Startup financing has slowed so much in Southeast Asia that venture capitalists aren’t just downsizing their funds, they’re bailing out altogether.
What started as a handful of low-key departures is increasingly looking like a full-blown exodus. For founders, that could mean that the funding they need to grow is evaporating quicker than they can pitch.
“It’s a natural selection,” said Kevin Wijaya, director of the Indonesia office at Japanese VC CyberAgent Capital. “Not only for startups but for VCs as well.”
Wait, who’s leaving?
- Johan Surani, a former vice-president at Peak XV Partners, became head of strategy at portfolio company OpenBorder in July.
- Ian Sikora, previously an executive director at Openspace Ventures, joined Amazon Web Services as its head of startups in April.
- Harris Yang, former vice-president at SBVA, joined real estate investor SC Capital Partners at the start of 2024.
Some others are said to be weighing their next moves.
Sources told MONIIFY that Saemin Ahn, a partner at 500 Global, has resigned from the early-stage fund and accelerator, which the VC firm later confirmed. The Singapore-based investor led the firm’s growth-stage strategy for Southeast Asia.
Monk’s Hill Ventures’ managing partner, Peng T Ong, is said by sources to be considering next steps, including stepping down or reducing involvement in the VC’s future funds.
But why?
Everyone knows startup funding in Southeast Asia has slowed to a trickle over the past couple of years. VCs can’t raise new funds because their current limited partners (the ones giving them cash) are stuck waiting on exits that aren’t happening. Bain & Company said in a recent report that exit values plunged 60% from the year before to $2.8 billion in 2023.
Throw high interest rates into the mix and there’s just not as much money sloshing around for high-risk bets like startups.
According to a recent report by PitchBook, things are just as bleak in the US.
Capital raised across 380 VC funds in the US reached $65.1 billion so far this year, so it’s on track to surpass 2023, but the number of funds is the lowest in almost a decade. Only the big-name players are pulling in the cash these days.
The slowdown has VCs questioning their futures, especially in Southeast Asia where the funding drought is dragging into year three. They abandon the ship before it sinks, Wijaya said.
Another VC who has been in the industry for 12 years told MONIIFY that poorly performing funds are about to vanish and those that had grown too fast would get a reality check.
Cut down to size
That’s already happening. Take Peak XV, one of India’s and Southeast Asia’s most active startup investors. It’s reducing its fund size by 16% to $2.39 billion and changing strategy.
Of the hundreds of VCs operating in the region, only five made final closes in the first half of this year, totaling $1.23 billion.
That’s the lowest number in three years, according to DealStreetAsia. Fifteen funds made final closes in the same period in 2023 for a total of $4.56 billion. Just take a look at this drop:
Why should I care?
The drought and departures in VC mean entrepreneurs are going to find it a lot tougher to find cash for their startups.
The drought will leave more founders bootstrapping, finding angels or looking for high-risk venture debt, which is way more expensive than loans and particularly painful right now with the high interest rates.
Will that build quality? Yes, but only the most resilient startups will survive.
There will be fewer VC funds overall with smaller teams, and so they’ll be more selective – going only for the very best investments, says Fandy Cendrajaya, founding partner at Kopital Ventures.
Charles Wong, the co-founder and managing partner of TNB Aura, a VC focused on Southeast Asia concurred and said that reduced investment teams may pose challenges for some firms.
A Southeast Asia-based lawyer working with tech startups said paperwork is about to get a lot more crucial, especially with the revolving door situation founders are facing.
The people who brought in your deal had their own thesis and conviction, but their replacements? They might not be nearly as hyped about your sector, he warned.
TNB Aura’s Wong told MONIIFY that this was a good time to “double down” on its strategy of growing sustainably, i.e., slowly.
The fact that Kopital Ventures still managed to close a new $16 million fund and intends to disburse cash to earlier-stage startups gives us a cue.
VCs are playing it safe by cutting checks for those raising their first or second rounds. Smaller bets, but with big upside if they hit. Later-stage startups, with their inflated valuations, are now too expensive for VCs.
It pays to be small and scrappy right now.
