In a new report on the state of tech startup investment in the first half of 2023, Cento Ventures revealed that in that period, Southeast Asian (SEA) startups received “tepid response” from investors, logging a 54 per cent year-on-year drop in investment volume. According to the report, this level has not been seen in five years.

However, the report also stated that the decline in regional investment volume is likely ending as the appetite for fresh investments slowly picks up.

“The deal landscape appears to be reversing to levels seen before COVID-19 – and quite possibly to pre-unicorn era standards. The return to predual-bubble valuations and deal sizes follows the decrease in investment volumes but with a significant lag. Interestingly, this market correction only took place a full year after the first chills of the market downturn were felt in the US — the region did not see a sharp decline in capital intake until the end of 2022,” Cento Ventures said.

“With half of the capital gone, Southeast Asia remains firmly below its 2017-2020 capital intake baseline — the only global market other than China to have adjusted so quickly, as 2021-2022 exuberance hasn’t lifted investment levels in SEA nearly as much as in India or in Latin America. This, along with the mega-deal volume at a historical minimum, leads us to believe SEA might be looking at a slightly softer year-on-year drop in investment activity going forward compared to its peer regions.”

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Cento Ventures highlighted that though investment flow has slowed, SEA saw multiple launches of early-stage investment funds in Vietnam. It also saw increased activity from local conglomerates and multiple capital-intensive business models in the Philippines. In Malaysia, government agencies are supercharging investment activity.

“As the region entered an era of correction, investors continued to shift their attention towards earlier stages. Despite the growing negative mood towards the second half of 2023, SEA’s core venture stack held up surprisingly well. We saw capital across Pre-A to Series C (all $0.5-50 million per deal ranges) was still being deployed at about the same pace as in the preceding three years. The mega-deals category (more than US$100 million), however, is nearly at a historic minimum, with only a few companies in the region (eFishery, bolttech, Kredivo and Moladin) raising or announcing US$100 million plus rounds in H1 2023.”

In search for the next Indonesia

The report also puts the spotlight on the next country in SEA that has great potential for global investors–or, as we may call it, “the next Indonesia.”

“Since early 2022, as valuations in Indonesia peaked and the search for the next regional growth story unfolded, narratives of Vietnam’s ‘Next China’ and the Philippines’ ‘Next Indonesia’ have been tested against each other. Nearly two years on, neither market is a clear break-out story. Vietnam has seen multiple launches of early-stage investment funds and held on to a respectable portion of regional investment flow, despite investment activity having been subdued on account of the economic malaise,” the report said.

It further elaborated the potential of these countries.

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“The Philippines market has seen a surge of activity from multiple local conglomerates and the emergence of multiple capital-intensive business models, mirroring Indonesia’s trajectory in 2017-2019. These developments, however, are meeting with the near absence of later-stage capital to power them further,” the report explained.

“Elsewhere, the Malaysian government’s attempt to super-charge investment activity in the country through multiple government agency-led programs may have worked, giving the country a share of regional investment equal to Vietnam and a significant uplift in Series A and B valuations.”

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