VC is on the ropes in SEA. Here’s how it can bounce back

The global venture capital industry is at a crossroads. Data from Pitchbook shows that fundraising this year is expected to be down 48% from the levels seen in 2021.

The picture in Southeast Asia is different but no less troubling. While funds in the region have raised more than US$14 billion this year so far compared to US$14.8 billion for all of 2023, the VC sector is still struggling to provide returns to investors.

As another Pitchbook report noted, “nearly 87% of the exit value since 2015 has been generated by six exits of over US$1 billion” and cash returns for investors remain “elusive.”

What needs to change for venture capital to thrive in Southeast Asia? To find out, Tech in Asia sought opinions from a traditional VC firm and a venture studio – both of them back startups, but they go about it differently.

Image credit: Timmy Loen

Skinning the investment cat

Traditionally, VCs invest in companies with a founding team and business model already in place as well as provide financial support and strategic advice. But when it comes to operations, VCs are hands off.

In contrast, venture studios – also known as venture builders – are more involved in the startup creation process. They devise the business model then seek out the founding team. They also typically provide a lot of hands-on support, from sharing their network to guiding the startup’s operations.

The case for venture studios

Founding partner Ziv Ragowsky and senior venture architect Hansel Tantohari of Wright Partners

Tantohari (left) and Zagowsky (right) of Wright Partners, a venture studio part of the EDB Corporate Venture Launchpad program / Photo credit: Wright Partners

Building a startup is a more complex undertaking in Southeast Asia than in Silicon Valley. As such, it cannot be approached in the same manner.

For starters, Southeast Asia is diverse not just culturally but also economically, with an average purchasing power that is much lower than the West. A large chunk of the region lacks basic infrastructure as well, making it more expensive for companies to acquire customers.

Great founders are also harder to find in Southeast Asia than in the West. In Silicon Valley, investors give truckloads of money to experienced founders who can scale out a product to one affluent, largely uniform customer base. But the customer base in Southeast Asia is too diverse for this strategy to be as effective. We feel that when done right, the venture studio approach can be better suited to tackle the region’s complexities.

Same folks, different strokes

Why VCs need to adapt