Investments in Indonesian startups plummet 87% YoY from US$ 3.3 billion to only US$ 400 million during the first half. Google, Temasek, and Bain & Company reveal the contributing factors.
Aadarsh Baijal, Partner and Head of Vector in Southeast Asia at Bain & Company, attributes this decline to a combination of macroeconomic factors and specific issues within the funding cycle in Southeast Asia.
“When talking to investors, most of them prefer a wait-and-see approach,” added Aadarsh.
He outlined the reasons behind the sharp drop in startup investments in Southeast Asia, including Indonesia:
- High Cost of Capital: The expense of capital is a significant deterrent;
- Decrease in Startup Valuations: Startups are facing lower valuations;
- Challenging Path to Profit for Startups: The road to profitability for startups and the challenging capital market environment make exit strategies harder to achieve;
- Prolonged Valuation Calculations: Valuation calculations take longer than in previous years, making funding closures more challenging;
- Cautious Investors: Investors are cautious and adopting a wait-and-see strategy.
“Investors are waiting for next summer to see how the market develops and are waiting to calibrate investments in line with anticipated growth rates,” said Aadarsh.
However, Google, Temasek, and Bain & Company still recommend Indonesia and Vietnam as top investment choices in Southeast Asia.
According to the ‘e-Conomy SEA 2023’ report, startup investments in Southeast Asia dropped 69.2% YoY from US$ 13 billion to US$ 4 billion in the first semester, reaching the lowest level in six years. The decline in investment values in various Southeast Asian countries is as follows:
- Philippines: -79% from US$ 800 million to US$ 200 million;
- Thailand: -66% from US$ 300 million to US$ 100 million;
- Indonesia: -87% from US$ 3.3 billion to US$ 400 million;
- Malaysia: -52% from US$ 500 million to US$ 200 million;
- Singapore: -63% from US$ 7.5 billion to US$ 2.8 billion;
- Vietnam: -24% from US$ 700 million to US$ 600 million.
The breakdown of investment deals in each country also saw a decline:
- Philippines: 68 to 23;
- Thailand: 42 to 24;
- Indonesia: 301 to 100;
- Malaysia: 77 to 47;
- Singapore: 572 to 318;
- Vietnam: 148 to 48.
Indonesia’s investment value decline ranks it below Vietnam and Singapore. Google, Temasek, and Bain & Company explain the reasons for the drop in Southeast Asian startup investments, despite an increase in available funds in 2022:
- Investors are pressured to realize fund exits or invest, providing returns and distributing capital;
- Funds initiated in the mid-2010s are now in the late-stage harvest phase, pressuring venture capital to deliver returns;
- Half of the investors can only partially meet or do not reach divestment targets;
- Realizing returns and distributing funds pose major challenges in fundraising;
- 87% of investors find fundraising more difficult;
- 64% of investors have reduced interest in investing;
- 88% of investors face challenges in a more difficult fundraising environment.
“Exit remains a primary concern because startup investments in Southeast Asia are considered to yield lower returns compared to other regions,” stated Google, Temasek, and Bain & Company.
