Recession Run: B2B startups have an edge over B2C, says Tin Men Capital

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.

In the current market downturn, B2B startups have the upper hand in raising money compared with their B2C counterparts, says Murli Ravi, co-founder of Tin Men Capital. Founded by Ravi and and Jeremy Tan in 2018, the Singapore-based VC firm focuses on investing in B2B tech startups in Southeast Asia.

“In this funding climate there is a shift towards capital efficiency, meaning that both B2B and B2C companies have to be more cautious with capital deployment now. However, we have data showing that B2B startups have historically been much more capital-efficient,” Ravi says.

Despite that advantage, it’s still a challenging moment for B2B companies to raise capital, as money has become more expensive, he adds.

Tin Men Capital co-founder Murli Ravi / Photo credit: Tin Men Capital

The economic turmoil hurts all companies, but some are feeling more pain than others. That’s why founders – and their investors – who have been more disciplined with capital spending actually have an opportunity to outpace rivals.

“Management teams will need to find the right balance between robust demand, slowing economies, and expensive capital. Nimbleness is key,” Ravi shares.

In an interview with Tech in Asia, Ravi offered insights on the type of B2B startups that may thrive amid the funding winter and discussed Tin Men Capital’s investment plans for its second fund, which completed its first close in September 2022.

What sectors/areas of opportunities that you see are resilient to “funding winter” and are poised to do well during the recession?

Ravi: At Tin Men Capital, we tend to focus on B2B companies that mostly serve enterprise customers with large annual contract values, meaning five figures or more in US dollars.

It is not easy to sign up such customers. Sales cycles tend to be long. B2B startups also need to have extensive product offerings and invest in customer success. Moreover, prospective customers might impose strict qualification criteria for procurement.

On the flip side, enterprise customers may be more willing than SMEs to pay a significant portion of their fee upfront. Account expansion and negative churn are more easily achievable with enterprises if you serve them well.

This makes the said B2B companies more resilient to shocks once they have achieved a minimum viable scale.

Our focus is primarily on companies that serve older, less digitalized industries.