IN FOCUS
In today’s newsletter, we look at:
- Why VC secondaries are struggling to take off in Southeast Asia
- The VC struggle to raise funds in the AI age
Welcome to On the Rise! Delivered every Tuesday via email and through the Tech in Asia website, this free newsletter spotlights emerging startups and the biggest trends in the tech ecosystem. If you’re not a subscriber, get access by registering here.
Hello there,
When I was in middle school, I tried to convince my friends that we should all pool our cash to buy a book for our Dungeons and Dragons campaigns. The first question out of their mouths was: “Who gets to keep the book?”
My answer – “me, it was my idea” – brought my first attempt at collective investing to a screeching halt. It was a great insight for my 12-year-old self. If you’re trying to convince people to give you money, they’re going to want to know what they’re getting out of it – and it better be good.
VC firms are facing the same difficult issue today: convincing capital providers that they’ll see a high return on their investments. It hasn’t been going well recently.
The funding drought in Southeast Asia is in its third year, including a drop of over 60% since the peak in 2021. The effects have even started to filter down to the secondary markets, where investors are often on the hunt for up-and-coming startups.
India’s sold on VC secondaries but SEA isn’t buying it
Image credit: Made by Tech in Asia using Midjourney
The current state of secondary shares markets is the focus on this week’s Big Story. Collin talks to investors who say the offerings from many VCs are far from ideal. Some are only offering shares from “mediocre” companies, with lower chances to IPO or achieve exits – two key focuses for prospective buyers.
It’s a global issue. According to the Wall Street Journal, the amount of capital being sought by VCs is greater than the amount of expected returns. In short, there is a liquidity crunch in the VC space “greater than after the 2000 dot-com crash.”
But the situation is worse in Southeast Asia, where the distributions to paid-in capital ratio – a measure to calculate the returns for investors in a fund – is the lowest in the world, according to a recent report.
Returns to haunt VCs
Why are VCs facing so many issues, so soon after seeing a banner year in 2021?
Interest rates are up, returns are down, or bonds are back – take your pick. There is also the general concern among limited partners (LPs) that tech is already in another bubble.
Deep Reads
Maximize your time and network with the best
Stay updated on the go with our mobile app.
Get latest insights with smoother, more personalized experience through TIA mobile app.
