“Consolidation and explosion”: SEA startup investors reveal 2023 trends they are keeping close watch of

Where are we heading next year? And most importantly, will the money follow us?

2022 is seen as a pivotal year as it kickstarted the re-opening of the world after a period of border closures due to the implementation of safety measures against the COVID-19 pandemic. This meant that cross-border business activities resumed to an almost typical level of activities, pushing us to catch up with incoming opportunities (and challenges).

In the Southeast Asian (SEA) tech startup ecosystem, this meant the return of notable startup events, including our very own Echelon 2022. This meant the ability to network with potential collaborators in neighbouring countries. But not all things are well in the ecosystem. We witnessed layoffs happening to even the most notable tech giants in the industry, creating an atmosphere of anxiety about what the future might bring.

Previously, we have looked at how startups in the SEA startup ecosystem view 2023 and how they aim to brave new challenges in the new year. This time, we would like to hear from the investors’ side.

For this piece, e27 reached out to active investors in the SEA startup ecosystem to get their insights about notable trends in 2023. Their profile ranges from early to growth stage investors, from sector-agnostic to sector-specific investors.

Some of their answers might surprise you. Some of them are as expected. But if winning 2023 is part of your plan, you might not want to miss this revelation.

Offline is cool again

As a direct consequence of the reopening of borders, Dave Ng, General Partner at Altara Ventures, believes that being offline will be “cool again.”

“The world will put the pandemic in the past,” he stresses.

“This means more travel, interaction and touch points in person. Welcome back to the office! The beauty is that we are now much more adept and comfortable using online tools to augment our activities.”

Even greater urgency for climate and sustainability

According to Ysabel Chua, Associate at Forge Ventures, in addition to seeing a wave of sustainability-focused startups from a range of sectors, the region will witness more companies considering how to embed sustainable practices and adjacent solutions to their core product.

“It’s about time,” she stresses.

To seize opportunities in this field, Forge Ventures intends to stay close to founders and operators that are “building with genuine intentions and heart.”

“As an operator-led fund, we’ve always stayed close to other operators … despite being on the investment side now. This has allowed us to get a unique view and peek into what the next-generation founders are building, even while they’re just at the ideation stage,” she explains.

Robin Teurlings, General Partner at Zero Emissions Fund shared a similar opinion.

“A lot of knowledge on building a low carbon economy in SEA has been gathered in the past years, and more feasible startup ideas are starting to spring from this. When you add this to sky-high energy costs and an investor focus on business fundamentals, you get a great cocktail for this sector to boom,” he says.

The Zero Emissions Fund has supported decarbonisation startups since November 2021 through its free online acceleration programme. Next year, it plans to organise more opportunities for these startups to connect to potential collaborators in the corporate sectors. It is also looking forward to making its first direct investments.

When it comes to discussion about sustainability, food security and agriculture are the two sectors that are strongly related to it. Jefrey Joe, Co-Founder and General Partner at Alpha JWC Ventures, sees a rising interest in agriculture and aquaculture sectors in Southeast Asia, especially Indonesia.

“There are many issues across their supply chain that can be addressed through the use of technology, from farm management to distribution. In 2022, we onboarded some of the most innovative agri/aquaculture startups like AgriAku, Beleaf, Pitik, and Sayurbox. These companies have shown great trajectories … we believe this trend will continue, and more investors will be looking at these two sectors,” he explains.

Bracing yet another crisis

Despite the promises, we know that next year is not going to be an easy one. As we move out from another crisis to the next, there remains an urgency to stay vigilant and make the right decisions.

Debneel Mukherjee, Founder and Managing Partner at Decacorn Capital, says, “We are following some macro indicators such as how the inflation and likely recession in the US, coupled with the labour shortage, will continue to make technology the safe haven amidst disruption from every side.”

He continues, “We continue to look out for rare gems pursuing large problems with a strong technology moat, run by resourceful founders –as it is about the jockey on the horse at the end of the day.”

Mukherjee also dubbed the US as “the cleanest among the dirty shirts” –meaning that its startup ecosystem continues to develop and grow ideas. Whenever possible, founders from around the world “can and should go to gain the escape velocity as the largest market and best place by far for valuations and exits.”

Dave Ng, General Partner at Altara Ventures, also echoed the need to remain agile and lean next year.

“We are inevitably entering a recession. Staying agile and lean is the best way to brave 2023 and beyond. Finally, the bar is much higher for any business to exist. This applies to all – startups, private unicorns and public tech companies,” he stresses.

It’s all about the consumers

Even as Web3 continues to gain popularity, the Web2 sector remains relevant in most parts of SEA with its tried-and-true qualities. Investors have revealed to e27 the verticals that they believe will rock 2023, and there is an emphasis on consumer-facing businesses.

