Jeff (Startup Whisperer)

I recently did a quick data analysis on Southeast Asia early stage venture capital investments in different firms over the past few years. The data (from Crunchbase) shows the ratio of investments made by each firm in a recent period of hype (March 2021 to March 2022) compared to their average number of investments over the previous 2-3 years. Let's dig into the data and see what insights we can gather. 

Overall, the data shows a fair bit of variation between firms in terms of how their recent investment levels compare to their historical averages. 

A few key observations: 

• Most firms (15 out of 17) saw increases in their investment levels compared to historical averages. This indicates an overall uptick in VC activity among these firms during the hype period. However, the degree of increase varied quite a bit. 3 firms saw modest increases of 50% or less compared to their averages. There are 2 firms that saw massive increases of 200-500% above their typical investment cadences. 

• There were 2 firms that saw decreases in investments in the 25-60% range compared to historical averages. So the pullback in investing among these firms depicted strong contrarian behavior compared with the surge in activity among the highest growing firms. 

Overall, these data reflect a VC market that saw accelerated growth in 2021 but with an uneven distribution - very few firms are pulling back showing investment discipline while others are rapidly expanding investments. 

In the complex and multifaceted realm of venture capital and startups in 2023 post 2022 slow down, emerging markets present a unique set of opportunities and challenges. A significant challenge is the potential diminution of later-stage follow-on funds and a concurrent decline in the quality of later-stage investors. This situation can engender a funding gap for startups in their growth phase and a dearth of strategic guidance. However, through strategic planning and innovative thinking, early-stage funds can effectively navigate these challenges.

When later-stage capital becomes scarce, it can create a funding vacuum that hampers the growth trajectory of startups, potentially leading to a deceleration in the overall startup ecosystem. The decline in the quality of later-stage investors can exacerbate this situation (based on performance and just the law of large numbers). In such a scenario, early-stage funds need to adopt a proactive and innovative approach. Here are some strategies:

1. Strategic Partnerships: Early-stage funds should seek alliances with firstly your limited partners, corporate investors, family offices, or other entities that have a vested interest in the startup ecosystem. These partners can provide not only capital but also strategic guidance, market access, and other resources. Focus and Lean on your Limited Partners, especially those who are financially driven not just strategic.

2. Syndicate Investments: Early-stage funds should consider forming syndicates with other early-stage investors. Syndicates allow investors to pool their resources, share risks, and increase the total amount of capital available for follow-on rounds.

3. Investor Relations: Early-stage funds should maintain strong relationships with existing investors and continuously engage with potential new investors. Regularly communicating portfolio companies' progress and milestones can help attract follow-on investments. 

4. Continue to focus on Capital Efficiency (from 2022): Early-stage funds should work closely with their portfolio companies to improve their capital efficiency. Adopt an advisory mindset builds trust and results.

An Analysis of Founder and Executive Education Backgrounds at Top Southeast Asian Startups

I conducted an analysis of the educational backgrounds of founders at 99 of the highest-funded startups in Southeast Asia. Using Crunchbase as the database and then researched the schools and programs listed for key leaders at each company.

By far the most represented university is National University of Singapore (NUS), with 18 attendees out of 227. No other university comes close, underscoring NUS’s dominance as a pipeline for Southeast Asian startup talent (bachelors). 

U.S. schools are also popular, especially Stanford (6 attendees) and Carnegie Mellon (6 attendees). However, an interesting finding is Harvard Business School (MBA) comes in second with 12 attendees.

Several other insights emerge:

• Within Singapore, beyond NUS, notables include Nanyang Technological University (10 attendees) and Singapore Management University (5 attendees).

• STEM degrees are common from schools across the board.

• US schools beat UK and Australian schools by a wider margin.

• Indonesian founders - ITB is creates more of such founders than University of Indonesia.

This analysis still only scratches the surface. With additional data on companies, founders, executives, and their educational paths, we could develop even richer insights into the human capital flows behind Southeast Asia’s tech innovation and entrepreneurship. Please let me know if you would like me to pursue any further research.

p.s For Parents from Singapore: Go to NUS for bachelors and HBS for MBA - there you go no pressure. You are welcome.

Forewarning: 

I accurately forecasted the tech crash globally and in SE Asia earlier in 2021 (although I was a quarter late (Q3 2022)- I did not predict the the war). The tech industry has seen a major downturn in 2022 due to various macroeconomic factors like rising inflation, interest rates hikes, and geopolitical tensions. While the timing of my prediction was slightly off, the rationale behind the forecast was sound.

The next softer correction is expected in Q3/Q4 2023 due to declining late 2022/early 2023 funding and disparity between performance and valuations. Venture capital funding in tech startups peaked in 2021 and has been declining ever since. At the same time, the valuations of many private tech companies remain very high relative to their performance and growth. This disconnect is unsustainable and will likely lead to a downward valuation adjustment for many startups.

To safeguard your investments and your own startups, consult with trusted advisors, investors, and shareholders on your business growth, projections, and capitalisation strategy. Startup founders and investors should review financial projections and valuation models to ensure they are grounded in realistic expectations for growth and performance. Companies should also evaluate their capital needs and options for meeting those needs if VC funding continues to slow down (this slow down will stretch till end of 2023). Plans may need to be made for extending runway, cutting costs, and pursuing alternative funding sources. There will be instances where existing investors may force strategic options to even cease operations and return capital, be mindful of the rationale and use data and evidence to help with your decision making.

Brace for impact from end of Q2. The effects of reduced funding and more cautious investor sentiment will start to be felt more acutely toward the end of the second quarter of 2023 and into the third quarter. Startups and investors should prepare now for this changing landscape to avoid being caught off guard.

Stay alert.