Southeast Asia tech funding set for worst year since 2016

Brace for a long winter. Tech funding in Southeast Asia – from the seed stage to IPO – is on track to hit the lowest point since 2016, data compiled by Tech in Asia shows.

If the first half of 2023 is any indication, the region will end the year with around US$6.2 billion worth of deals. This is below the mark set in 2017, the year Sea Group, Southeast Asia’s most valuable internet company, listed on the New York Stock Exchange.

Investors we spoke to are expecting a long dry spell and anticipate recovery to start in 2024 at the earliest. “I don’t think this funding winter will suddenly abate,” at least not within the next 12 months, Neo Weisheng, general partner of venture capital firm Qualgro, tells Tech in Asia.

Even startups that last raised money in 2022 may find themselves running out of cash, resulting in more downrounds, layoffs, and forced mergers in the months to come.

According to our data, the gap between funding stages is typically between 19 to 22 months, suggesting that startups may be in trouble if they fail to raise money in that time frame.

VCs and founders have to “think carefully about whether the answer is throwing good money after bad” or redirecting it to other problem solvers, says Neo.

Reasons for a long winter

It’s understood that rising interest rates, which caused venture capital to shrink as investors flocked to safety, have created the current predicament.

Southeast Asia, however, faces the double whammy of being both an unfamiliar and riskier market for many venture capital backers, which are based in the US.

See also: YC shrinks cohorts, sees less SEA, India investments

This has caused the region’s tech funding to suffer a deeper drop-off compared to the global average, declining by 82% compared to 53% globally, according to Tech in Asia and Crunchbase data.

And while the dominant AI narrative has meant that startups in the space are still raising mouth-watering sums, these companies are largely US-centric.

For instance, Reka, a highly touted AI startup that just raised US$58 million, has a Singaporean co-founder, but it’s based in San Francisco.

See also: Singapore’s VCs lament Entrepreneur First’s exit

Capital flows present another complication. VCs that have successfully raised a fund will still need to do regular capital calls from their backers, who may want to slow down money transfers. This affects the pace of VC investing.

Even if the macro environment improves, many fund managers make allocation decisions up to a year in advance, meaning a recovery in tech investments would likely be a drawn-out process, a VC firm partner who declined to be named, tells Tech in Asia.

Dealing with the fallout

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