2022 was a turbulent year for most of the world, and the VC/startup ecosystem was no exception. Global political and economic turmoil shook investor confidence and sparked a pullback from the record levels of startup investment that we saw in 2021. In the third quarter of 2022, startup venture funding fell by 50 per cent year-on-year, triggering dire warnings about funding winters and predictions of an impending recession in 2023.
Despite the investing slowdown, VC firms in the ASEAN region broke new records by raising US$3.03 billion across 23 funds in the first half of the year. Key sectors such as e-commerce, logistics, transportation and agritech continue to attract investment dollars – with Alibaba’s US$1.3 billion total investment in Lazada being particularly noteworthy. Impact startups, especially climate tech companies, are also beginning to see investor interest.
As we head into 2023, there are lessons we can learn from 2022 – which, despite everything, was still the second-highest investment year in history – and hopefully use these learnings to navigate through projected headwinds for the start-up investment ecosystem in the year ahead.
Kickstart’s 2022 snapshot
We have been accelerating our pace of deployment over the past three years. Between the three funds we manage, we closed seven new deals and seven follow-on investments worth a total of over US$23 million. We successfully structured complex investments to optimise risk and reward in turnaround situations and deepened our bench of investment professionals.
Also Read: A year in review: How e27 served the tech ecosystem in 2022
- Under the ACTIVE Fund, we closed five new deals and five follow-on investments. Highlights include: Co-leading the Series A+ round for Clarity, which uses innovative hardware and software solutions to monitor air quality affordably and at scale.
- Leading the Series A round for Mosaic Solutions, a full-suite restaurant management system for the burgeoning Philippine F&B industry.
- Leading the Series A of Eezee, a Singapore-based B2B marketplace, which offers a view into the future of industrial procurement.
- Leading the Series A for SariSuki, the leading community commerce startup in the Philippines.
- We also participated in the Seed round of Esevel, a workforce provisioning startup serving the IT needs of fast-growing companies across Southeast Asia.
For Kickstart Fund One, our evergreen fund focused on early-stage startups in the Philippines and beyond, we closed two new deals:
- Pickup Coffee, a fast-growing, digitally-enabled coffee chain serving high-quality beverages at affordable prices.
- Closer, a centralised chat app for all direct messages.
New investments aside, we made sure to support existing portfolio companies in navigating the ongoing global turbulence. We made follow-on investments into seven companies across our portfolio and provided strategic advice and commercial intros to several others.
These activities align with the ACTIVE Fund’s Investment Theses and the Ayala Sustainability Blueprint, which serve as our guide for investing in the future we hope to build for the Philippines.
What Kickstart is watching for 2023
We believe that online-to-offline (O2O) commerce, mobility solutions, solutions to food insecurity, and solutions that address resource insecurity and climate change will see rapid growth in 2023.
Southeast Asia’s digital economy is expected to hit 20 per cent growth in gross merchandise value (GMV) this year despite headwinds and may reach the US$200 billion milestone a full three years earlier than predicted.
We also expect that the shopping habits acquired during the COVID-19 pandemic will persist. With such a long growth runway and a growing digital-first population, O2O models are showing promise in converting new and existing online channel visitors into offline sales.
Developing countries continue to struggle with mobility issues, especially with the growing urban sprawl outpacing the expansion of public transportation networks. The myriad inefficiencies in public mobility are costing countries billions of dollars annually and reducing citizen quality of life. Solutions such as electric vehicles (EVs) are still in their infancy in this region, but there is an opportunity for VCs to participate in driving tech-enabled solutions.
In a similar vein, food insecurity is also a glaring problem that requires immediate attention, especially in the Philippines. Nearly 12 per cent of the Philippine population suffers from involuntary hunger, but the Philippines is a net importer of basic food products, and retail food prices are double – if not triple – farmgate prices. This makes food inaccessible to many Filipinos. We are looking to emerging technologies such as AgriTech, alternative proteins, and supply chain/logistics tech to plug the gap.
Last but certainly not least, climate change has regularly been cited as a key driver of disaster events, and emerging economies such as in Southeast Asia are particularly vulnerable. The Philippines alone sees about 20 typhoons per year, each claiming hundreds of lives and causing millions of dollars in damage.
While this is a complex and multifaceted issue to solve, we are buoyant on climate tech, including CleanTech, renewable energy and battery storage solutions. We are also determined to continue championing the decarbonisation agenda via the ACTIVE Fund’s investments.
Kickstart’s 2023 plans
We have a comfortable amount of dry powder to deploy through the ACTIVE Fund. Although the outlook for 2023 remains publicly bearish, we recognise the opportunity this affords to make good deals, with valuations likely to be more favourable due to cautious investor sentiment.
Given the promising growth projections for the SEA region, our focus for 2023 is likely to continue to be in SEA. We are looking at a number of companies that have displayed good fundamentals and are currently at attractive valuations – we believe that if these companies can weather this storm, they will emerge in very strong positions once the markets recover.
Now that we have an expanded investment team and borders have reopened region-wide, it is much easier to connect with founders and investors, experience new innovations first-hand, and seize the best opportunities to invest in promising start-ups – particularly in our sectors of interest. As such, we intend to increase our investment pace for 2023.
Advice and projections for 2023
In the short term, we expect late-stage funding to continue to decline as global macroeconomic conditions are currently not favourable for initial public offerings (IPOs). In fact, many startups have already postponed their IPO plans this year.
Overall, we do anticipate conditions to improve and trend upwards again next year as the global situation stabilises, but we do not expect it to be a quick bounce back.
As such, Kickstart’s suggestions to founders who are bracing for 2023 are to focus on what you do best and protect the progress you have already made. With many companies now tight on funds and headcount, especially with the recent slew of tech layoffs, companies must prioritise strategically to conserve resources.
Core projects that can deliver quicker, tangible wins should be given priority over more speculative or experimental projects. Similarly, growing an existing customer base will incur less cost than trying to acquire new customers and will also yield healthier margins. The idea is to build a sufficiently long runway, raise morale and confidence, and be resilient enough to outlast the winter and wait for spring to come.
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