Each year, Temasek partners with Bain & Company on the SEA e-Conomy report. It covers Southeast Asia's digital economy and is published by Google. This year's 2023 report underlines what many startups and investors already know: the region's funding landscape is currently challenging. The good thing is that there is still a lot of “dry powder” to deploy.
Private financing to sectors related to the digital economy has fallen again to 2017 levels, after reaching record levels in 2021. In the first half of 2023, total funding was $4.000 billion, meaning it is highly unlikely to reach the $27.000 billion total raised in 2021. The number of deals fell to 564 in the first half of 2023, compared to 2697 in all of 2021. The decline in funding affects all stages of startups, from seed to E+, and is happening across all markets of the Southeast Asia.
While the report says the funding decline is “in line with global shifts toward higher capital costs and issues across the funding lifecycle,” it also notes that Southeast Asian funds have returned less capital. to the investors than funds focused on other regions. and startups are under pressure to prove they can be profitable and have clear exit strategies.
Of investors surveyed by Bain and Temasek, 87% said fundraising had become more challenging, while 64% said they had seen a drop in diligence and activity at the top of the funnel. 88% considered that exits were increasingly difficult.
“Funds focused on Southeast Asia (SEA) have experienced significantly lower capital payouts compared to other funds focusing on other regions, suggesting difficulties in increasing returns for investors,” the report says. One of the reasons for this is interest rate increases that reduced the number of IPOs and listings on regional exchanges. Valuation discounts for secondary schools also increased.
The digital economy is expected to reach $295 billion by 2025, but according to Reuters notes that figure is down from the $330 billion estimate given in last year's e-Conomy SEA report.
On a more optimistic note, the report found that “dry powder” is rising, despite investor caution. In 2022, $15.700 billion will be committed to private equity and venture capital funds (less the amount requested for investment), a figure greater than 12.400 billion dollars in 2021.
In 2023, Southeast Asia's digital economy revenue also reached $100 billion for the first time, growing 27% compounded annually from 2021, and e-commerce, travel, transportation and media They contributed 70 billion dollars. GMV is expected to1 (Gross Merchandise Value) grow 11% to $218.000 billion in 2023.
Additionally, digital payments are becoming more popular and currently account for more than half of transactions in Southeast Asia.
1 The Gross Merchandise Value (GMV) is a metric that measures the value of products or services sold on an internet platform within a given period without taking into account any fees, taxes or discounts applied. This is one of the main metrics of startups with marketplace or e-commerce business models such as Uber, Rappi, Despegar, and, in general, any platform that enables transactions between sellers and buyers.
