With issues such as Russia’s invasion of Ukraine, interest rate increases to counter inflation, and lingering pandemic effects, such as China’s lockdown and disruptions in supply chains significantly impacting the global economy, Southeast Asian nations are right to be worried. These factors are bad news for businesses worldwide, especially early-stage startups.
Additionally, the latest World Economic Outlook, published last month, projected a low 2.7% global growth rate for next year. It expects that a substantial percentage of countries generating more than one-third of global output will experience contractions in the year or next. According to the latest report prepared for the Group of Twenty (G20), a recent high-frequency indicator has confirmed that the outlook is even gloomier.
Surprisingly, the Southeast Asia early-stage startup scene is thriving despite the region’s global headwinds.
Continued economic growth
By 2022, the region’s digital economy will likely reach USD 200 billion in gross merchandise value (GMV). According to Google, Temasek, and Bain & Company, this figure could reach USD 1 trillion by 2030. Despite the popularity of verticals such as transport and food, online travel, online media, and digital financial services, eCommerce is still the main driver of growth.
With a compound annual growth rate (CAGR) of 17%, the segment’s GMV increased by 17% to USD 131 billion. Digital financial services and all their sub-sectors have grown due to the pandemic, including digital payments, investments, and insurance. In the next three years, the investment tools market should grow at a rate of 34%, exceeding USD 92 billion in assets under management. Vietnam and the Philippines lead the pack despite the challenges, with both countries’ digital economy GMVs set to increase by 31% and 20% from 2022 to 2025.
East Ventures is making strides in the region
East Ventures, an Indonesia-focused venture capital firm, raised a total of USD 550 million during the final close of its latest fund in May despite news of higher interest rates and economic uncertainty. To maintain its position as a leading VC firm in Southeast Asia, the Singapore-based firm, which is currently managing assets worth over USD 1 billion, will continue to invest in FinTech, logistics, e-commerce, healthcare, and Web3.
Founded in 2009, East Ventures, specialises in Indonesian venture capital and provides multi-stage investment services, including Seed and Growth investments, to over 200 companies throughout Southeast Asia. Aruna, Alami, Tokopedia, Xendit, Traveloka, and others are among the company’s impressive portfolio of startups.
The company promised to invest in businesses that fit its philosophy, namely people and the potential market for early-stage startups.
Iterative Capital launches Fund II
In a recent announcement, Iterative Capital, a Singapore-based venture capital firm that operates a Y-Combinator-style accelerator programme, announced it had received USD 55 million in funding. Cendana, K5 Global, Village Global, and Goodwater Capital invested in Iterative Capital’s Fund II, with over 65 companies receiving backing from Iterative’s Fund I since it launched in 2021. A total of USD 163 million in follow-on funding was raised for its portfolio companies, which are worth a total of USD 1.2 billion. The companies in Iterative’s portfolio have received investments from Insight Partners, Tiger Global, Monk’s Hill, Wavemaker, and Hustle Fund, among others.
Through this new funding, Iterative can add programmes for founders at different stages, including those for early-stage entrepreneurs not yet ready for accelerators and late-stage entrepreneurs with substantial traction. Fund II will consist of approximately 30 startups in each batch, making it larger than Fund I. Unlike its first fund, which did not allow follow-on investments, the firm intends to invest in 100 or more companies at various stages.
According to Brian Ma, co-founder and general partner of Iterative, they raised investments in Fund II within four weeks due to the success of Fund I’s founders. Limited partners from the first fund returned, while impressive return profiles in Southeast Asia attracted new investors. Iterative’s 80+ venture partners and visiting partners are all former or current CEOs.
“Specifically, we hold weekly office hours, group office hours, speakers, and workshops with our visiting partners, have scaled-out fundraising boot camps, a network to automate white-glove introductions to investors, and invite 450+ investors to our demo days to interact with our startups,” Ma said.
Additionally, several stakeholders are supporting early-stage startups through the project, including Dropbox co-founder Arash Ferdowsi, Bukalapak co-founder and former CEO Achmad Zaky, Andreessen Horowitz general partner Andrew Chen, former Y-Combinator COO Qasar Younis, former Foursquare CEO David Shim, and Airbnb Asia CEO Kum Hong Siew.
A promising future
With the support of venture capital giants, it is fair to say that many Southeast Asia early-stage startups will be in an excellent position to handle the new wave of customers’ behavioural shifts and look forward to a promising future. It will be interesting to see if the region continues to move forward against all odds in 2023 and beyond.