Early-stage venture capital (VC) deals in Southeast Asia will continue to grow in 2022 and beyond as VC firms patiently seek profitable opportunities in startup ecosystems. Despite the uncertain economic situation the world is currently facing, early-stage VC trends show that the slowdown in startup investing is not as severe as initially feared. VCs have raised funds in preparation for future deals toward the end of the year and into 2023.

According to The Economic Times India, Southeast Asia VC trends from Venture Intelligence Data show that investment funds from companies like Sequoia Capital, Jungle Ventures, Lightspeed Venture Partners, and Elevation Capital have raised USD 4.7 billion this year. Unlike the capital spending frenzy witnessed in 2021, VC firms are not rushing to deploy capital as they focus on seeking quality startups over quantity. Moreover, no one knows how low the markets will sink yet, and they are waiting to see how circumstances play out.

There are also fewer exits right now, which means investors can no longer get a quick return on their investments. Early-stage deals are a better option if a company demonstrates sufficient quality in its governance, product, and profitability potential, as investors can reap the benefits in the long run.

2022 has been an amazing year for VC funding in Southeast Asia so far

Vikram Gupta, the founder and managing partner of IvyCap Ventures, told Economic Times India that the firm is approaching deals with caution. The more time the firm has for negotiations, the more likely it is to  get better terms. Other VCs are taking a similar approach and delaying how they deploy capital.

Expert views on deals in Southeast Asia 

In May, Abheek Anand, managing director of VC firm Sequoia Southeast Asia, said his firm remained optimistic about the long-term prospects of the investment scene despite the market volatility witnessed. He said the firm’s focus on early-stage investments was ideal for the future as the technology sector is growing. Sequoia raised USD 2.85 billion for investing in startups in India and Southeast Asia, with Southeast Asia getting USD 850 million.

Anand also advised startups to focus on governance and cutting expenses to navigate the lean investment period this year. He said VCs have funds but are not investing as they wait to see how the market unfolds. This train of thought is similar to what other experts at the PE-VC Summit 2022 said.

The summit’s panel included Khailee Ng, managing partner of US-based 500 Global; Avina Sugiarto, partner at Singapore-headquartered East Ventures; Anup Jain, managing partner at India-based Orios Venture Partners; and Jennifer Ho, partner at Singapore-based Integra Partners.

Khailee Ng said his firm reduced its dealmaking pace to focus on assessing founders and the state of their startups to get the best quality companies and valuation. Avina Sugiarto said the expected slowdown in funding might occur in growth-stage investments. Sugiarto’s firm is actively investing in early-stage round deals and does not envision there being a down round.

On the other hand, Anup Jain stated his firm’s early-stage deals increased in the first half of the year. He explained that last year there was a lot of money chasing founders. However, because the money is now focused on fewer founders, the valuation has dropped and investors are looking for quality. Jennifer Ho maintained that her firm never fluctuated in its approach to making deals and identifying the best startups to invest in when the market was flush with capital and now when funds are being withheld.

Looking ahead

According to insights from VC firm East Ventures, while the current global market conditions are not ideal, there are many reasons to be optimistic about future investment deals in Southeast Asia. The region is facing many issues, such as high-interest rates, stock market volatility, affected energy and commodities markets, failing tech stocks, massive layoffs, and COVID-19 pandemic-related challenges. 

Regardless, there is hope for the future as circumstances change and funds achieve successful closes. For example, East Ventures managed to raise USD 550 million for its fund in May. The firm will invest the money in fintech, healthcare, and other sectors.

Private equity firms with over USD 500 billion of unspent capital are pivoting from China to invest in markets like Southeast Asia. Refinitiv Data shows mergers and acquisitions (M&A) deals in Southeast Asia stand at USD 119.4 billion compared to USD 190.5 billion in 2021. The region could therefore offer good options to investors.

The Southeast Asia VC trends show that the region is still ripe for investment if investors can be patient and identify the correct deals and the startups with potential. Early-stage VC trends this year bode well for the future as the figures are better than the dismal performances in funding that previous predictions indicated.