Singapore is leading startup market in the region

Startups in the region raised $1 billion in equity funding in the first three months of 2024, down 41% from the same period a year earlier and less than half the level of the fourth quarter of 2023, according to the SE Asia Deal Review compiled by DealStreetAsia, a Singapore-based financial news site. In all, 180 deals were executed in the quarter, down from 193 a year earlier.

"After a deep correction in 2023, expectations were high for a rebound in venture capital investments in Southeast Asia this year," the report said, adding, "Several key indicators fell to the lowest levels in over five years on the back of a continued global liquidity crunch, dampening valuations and risk appetites for big-ticket funding rounds."

Startup fundraising in Southeast Asia took off in the late 2010s and peaked in 2021, when digital businesses from fintech to telemedicine drew plenty of cash during the pandemic.

However, funding has been on a downtrend since the final quarter of 2021, which saw $8 billion in deals, as the pandemic-era boom in global tech stocks fizzled and interest rates began rising. Southeast Asia has been particularly vulnerable to the correction, as the startup cluster is skewed toward more competitive consumer services.

The latest report does not say when quarterly funding was last below $1 billion, but DealStreetAsia's previous surveys show fundraising continuously exceeded $1 billion after the first quarter of 2019.

By industry, e-commerce was among the sharpest decliners in the first quarter, according to DealStreetAsia, hitting a fresh low as investors shied away from capital-intensive bets. The sector saw only 10 equity funding deals and raised just $18 million, the lowest quarterly total since at least 2019.

In recent years, the region's already crowded e-commerce business saw new entrants like China's ByteDance-owned TikTok squeeze even established players. In January, Singapore-based Lazada, owned by China's Alibaba Group Holding, reportedly dismissed up to 30% of its employees across the region as competition intensified.

With public listings weak around the world, startups and investors have few ways to sell their stakes at a profit. This has led investors to shift to early-stage deals, which "surpassed late-stage proceeds for the first time since the onset of the pandemic," the report noted.

"I wouldn't be surprised if the big exits are delayed to 2025," Shane Chesson, founding partner of Singapore-based Openspace Ventures, told Nikkei Asia. "You need the market to stabilize and give companies maybe another year to let the financials solidify."

Regionally, only five late-stage deals were completed by Southeast Asian startups in the first three months of 2024, the fewest in at least in five years, the report said.

Despite the smaller ticket sizes, the largest equity deal in the first quarter was done by Asialink Finance, a Philippines-based lender to small and medium-size companies. It raised $71.3 million. Another Philippine fintech company, UNOBank, ranked among the top 10 deals, raising $32.1 million to expand its digital banking business.

Other big fundraisers in the first quarter included Singaporean mobility startup SingAuto ($45 million) and Vietnamese ride-hailing company Be Group ($30.3 million).

Singapore and Indonesia have long been the leading startup markets in the region. But the big deals in the Philippines, which were both funded by Malaysian private equity firm Creador, helped lift the country's share of regional equity funding to 14.2%, just slightly less than No. 2 Indonesia, at 14.8%.