Winter has come for SEA fundraising. Here are 3 tips to weather the storm

Winter is settling in across the global tech industry, and venture capital is drying up.

Much of this turmoil can be traced back to the challenging and uncertain economic environment created by the pandemic. The Russia-Ukraine conflict, which has caused disruptions to global supply chains that have led to intense inflationary pressures and higher interest rates, hasn’t helped.

“This is the first time that interest levels have aggressively risen since 2008,” says Akarsh Dhaiya, managing partner at financial advisory firm Rocket Equities. Founded in 2018, Rocket Equities has been supporting companies in their fundraising efforts while also advising on mergers, acquisitions, and exits.

Akarsh Dhaiya, managing partner at Rocket Equities / Photo credit: Rocket Equities

According to Dhaiya, these high interest rates are the biggest barriers to funding. The “taps at the top” – such as large pension funds and government funds – are turning toward safer options, such as government bonds, for their investments to prevent risky asset classes from overwhelming their portfolios, he says. These institutional investors are now being more careful about who they back, especially in the face of a possible recession.

An analysis by Crunchbase shows that venture investments in Q3 2022 have dropped 53% year on year, underscoring a trend that started in November 2021. Even publicly listed tech giants are feeling the pinch as their stock valuations crumble and have had to conduct layoffs.

Despite the current climate, Dhaiya believes that companies can rise above these challenges and emerge successful, especially given that Southeast Asia’s investors have some US$15 billion in unallocated funds to utilize.

“There is enough dry powder which needs a place to be deployed,” he shares.

In this environment, Dhaiya offers three tips to help companies navigate this funding winter.

1. Find the right investor for your company

One of the biggest mistakes fundraising firms tend to make is that they don’t cast a wide enough net when looking for investors, both in terms of quantity and quality.

“Some founders will say they reached out to 10 investors, but that’s not enough,” Dhaiya says. “When we work with companies, we reach out to probably 100 to 200 investors.”

Founders can’t go after all available investors either, as each one will have their own requirements and preferences.

“You find companies looking to raise US$20 million to US$40 million but then reach out to venture capitalists with US$2 million to US$5 million ticket sizes,” he says. “But then you also get firms limiting themselves to venture capital when private equity might actually be a better fit for them. There are different pockets for raising capital, and founders are not fully aware which pocket fits them better.”

So companies will need to find the right investor to meet their needs. Does the firm need an infusion of growth capital? Would it benefit more from a strategic investor that can support its growth?

All these are considerations that businesses need to have when fundraising. Of course, this can be incredibly exhausting for founders, who have to do the legwork while still actually running their businesses.

Rocket Equities helps companies get around this issue by leveraging its expertise, experience, and network of over 300 investors. Aside from helping companies connect with the right backers, it also works with them to create a strong growth story to draw investors in and makes the process efficient to avoid prolonged fundraising periods.

The company also advises private equity firms in finding suitable investment targets as well and has established deep relationships with key players as a result.

“We know these investors – what they need and [whether] they’re able to help [your company] achieve what you want to achieve,” Dhaiya shares. “We also provide feedback to both investors and companies to improve the overall market.”

2. Never forget the basics

When money was plentiful, most investors were focused on growth and not too concerned about profitability. However, in today’s economic climate, profitability and strong fundamentals trump growth, says Dhaiya.

Photo credit: andreypopov / 123RF

Yet, in his experience, most companies fail to clearly chart a path to profitability, especially if they’re in a space that operates on tight margins. The business-to-consumer sector, he says, is one of the segments that’s struggling in the current environment, as consumers have become more price-conscious.

“Purchasing power is going down,” he says. “if you’re sitting on razor-thin margins, best of luck. It’s going to be hard.”

In light of this, Dhaiya advises fundraising companies to go back to the basics and focus on improving their product-market fit. When founders can clearly identify what value is being generated by their product, they can convince customers that it’s worth their money.

In his experience, this kind of focus is also crucial for a company to get the best valuation possible. After all, a firm with a strong business model, good traction, and great partners will be valued in its own right, instead of being subject to what’s happening in the wider market.

“Ask yourself how big a problem you’re solving, and that will reflect in your company’s growth and margins,” Dhaiya says. “If your product is superior, you don’t have much to fear.”

To understand this, one needs to really know the market and sector they’re in. However, the research and effort required to drill down to the basics and identify a company’s value within the larger industry can be time-consuming. Working with firms such as Rocket Equities can help, as they hold information and insights into various sectors and niches.

“We want to move the private capital markets away from information asymmetry,” he says. “We are the informational layer for transactions, making it easier for companies and investors to connect.”

3. ‘Just don’t give up’

While Dhaiya says the current market is undoubtedly “horrible,” there’s still a lot of room for optimism. For one, the market is suffering from a lack of confidence, not cash.
Private equity firms have spent the last decade amassing “the highest mountain of capital ever seen, all of which needs to be deployed,” he says.

Furthermore, Southeast Asia appears poised to avoid the worst of the current downturn as investors remain optimistic about its prospects. The region’s total deal activity has remained largely stable compared to the US and Europe. Most of this funding is flowing into early-stage and growth-stage companies as investors bet on the region’s future.

This is why Dhaiya says the most important thing for companies to do now is to stay the course.

“Just don’t give up – fundraising is a game, and you need to change your mentality around it,” he says. “Most of the time, you’re going to get a lot of noes, so lean into it – aim to get 100 noes, and you’ll receive a yes before then.”

This attitude shift will be especially important as a source of stability as companies continue to face a challenging, volatile landscape.

Dhaiya opines that the current economic downturn is unlikely to last for very long, especially with the modern mechanisms available to central banks today.

“In my conversations with private equity investors, we’re always saying that this is the best time to buy,” he says. “As long as you are solving an important problem and banking on emerging as number one in your sector, you have nothing to worry about.”

Rocket Equities is a Southeast Asia-focused financial advisory firm with a focus on tech and tech-enabled companies. Leveraging its network of 300+ professional investors and subject matter experts, the firm is helping companies raise capital despite the current funding winter and connect to investors.

To find out more about how Rocket Equities can help, get in touch through their website.

This content was produced by Tech in Asia Studios, which connects brands with Asia’s tech community. Learn more about partnering with Tech in Asia Studios.