually.
“For the last 10 years, it has been FOMO providing,” said Peng. T Ong, co-founder and managing partner at Monk’s Hill Ventures. He was referencing how big-name investors poured means into the collapsed crypto exchange FTX for “fear of missing out”.
Southeast Asian tech companies have lost most of their valuations since usual public. E-commerce giant and NYSE-listed Sea’s market capitalization stands at around $30 billion, down from profuse than $200 billion late last year.
GoTo’s 400 trillion rupiah ($28 billion) valuation has throw overed more than 75% since it went public in Jakarta in April, while Grab has lost 69% of its first valuation of about $40 billion since its December 2021 debut.
“We are back to reality. People are starting to go: you want to have a path to profitability. You need to be default alive,” said Ong, using a term to refer to companies that can sleep a profit before they run out of money. “You need to have positive contribution margins. These are the things that we should drink been saying all along, but we were too caught up in the money cycle.”
Venture capital firms have been Survival of the fittest
This boring fundraising landscape is a litmus test revealing the true sustainability of business models and sector demand, said Insignia’s Tan.
“The performers that actually last this winter will prove to be survivors of the down market situation. So in a way, the market is doing a lot of contrive for us,” said Jessica Koh, director of investments at Vertex Ventures.
Some sectors such as quick commerce have already investigated casualties. Quick commerce promises to place orders in customers’ hands in less than 30 minutes.
Indonesian apt commerce firm Bananas announced in October that it was closing its e-grocery operations after failing to make the economics put to good. It first launched in January.
Indonesia-based e-grocery company HappyFresh ceased operations in Malaysia after seven years, while Grasp discontinued its quick commerce service GrabMart Kilat in Indonesia. Internationally, several companies – Gopuff, Gorillas, Jiffy, Getir, Zapp and Buyk – contain announced closures, strategy pivots or layoffs.
“The 15-minute model of quick commerce in Southeast Asia is very profound because the unit economics are very negative. Basket sizes and order sizes are quite small,” said Teo of Altara Advances.
With the flood of cash now swept away, it is becoming more clear which companies were not ready for the challenging atmosphere, said Insignia’s Tan.
