Once upon a time, Sea Group and Grab were what all Southeast Asia startups strived to be. The homegrown unicorns putting the region on the map. These days, their continued unprofitability and unfavorable business practices have caused venture capital firms to think twice before pumping money into new businesses.
That’s because both Sea Group and Grab have lost most of their valuations since going public a little over a year ago. The former’s value has shrunk from US$200 billion to approximately US$30 billion while the latter has seen its initial valuation of nearly US$40 billion plummet by 69 percent. Their woeful performance means it is a bad time to be a startup in Southeast Asia.
“For the last 10 years, it has been FOMO investing,” Peng. T Ong, Co-founder and Managing Partner at Monk’s Hill Ventures said during an interview with CNBC. “We are back to reality. People are starting to go: you need to have a path to profitability. You need to have positive contribution margins. These are the things that we should have been saying all along, but we were too caught up in the money cycle.”
Some in the venture capital sector are claiming this could be a positive with the startups that survive being the ones capable of producing successful business models based on real demand.
“The companies 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 work for us,” Jessica Koh, Director of Investments at Vertex Ventures, stated.
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Interesting Analysis
Incompetent management and bad practices from Sea Group and Grab are now causing Southeast Asia startups to struggle with funding. The reason for this harkens back to user numbers being the end all, be all metric for startups. Grab, Shopee and the like were so obsessed with getting as many people as possible to download their app, that they kneecapped themselves in the process.
A number of startups in Southeast Asia have become so obsessed with user numbers that they refuse to accept any other metric to measure success. And while VCs claim they are looking for a path to profit, many of them still equate users with potential profitability. Hopefully, someone is able to break this cycle because it will only lead to continued failure.
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