Elise Tan, Director of Communications and Community at Vertex Ventures Southeast Asia and India, lists down the sectors that are set to be popular. This includes cost-effective consumer solutions, a new wave of products and services empowering the creator economy, and digital finance deepening their services for the underbanked.

For Willson Cuaca, Founding Partner at East Ventures, “We believe the trend will not only be concentrated in e-commerce; we see there will be more innovations in other sectors, such as D2C, agriculture, and climate solutions in the near future.”

“While the global economy will be challenging in 2023, we believe that Indonesia and SEA have many great talents that can drive the economy in great directions. This further supports how digital infrastructure and adoption are moving towards its golden era. We will continue working with relevant stakeholders in the industry to seize opportunities and boost the development of the countries.”

Jussi Salovaara, Co-Founder and Managing Partner Asia of Antler, pointed out that as the fintech sector continues to grow, competition has become a key challenge for B2C brands.

“There is still good potential on the B2B side, especially with regards to unbundling of services, i.e. solutions built for specific verticals,” he says.

In the past few years, health and medtech have become more popular due to the pandemic, especially services that enable telehealth features and a more personalised approach to healthcare.

“… Personalised medicine and genomics is yet another technology platform that we believe is the next frontier of data analytics,” Mukherjee said.

A similar sentiment was shared by Salovaara.

“On a similar note but for AI, it’ll be interesting to see its use-case in a sector like healthtech, which has seen various tech solutions improving automation and savings, but not quite yet for improving accuracy via predictive modelling and such.”

The bar that is set higher

Related to the previous trend of responding to the global crisis, in 2023, investors believe that the bars will be set higher for startups.

According to Atin Batra, General Partner at 27V, two things will happen: Consolidation and explosion.

“Given the tight capital markets, companies running out of cash will look for acquisitions as a favourable outcome for their investors; and companies that are comfortable with their cash positions will attempt to buy accretive revenue,” he elaborates.

“In times of recession, smart individuals realise they have very little to lose by starting up. Working for big companies, who have laid off staff at one point or another, no longer carries the same cache for multiple reasons: underwater stock grants, low employee morale, and battered employer brands.”

Vinnie Lauria, Founding Partner at Golden Gate Ventures, predicts a return to “lean and mean”.

“The layoffs among tech startups in the region signal a return to fundamentals. This is a necessary course correction, resulting in leaner, meaner startups in 2023,” he says.

“For perspective, the cycle of expansion and contraction that we see in the tech startups now is no different from what we would typically see in other traditional large companies. But tech startups pack decades of growth into a short time, so the cycles of expansion and contraction are more obvious and closer together,” he continues.

Recognition of the long-term value of SEA

Despite hardships here and there, investors are convinced that next year SEA will continue to become a valuable destination for investments –if not more. One particular market stands out amongst the rest.

“Vietnam is going to shine against the backdrop of global economic challenges,” says Lauria.

“With global tech giants investing in sophisticated tech manufacturing in Vietnam, the domestic market is expanding phenomenally with a projected GDP of 6.2 per cent … turning Vietnam into a huge magnet for top tech talent. This will, in turn, spawn the next generation of tech startups that will dominate across SEA,” he continues.

He also notes a potential shift in the type of investments coming to the region.

“SEA used to attract high volumes of investment among specific investor communities familiar with the region. We’re going to see a shift to more conservative investments, but across a much wider pool of investors who are now looking for long-term value in SEA.”

Web3 is here to stay

Next year, investors predicted Web3 would continue dominating the startup ecosystem conversation. According to Terence Hooi, Co-Founder & CEO at Singular Capital, DeFi is going to continue on disrupting Traditional Finance (TradFi).

“Today, DeFi users top two million users and it is now worth US$170 billion, but that is still relatively small compared to TradFi at 22.5 trillion,” he said.

The company plans on seizing opportunities in the field by launching the next version of the Singular app on iOS and Android.

“While much of the initial protocol has been dedicated to technical topics such as stability and consistency so that stablecoins can function as a global unit-of-account and medium-of-exchange that is stable, almost no attention in comparison has been paid to improving the UI & UX of DeFi apps,” he continued.

To disrupt the existing system, the implementation of Web3 technology in banking and financial services needs to hit the right target audience. For Brian Lu, Founding Partner of Infinity Ventures Crypto, this means targeting the unbanked population in the SEA region.

“With more than 70 per cent of the region’s population being unbanked, as well as high levels of digital proficiency, SEA has great potential to lead the world in mainstream blockchain adoption, especially through crypto banking platforms,” he says.

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Image Credit: Antler, Golden Gate Ventures, 27V, Alpha JWC Ventures, Forge Ventures, Singular Capital

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