Southeast Asia: Fintech Holds Strong Despite Tech Investment Pullback

Aligning with international developments, Southeast Asian tech investments recorded a substantial decline in 2023, influenced by rising rates of interest, excessive inflation and provide chain disruption. Regardless of the notable pullback, fintech continued to see traction from traders, with digital lending particularly witnessing an uptake.

New reviews launched by Cento Ventures, a Singapore-based enterprise capital (VC) agency centered on know-how startups, and Tracxn, a market intelligence platform, discover the state of the Southeast Asian tech funding panorama and share developments noticed available in the market. Among the many key developments outlined within the reviews, the businesses be aware a large decline in tech funding volumes, changes in valuations and a shift in the direction of earlier stage startups. The reviews additionally spotlight the continued dominance of fintech within the Southeast Asian tech funding panorama, with client lending rising as a popular space of VC funding in 2023.

Fintech takes the lion’s share

In H1 2023, digital monetary providers continued to steer startup investments in Southeast Asia with firms within the sector securing a complete of US$921 million. The determine represents 41% of all Southeast Asian tech funding quantity and makes fintech the highest space of focus for traders for the interval, forward of retail (US$605 million), healthcare (US$177 million) and enterprise automation (US$79 million).

It follows a long-lasting pattern the place digital monetary providers have constantly represented one-fifth of tech transactions in Southeast Asia, whereas attracting a share between 35% and 50% of invested capital.

Share of monetary providers as % of VC capital invested and # of offers, Supply: Southeast Asia Tech Funding 2023 H1, Cento Ventures, Dec 2023

The dynamism of the fintech sector comes on the again of speedy updates to regional cost infrastructure and conducive laws, in addition to a shift of focus by business gamers as they transfer away from the “super-app” mannequin to favor monetary providers origination and distribution, Cento Ventures says.

Lending segments leads, Wealthtech takes successful

Shopper lending was the favored fintech section in H1 2023, with startups within the sector securing 35% of all funding raised by the fintech sector through the interval. It follows a pattern that started in H2 2022 the place client lending started taking the lead over core funds, a significant theme in H2 2021 and H1 2022.

Based on Cento Ventures, this shift will be partly defined by rising rates of interest which have pushed up the price of capital, making it costlier for lending firms to lift debt rounds and prompting them to show to VC funding. The pattern is clear by the large US$270 million and US$100 million rounds digital lending startups Kredivo and Aspire secured throughout H1 2023, respectively.

On the different finish of the spectrum, information present that the wealth administration sector is present process a substantial setback, witnessing a discount of its share in whole fintech funding. In H1 2023, wealth administration and capital markets startups in Southeast Asia secured 13% of all fintech funding within the area. The speed is the bottom stage recorded since H1 2021 throughout which the sector made up 31% of all fintech funding.

Based on Cento Enterprise, one driver of this pattern is the 2022 bear market within the digital property house and the tip of low-cost credit score, which have decreased the demand for margin buying and selling.

Capital invested by monetary providers sub-sector, %, Supply: Southeast Asia Tech Funding 2023 H1, Cento Ventures, Dec 2023

Southeast Asian tech funding drops 54% YoY

Wanting on the broader tech startup panorama, the report reveals a notable pullback in VC funding. In H1 2023, Southeast Asia recorded a considerable 54% year-on-year (YoY) decline in tech funding quantity which reached US$3.1 billion for the interval.

The determine marks the bottom first-half funding quantity since 2017 and means that the deal panorama could also be reversing to ranges noticed earlier than COVID-19, probably even returning to requirements seen earlier than the period of unicorn startups, Cento Ventures says.

This drop was pushed partially by the decline of mega-rounds of financing US$100 million and up, which carried on in H1 2023. Mega-rounds totaled a mere US$800 million in H1 2023, a stark distinction from H1 2021’s US$5.3 billion and H1 2018’s all-time excessive of US$7.5 billion.

Southeast Asia capital invested by half-year interval, US$B and offers performed, #, Supply: Southeast Asia Tech Funding 2023 H1, Cento Ventures, Dec 2023

Valuations proceed to regulate

Valuations continued to regulate in H1 2023, with Sequence B startups experiencing probably the most turbulence, and Indonesia and the Philippines main the best way. Conversely, Sequence B startups in Malaysia and Vietnam noticed their valuations rise significantly, recording a 50% and 95% improve, respectively.

In Indonesia and the Philippines, traders in Sequence B have grown significantly delicate to later-stage rounds (US$50-100 million per deal), which had dried up by the primary half of 2023, the report says. Consequently, valuations throughout Sequence A and B have begun to converge regionally, resulting in a big discount in Southeast Asia’s valuation hole between markets.

Sequence A median pre-money valuation by nation, 2022 H1 – 2023 H1 US$ million, Supply: Southeast Asia Tech Funding 2023 H1, Cento Ventures, Dec 2023

Sequence B median pre-money valuation by nation, 2022 H1 – 2023 H1 US$ million, Supply: Southeast Asia Tech Funding 2023 H1, Cento Ventures, Dec 2023

Investor shift focus in the direction of earlier startups

As Southeast Asia entered a interval of market correction, traders continued to shift their consideration in the direction of earlier phases. In H1 2023, investments in seed and pre-Sequence A (US$500,000 – US$3 million) elevated by 16%, following a gentle pattern noticed over the previous three years.

Sequence A to early Sequence B rounds of US$3 to 10 million continued slowing down at practically the identical charge as within the earlier interval, dropping by 11% between H2 2022 and H1 2023 and by 18% between H2 2022 and H1 2023, respectively.

Bigger offers of US$50 million to US$100 million pulled again significantly, recording a 23% drop between H2 2022 and H1 2023. These offers totaled a mere US$300 million in H1 2023, a far cry from the US$2 billion recorded for H1 2022.

Southeast Asia tech investments by deal dimension, Supply: Southeast Asia Tech Funding 2023 H1, Cento Ventures, Dec 2023

Antler, East Ventures most energetic traders in 2023

Based on information from Tracxn, Antler, East Ventures and 500 International had been the three most energetic traders within the Southeast Asian tech scene final 12 months, taking part in 21, 17 and 10 funding offers within the area in 2023, and backing names equivalent to Singapore cost startup Qashier, Singapore logistics startup Locad, and Indonesian e-commerce know-how firm Sirclo.

Within the seed stage, East Ventures, Wavemaker Companions and Saison Capital had been the highest three traders, whereas Seeds, Peak XV Companions, and Gobi Companions had been probably the most energetic within the early stage. When it comes to late-stage funding, EDBI was the highest investor by deal depend with two transactions within the area final 12 months, together with Engine Biosciences’ US$27 million Sequence A extension.

Singapore continued to dominate the tech panorama in 2023, accounting for 53% of all tech funding secured that 12 months, information from Tracxn present. Jakarta adopted go well with, accounting for 33% of all tech funding in 2023.

Tech startup funding by cities in Southeast Asia, Supply: Geo Annual Report, Southeast Asia Tech – 2023, Tracxn, Dec 2023

Featured picture credit score: edited from Freepik