The central business district in Singapore. — Bloomberg
SINGAPORE: South-East Asia has a robust pipeline of high-quality start-ups that are finding it hard to secure funding at a time when they need cash to grow, resulting in a dearth of large deals.
While the region has been abuzz with private capital investments in recent years, the excitement was centred around the early-stage venture capital (VC) space for nascent start-ups.
There were fewer deals in private equity (PE), which tends to invest in mature companies operating in traditional industries.
Kaidi Gao, VC analyst at research firm PitchBook, told The Straits Times that the funding gap is a challenge for companies looking to grow.
“Unlike the United States, where there is comprehensive financing coverage across the venture lifecycle from a company’s inception all the way to public listing, South-East Asia lacks robust funding support for the later stages of a venture,” she said.
In addition, many PE investors put dealmaking on hold in 2023, due to worries about slowing economic growth, high interest rates that raised the cost of debt and volatile stock markets.
Yet, venture-backed companies need to raise more capital during their growth stage, which is when their business models are proven and the focus shifts from experimentation to scaling.
Without additional capital injections, these companies are unable to hire experienced staff, expand geographically, explore mergers and acquisitions and other levers to scale and become sustainable and profitable companies.
Between 2020 and 2023, the proportion of VC funding rounds in South-East Asia with a ticket size north of US$25mil remained below 9% of deals.
VC firms have also scaled back on investments. Nearly 70% of the VC firms that have raised a fund to invest in start-ups and new ventures since 2015 have only one fund now or are still investing out of their first one.
While the goal for many regional private investors is to sell their shares in portfolio companies on local exchanges within South-East Asia, there has also been a lack of blockbuster exits that drive outsized financial returns from a fund perspective, the PitchBook VC analyst said. — The Straits Times/ANN
