India also sharply lower; Chinese investment fairly resilient, down 3.36%
Startup fundraising across Asia’s key markets — Southeast Asia, India, and greater China — all fell in the second quarter of this year, compared with a year ago, according to DealStreetAsia data.
The weakness in the June quarter does not augur well for fundraising in 2023 as a whole. Data compiled by DealStreetAsia’s Data Vantage show that in Southeast Asia and India, funding amassed in the entire first half of this year was less than that in the first quarter of 2022.
The steepest fall in funding was witnessed in Southeast Asia, at 58.6%. Startups headquartered in the region raised $2.13 billion in the second quarter, compared with $5.13 billion in the same quarter of 2022, figures from the report SE Asia Deal Review: Q2 2023 by DealStreetAsia’s Data Vantage show.
In India, too, fundraising from private equity and venture capital investors plunged 57% as startups in the country managed to raise only $3.22 billion in April to June, compared with $7.56 billion in the year-ago period, according to data from the India Deal Review: Q2 2023 report.
Chinese startup funding, meanwhile, was relatively resilient. Privately held companies in the country raised $10.9 billion in the June quarter, down only 3.36% from $11.28 billion a year ago, according to the Greater China Deal Review: Q2 2023 report.
Funding activity in Indonesia has seen a gradual decline in recent quarters.
Gary P. Khoeng, a partner at Vertex Ventures Southeast Asia & India, who also oversees the Indonesian market, said that deal volumes are expected to come down following macro headwinds and investor conservatism, which have been prevalent since 2022. “In general, we are cautiously optimistic for the end of 2023 and 2024 because it appears that overall, macro has somewhat improved when compared to last year, although there could still be black swan events that may happen,” he said.
After being topped by Thailand in terms of deal value in the first quarter of 2023, Indonesian startup fundraising fell behind Vietnam in the second quarter.
Indonesian startups raised $327 million in total equity funding in the second quarter, while Vietnamese startups raised $413 million in total proceeds, exceeded only by Singaporean startups, which raised $1.24 billion in the three-month period.
Another worrying trend from South Asia was that seed-stage funding, which has so far been relatively resilient amid the funding winter, is now starting to feel the chill. Only 52 startups in Southeast Asia secured seed funding in the second quarter, marking a 29.7% decline sequentially and a 45% plunge year on year.
This trend “raises concerns as seed funding plays a crucial role in helping startups get off the ground, covering essential expenses like product development, key personnel recruitment, marketing, and early-stage operations,” the Data Vantage report said.
At the current run rate, startup funding looks poised to exceed 2022 levels only in China, where fundraising in the first half of 2023 exceeded first-half 2022 levels, thanks to a strong first quarter. Startups in greater China raised $25.7 billion from January to June 2023, up 8.8% year on year.
However, vulnerabilities surfaced in the second quarter, when fundraising fell sharply by 25.3% from the first quarter — a sign of stagnant growth in a challenging fundraising market.
In contrast, in Southeast Asia, startup fundraising in the first half of 2023 reached only 44% of levels for the same period last year.
Southeast Asian startups amassed $4.2 billion in total proceeds in the first half, down 56% year on year. The proceeds raised in the entire first half 2023 were less than fundraising in the first quarter of 2022.
The amount raised by Indian startups in the entire first half of this year is just around half of the fundraising in the first quarter of 2022. In the first half of 2023, Indian startups raised $6.58 billion in funding, a 66% year-on-year drop.
This suggests Indian and Southeast Asian startups will find it hard to make up for the shortfall in the second half of 2023. At current run rates, 2023 fundraising is expected to fall short of the previous year’s levels in these two regions.
In China, too, the impact of geopolitical tensions may curtail growth in the second half of 2023. U.S. President Joe Biden on Wednesday signed an executive order that will narrowly prohibit certain U.S. investments in sensitive technology in China.
“Limited partners are becoming more and more cautious, with some institutional investors even shying away from backing first-time funds or avoiding investment exposure in certain regions. It’s the first time ever we have investors saying that they don’t want to be in China,” said Kenneth Gaw, managing principal and co-founder of Gaw Capital Partners.
Source: Nikkei
