Cash returns still ‘elusive’ for VC, PE investors in SEA startups: report

ASEAN flags / Photo credit: aseanbriefing.com

While venture capital deals in Southeast Asia tripled between 2015 and 2021, exits have been hard to come by, challenging both investors and mature startups in the region, according to a new report by US-based research firm PitchBook.

“Nearly 87% of the exit value since 2015 has been generated by six exits of over US$1 billion,” noted the report, citing data as of December 31, 2023. With stringent regulations impeding startups from going public, cash returns remain “elusive” for many investors, said the paper, titled the “Southeast Asia Private Capital Breakdown.”

The analysis was made based on PitchBook’s collated proprietary data on the private capital market in Southeast Asia.

Still, the report underlined that Southeast Asia’s economy has continuously grown despite global headwinds, which helps maintain investor interest. From 2015 to 2023, the region’s gross domestic product grew more than 56%, said the report, citing data from the International Monetary Fund.

Venture capital deals, meanwhile, tripled from 525 to 1,711 between 2015 and 2021.

The deals reached their peak value in 2022 at US$18.1 billion. However, both deal value and count dropped sharply in 2023’s tech winter, studies have found.

Nonetheless, Southeast Asia’s young, consumer-driven economies continue to be major positives for investors – so much so that B2C companies are the second most-funded startups in the region. Such companies more than doubled their share of annual deal value, from 16.8% in 2021 to 36.2% in 2023.

Even with the double-digit growth in capital deals in the region, PitchBook noted Southeast Asia still has a lot of potential to grow, with “vast reserves” of capital still untapped. But that comes with a host of challenges.

“For many emerging private capital markets, the need to see strong, recurring returns can be the catalyst for sustained investment and development. This is the current weakness for Southeast Asia,” the report said.

For one, VC rounds worth US$25 million and more made up less than 9% of all rounds in the region between 2020 and 2023 – a key limitation for more mature startups.

“Unlike the US, where there is comprehensive financing coverage across the venture lifecycle, Southeast Asia lacks robust funding support for the later stages of venture,” the report said.

Fundraising activity also remains focused in Singapore, dubbed the region’s financial center, as firms there consistently tallied over half of VC deals from 2015 to 2023.

For startups seeking growth, it has been challenging to scale to generate considerable returns, PitchBook said. That has since led multiple startups of late to pursue global expansion at an earlier stage, including in higher-income markets like the US.