Startup fundraising across Asia’s key markets–Southeast Asia, India, and Greater China–fell sharply in the second quarter of this year (Q2 2023), compared with a year ago.
The weakness in the June quarter does not augur well for fundraising in the full-year 2023. Data compiled by DealStreetAsia DATA VANTAGE show that in Southeast Asia and India, funding amassed in the entire first half (H1 2023) is less than that in Q1 2022.
The steepest fall in funding was witnessed in Southeast Asia at 58.6%. Startups headquartered in the region raised $2.13 billion in Q2, compared with $5.13 billion in the same quarter of 2022, show data from the report SE Asia Deal Review: Q2 2023 by DealStreetAsia DATA VANTAGE.
In India, too, fundraising from private equity (PE) and venture capital (VC) investors plunged 57% as startups in the country managed to raise only $3.22 billion in April-June, compared with $7.56 billion in the year-ago period, show data from the India Deal Review: Q2 2023 report.
Chinese startup funding, meanwhile, was relatively resilient. Privately-held firms in the country raised $10.9 billion in the June quarter, down only 3.36% from $11.28 billion a year ago, according to the Greater China Deal Review: Q2 2023 report.
Indonesia drags down funding momentum in SE Asia
Funding activity in Indonesia has been witnessing a gradual decline in recent quarters.
Gary P. Khoeng, a partner at Vertex Ventures Southeast Asia & India who also oversees the Indonesian market, said that deal volumes are expected to come down following macro headwinds and investor conservatism, which have been prevalent since 2022. “In general, we are cautiously optimistic for the end of 2023 and 2024 because it appears that overall macro has somewhat ‘improved’ when compared to last year, although there could still be black swan events that may happen,” he said.
After being outranked by Thailand in terms of deal value in the first quarter of 2023, Indonesian startup fundraising fell behind Vietnam in the second quarter.
Indonesian startups raised $327 million in total equity funding in the second quarter, while Vietnamese startups raised $413 million in total proceeds and were outranked only by Singaporean startups that raised $1.24 billion in the three-month period.
Another worrying trend from South Asia was that seed-stage funding, which has so far been relatively resilient amid the funding winter, is now starting to feel the chill. Only 52 startups in Southeast Asia secured seed funding in Q2, marking a 29.7% decrease sequentially and a 45% plunge year-on-year.
This trend “raises concerns as seed funding plays a crucial role in helping startups get off the ground, covering essential expenses like product development, key personnel recruitment, marketing, and early-stage operations”, the DATA VANTAGE report noted.
Will full-year funding exceed 2022 levels?
At the current run rate, startup funding looks poised to exceed 2022 levels only in China, where fundraising in H1 2023 exceeded H1 2022 levels, thanks to a strong first quarter. Startups in Greater China raised $25.7 billion in Jan-June 2023, up 8.8% YoY.
However, vulnerabilities surfaced in the second quarter when fundraising fell sharply by 25.3% from Q1–a sign of stagnant growth in a challenging fundraising market.
In contrast, in Southeast Asia, startup fundraising in H1 2023 was only 44% of H1 2022 levels.
Southeast Asian startups amassed $4.2 billion in total proceeds in H1, down 56% year-on-year. The proceeds raised in the entire H1 2023 were less than the fundraising in Q1 2022 (see chart below).
The amount raised by Indian startups in the entire H1 this year is just around half of the fundraising in Q1 2022. In H1 2023, Indian startups raised $6.58 billion in funding–a 66% year-on-year drop.
This suggests that Indian and Southeast Asian startups will find it hard to make up for the shortfall in H2 2023. At current run rates, 2023 fundraising is expected to fall short of the previous year’s levels in these two regions.
In China, too, the impact of geopolitical tensions may curtail growth in H2 2023. President Joe Biden on Wednesday signed an executive order that will narrowly prohibit certain US investments in sensitive technology in China.
“Limited partners (LPs) are becoming more and more cautious with some institutional investors even shying away from backing first-time funds or avoiding investment exposure in certain regions. It’s the first time ever we have investors saying that they don’t want to be in China,” said Kenneth Gaw, Managing Principal & Co-Founder, Gaw Capital Partners.
The reports SE Asia Deal Review: Q2 2023, India Deal Review: Q2 2023, and Greater China Deal Review: Q2 2023 are available exclusively to DealStreetAsia-DATA VANTAGE subscribers. Subscribe/upgrade your subscription now to access our entire set of reports.
