FB Pixel no scriptASEAN startup fundraising slumped in 2022 but still up from 2019 | KrASIA

ASEAN startup fundraising slumped in 2022 but still up from 2019

Written by Nikkei Asia Published on   4 mins read

Investors turn to early-stage deals amid dimmer IPO prospects for tech ventures.

Southeast Asian startup fundraising slowed in 2022 with deal value contracting by about a third from a year earlier as worsening economic conditions dampened both the prospects and valuations of young tech companies seeking growth capital.

The weak result comes after an investing frenzy in 2021 when total deal value soared to a record USD 25.75 billion. That year some of the region’s biggest startups like Singapore’s Grab went public before aggressive rate hikes brought a deep sell-off and market correction for loss-making tech companies.

With Russia’s ongoing invasion of Ukraine, other geopolitical woes and inflation taking big economic tolls, investors are insisting on a balance of growth and free cash flow. This has experts speculating that Southeast Asian tech startups could find themselves caught up in a wave of consolidation.

In 2022, the region’s startups raised a total of USD 17.79 billion in equity and debt funding, down 31% from the previous year, according to the SE Asia Deal Review recently compiled by Singapore-based financial information platform DealStreetAsia. The number of equity deals, however, rose 9.6% to 1,062.

“Southeast Asia ended 2022 at a low note as macroeconomic headwinds and falling public market prices forced investors to slam the brakes on private market funding,” the DealStreetAsia report says. “With survival at stake for many startups, this year will see a whittling down in the market—some businesses will bite the dust, while others will be acquired by deep-pocketed rivals.”

Startup fundraising began its downward trend at the beginning of last year, and the slowdown was notable in the October to December quarter, with total equity funding proceeds falling to USD 2.88 billion, the lowest quarterly deal value in two years.

Last year’s turnaround was also evident from the smaller number of unicorns—unlisted companies whose values top USD 1 billion. Only eight were born during the year, a third of the previous year’s total.

Among them was Singapore-based Coda Payments, a fintech platform for online game purchases. With the region’s second highest equity deal last year, the company raised USD 690 million in a funding round that attracted Singaporean sovereign wealth fund GIC and other investors.

Founded in 2011, Coda’s platform allows online game publishers to accept over 300 payment methods on their websites. The company also operates an app store for online gaming credits and items, counting over 67 million users in more than 60 markets.

As the Coda deal suggests, fintech was the region’s most funded sector, fetching a third of total equity funding in 2022, according to DealStreetAsia. Among the top 20 equity deals last year, financial companies represented half of the ranking.

In Southeast Asia, digital payments and financial services are expected to keep expanding. The sectors already gained a big boost from the wave of demand kicked off by the pandemic. The region’s digital payment market in 2030 is expected to hit USD 2 trillion by transaction value, up threefold from a decade earlier, according to a study by Google, Temasek Holdings and Bain & Co.

E-commerce was Southeast Asia’s second-most funded sector for 2022, raising USD 3.55 billion as cross-border shopping continued to grow despite softer demand and discarded virus-related restrictions that had touched off a digital boom. Singapore-based Lazada, which also ranked first in the region’s overall deal value, raised USD 1.68 billion in a corporate round from its parent company Alibaba Group Holding.

Through Lazada, the Chinese e-commerce giant is eyeing a larger share of Southeast Asia. It is up against competitors like Singapore-based Sea. In Vietnam, Lazada partnered with the Masan Group following a USD 400 million investment in the conglomerate’s integrated consumer retail arm. The investment was made through an Alibaba-led consortium.

Nevertheless, strong funding at the likes of Coda and Lazada was the exception in the region last year as investors shied away from startups that are closer to public listings.

Instead, early-stage companies were able to win larger equity funding deals than they were a year earlier. The median value for seed funding was USD 2.5 million, up 56% from 2021, while series A deals rose 8%, to USD 8.1 million.

As higher-stage funding declined, series D deals notably plunged to a quarter of their year-earlier value.

Ryu Muramatsu, founding partner of GMO VenturePartners, said startups have taken “a 180-degree turn in their businesses” as investors prioritize profit-making and free cash flow much earlier than they used to. Muramatsu described the funding environment as having undergone “a dramatic shift.”

“The mindset of investors is shifting in the same way, and there is almost a consensus to aim for profitability,” Muramatsu told Nikkei Asia.

He added that many companies, especially those at the series B stage and onward, are placing much more emphasis on turning profits.

DealStreetAsia sees 2021 as an “outlier,” a year when a record amount of private capital was pumped into startups across the globe. Nevertheless, the total equity fundraising value recorded in 2022 was still 80% higher than in 2019, before the pandemic. This underscores the region’s enduring allure as an investment destination, DealStreetAsia said.

Investors’ newfound desire for both growth and free cash flow will bring a “new phase of maturity” to Southeast Asian startups, DealStreetAsia added.

“It’s really the first time we’re going through this situation and actually we’re not that badly hit right now,” said Karan Mohla, a partner at Singapore and US-based venture capital firm B Capital Group.

As the region goes through this “learning process,” Mohla added, and as startups focus more on company structure and performance, the region will attract higher-quality investments. “That’s why maybe 2023 will be a good and bad year,” Mohla said. “It’s a necessary part of the process that is very much needed.”

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


Auto loading next article...