Southeast Asia startup funding was down in 2022 when compared to the previous 12 months but it remains above 2019 levels. According to DealStreetAsia, regional startups raised US$17.79 billion in equity and debt funding last year.
In 2021, Southeast Asia startup funding reached an all-time high of US$25.75 billion. However, worsening economic conditions, including interest rate hikes and an overall market correction, made it difficult for young businesses to secure financing.
“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 noted. “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.”
Regional startups have also been hurt by the underwhelming performances of Sea Group and Grab who have lost most of their valuations since going public. 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. This caused many firms to rethink how they approach Southeast Asia investments.
“The mindset of investors is shifting in the same way, and there is almost a consensus to aim for profitability,” Ryu Muramatsu, founding partner of GMO VenturePartners, told Nikkei Asia. “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.”
Also Interesting: Sea Group and Grab proving to be a drag on other Southeast Asia startups
Interesting Analysis
Hopefully, this means an end to the days of simply trying to scale something big in Southeast Asia and worrying about profitability later. Why it has taken investors years to prioritize profits is beyond comprehension. It also baffles me as to how these investors continued to be duped by hapless founders who had no ideas about how their companies would make money.
There are a lot of sound startups in this region, and these should have no issues securing funding in this new environment. Ideally, the strategy should weed out companies simply growing with no real purpose in mind apart from raising money. And that is the way it should be.
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