VC funding for Southeast Asian startups was down 65% YoY in Q1 2023

The funding landscape for Southeast Asian startups is going through a bumpy ride as venture capital investors adjust their valuations for early-stage companies.

In fact, venture capital funding in Southeast Asia has dipped by a staggering 65% YoY to $4 billion as of May 31, 2023, the lowest level since late 2019, according to data from U.K.-based investment data company Preqin. Indonesia and Singapore have been hit the hardest, experiencing funding drops of 70% and 65% respectively this year.

Another poor performance was in the number of high-profile deals, out of the 195 deals in the first quarter of this year, only 5 managed to raise above $50 million, marking a 75% drop compared to the same period last year when there were 20 deals valued above that threshold.

This is largely because of the challenging economic climate that has caused venture capitalists to shift their focus from new deals to managing their existing portfolios. U.S. investors, who were once enthusiastic about the region during the pandemic, have grown more cautious due to the combination of higher interest rates and reduced valuations of growth stocks.

This caution has been further exacerbated by the declining business environment at leading companies in the region like e-commerce company GoTo and ride-hailing company Grab which has had a ripple effect across related businesses such as advertising, logistics, courier services, and digital payments. Also, several valuation cuts since last year have left a sour impression on the mind of investors.

Now investors have scaled back or delayed their investments, redirecting their attention to startups in their home market or adopting a wait-and-see approach, anticipating that valuations might continue to decline. It is indeed a challenging time for startups in the region and other markets as they navigate these funding uncertainties and seek opportunities for growth and expansion.