Southeast Asia is a ‘good place’ to be as global slowdown hits, say VCs

These are tricky times for the global economy. After almost a decade of fairly solid growth, things are beginning to slow down. On top of the macro trends, there’s no shortage of geopolitical friction to complicate the situation – not least the “trade war” between the two biggest economies, China and the US.

In such conditions, you’d expect the effects to spill over into the venture capital markets.

Onstage at Tech in Asia Conference 2019 (from left to right): Willson Cuaca, managing partner, East Ventures; Sng Khai Lin, co-founder and CFO, Fundnel (moderator); Vinnie Lauria, founding partner, Golden Gate Ventures; Lim Kuo-Yi, managing partner, Monk’s Hill Ventures / Photo credit: Tech in Asia

According to research from PricewaterhouseCoopers and CB Insights, global VC funding fell 7% quarter-on-quarter in Q3 2019, while North America saw its lowest number of quarterly VC investment deals in two years.

But scoot across to Asia and the landscape looks rather different. The region actually saw an uptick in VC deals, notching up its highest number of quarterly startup investments since Q4 2018.The US$15 billion in total deal value for that period, however, matches Q2’s figure and remains at its lowest since the end of 2017.

Trade war opportunities, popping valuations

While much of the big money still finds its way to China and India, Southeast Asia continues to attract a decent share from investors. Speaking onstage at Tech in Asia Conference 2019 in Jakarta earlier this month, three of the region’s most high-profile VCs agreed that things are only likely to get better for startups amid the US-China trade war and the wider macroeconomic situation in the coming years.

Willson Cuaca, managing partner at Jakarta-based East Ventures, said the China-US conflict “doesn’t really affect” tech investment in Indonesia and Southeast Asia’s other developing markets, where the middle class is growing and GDP is going up across the board.

“We shouldn’t [draw a] parallel between this region and others,” he added, referring to the apparent belt-tightening by VCs being seen in other parts of the world. “Here, valuations are increasing really fast. That means there’s a supply and demand problem – it seems there’s more supply than demand – [which means] there’s a lot of money around.”

Image credit: MoneyTree Report Q3 2019, PwC and CB Insights

The difficult global economic picture could also bring other benefits to Southeast Asia’s startup scene.

“There’s impact, but it’s positive,” said Vinnie Lauria, founding partner at Singapore’s Golden Gate Ventures. “There’s manufacturing moving south out of China to Indonesia, Thailand, Vietnam [and consumers] have more money to spend.”

Despite the heightened valuations underlined by Cuaca, Lauria thinks that Southeast Asia’s digital economy still has some way to go to match neighbors like China and India, or more established markets like North America and Europe.

“China’s at the tail end of the curve where valuations start to go down again,” he said. “We’re still in the first five to six years of internet growth in Southeast Asia. Ecommerce is [worth] US$80 billion here, but [accounts for only] 3% of transactions.” As such, Lauria expects investor interest to continue increasing at pace, “even if shifting and popping of valuations is too high.”

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