Recession Run: Vertex Ventures says these sectors will thrive in a downturn

The funding winter is here. News of layoffs and troubles in startups have been cropping up. In this Q&A series, we talk to Southeast Asia’s investors to suss out what opportunities they see, what strategies they’re implementing, and what areas of investment they’re looking at in the next few months.

It’s not a secret that the economic downturn has affected many sectors, including tech startups. Pui Yan Leung, partner at Vertex Ventures Southeast Asia and India, told Tech in Asia that she has seen the market correction, with several companies lowering their valuations as well as many raising a flat or down round.

Leung’s advice to founders is to make sure their company has a healthy runway to survive. “If you have aggressive plans to grow your company, make sure to raise enough to last you for the next 24 months.”

Pui Yan Leung, Vertex Ventures partner / Photo credit: Vertex Ventures

Here are more insights from Leung on which sectors are more and least likely to be affected by the market slump and what founders can do in the current climate.

Which sectors will be least affected by the current economic headwinds?

Leung: Generally, industries that are least affected would be considered under the category of essential expenditure, such as healthcare, employment opportunities, and food.

We also look at business models within the consumer sector that would be more popular during an economic slowdown. For example, products and services targeted at value seekers, like mass market food and beverages, as well as affordable beauty and wellness products and services.

Enterprise software – which offers productivity and cost-saving solutions – would also be resilient. Especially with rising interest rates that are coupled with a tight employment market, businesses will seek to automate to increase productivity.

Given that markets are coming out of the Covid-19 pandemic, there will also be “revenge” dining and traveling for at least a few months, so we also imagine travel and dining out to [do well].

Another sector that will be more resilient is climate tech as more governments, investors, and organizations globally advocate for climate action. It ranges from electric cars, carbon-free cement, green hydrogen, to carbon dioxide removal from the air.

In Southeast Asia, which sectors are more likely to be affected by the macro-economic headwinds?

Sectors where consumers, businesses, and governments regard as “luxury goods” and categorized under “discretionary spending” will likely be impacted.

Also, the impact on a company isn’t just because of its sector but also its execution. Any company that heavily relies on capital to heavily market or operate their businesses are likely to be affected as interest rates rise and venture funding slows.