Amidst the global economic slowdown, tech startups in Southeast Asia raised USD 10.4 billion last year, equal to the third strongest year on record. According to a report by Cento Ventures, this brought investments back on par with pre-pandemic levels. The total funds invested in the region in 2022 was USD 14.5 billion, which was down compared to 2021. 

Southeast Asia saw an abnormal deficit of digital investment capital at the very end of 2022 despite the souring capital market’s mood. The region’s tech scene appeared slower to react to global changes than Latin America and India.

By understanding the evolving VC trends in Southeast Asia, entrepreneurs and investors can gain valuable insights into the current dynamics of the region’s startup ecosystem.

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The resilience of the Southeast Asian investment scene

Unlike its peer regions, Southeast Asia has demonstrated remarkable resilience by remaining closely aligned with its capital intake baseline from 2017 to 2020. This relative stability helped mitigate the expected early 2023 correction, presenting an overall positive outlook for the region’s investment landscape. 

Southeast Asia underwent a rapid change of active investor composition halfway through the year, causing a reallocation of capital between geographies and stages and significantly changing the valuation landscape. This shift led to a spread of capital across different geographies and investment stages, profoundly impacting the valuation landscape.

Global late-stage investors, known for powering Series C+ and mega deals, retreated from the market and redirected their focus to earlier investment stages, primarily Series B, with some of these investors nearly exiting the market altogether. While some global investors scaled back their involvement, regional and North Asian investors continued participating in late-stage deals. This change contributed to bringing mega-deal activity down to levels last observed in 2016 and Series C+ investments to late 2019 levels. 

It is possible to observe a sharp change in the valuation landscape throughout the year, with Series B being the most volatile. For instance, in Indonesia, Series B valuations experienced a surge when global players retreated to earlier stages, only to return to late 2021 levels towards the year’s end.

Conversely, Vietnam witnessed a steady decline in Series B valuations after reaching exceptional heights in 2021. At the beginning of 2022, as Series B valuations peaked in Indonesia, the investment volume in the Philippines surpassed that of Vietnam. The narratives of Vietnam as the “Next China” and the Philippines as the “Next Indonesia” were being tested against each other in the search for the next regional growth story. As the year progressed, investment volumes decreased in both markets, with Vietnam narrowly edging ahead in the second half of 2022.

Digital financial services: A thriving landscape in ASEAN

Southeast Asia’s capital markets have historically faced challenges related to efficiency, accessibility, and liquidity. The rise of digital financial services and financial technology (fintech) has paved the way for transformative changes in this domain. Directing investments towards developing robust and technologically advanced capital market systems, which facilitate ease of access for both individual and institutional investors, has been crucial for the region’s economy. 

The Cento Ventures’ report has shed light on the dominant investment theme in Southeast Asia, revealing that digital financial services continue to capture significant attention. These services accounted for a substantial 46% of the region’s overall liquidity and an impressive 43% of all equity funding. As private credit options became more advanced and accessible, investments in digital financial services shifted their focus from supporting lending facilities and user acquisition to enhancing the region’s financial infrastructure. This shift primarily benefited the payments value chain and capital market systems.

One key factor contributing to the vitality of the digital financial services sector in ASEAN is the rapid evolution of payment infrastructure and regulations. Governments and regulatory bodies in the region have recognised the importance of fostering a conducive environment for digital finance. They have proactively introduced regulation updates, streamlined processes, and fostered innovation. These efforts have created an increasingly attractive ecosystem for investors seeking to capitalise on the digital finance revolution.

Southeast Asia: A promising hub for innovation and growth

Despite the challenges of the global economic slowdown, the ASEAN region remains a promising hub for innovation and entrepreneurial growth. The region’s resilience and ability to adapt to market dynamics are evident as the latest VC trends in Southeast Asia continue to shape the landscape. 

Nevertheless, tech startups in Southeast Asia need to remain agile, leverage all available resources, and stay abreast of the shifting investment environment. They should also heed factors such as the trend of investors funding innovative companies embracing the United Nations’ sustainable development goals (SDGs) or those with strong environmental, sustainability and governance (ESG) structures. 

With ongoing support from regional and global investors, the future looks promising for tech startups in the area, paving the way for continued innovation and opportunities for all stakeholders involved.