Many of us at Lanturn are entrepreneurs and/or investors. So we keep a close eye on fundraising trends in Asia. Not only does it impact us directly. It also affects our clients, both funds and the many early- and growth-stage companies we work with. And while it might be a bit early to make a call on 2019, it’s sad to say that it already seems safe to say 2019 is looking deeply disappointing compared to 2018.
So what happened? Well, it’s never easy to match or eclipse a record year, and 2018 was the strongest ever for fundraising for APAC’s VC industry. According to KPMG, 59 VC funds in APAC raised USD22.9bn in 2018. This was matched by record new investments and exit valuations. By contrast, 8 funds raised a paltry $2.2bn in APAC in Q1 2019, and it hasn’t been much better in Q2.
The bumper harvest in 2018 is only part of the story, though, and that’s more worrying. Global geopolitics, rising interest rates and a flight to “quantity” have served to make a bad situation worse, and a weak end to 2019 could turn into a rout in 2020. Fingers crossed it doesn’t. But we’re in the midst of the longest global economic boom in history, and at some point it will run out of steam; no matter what some media pundits and wealth managers might want us to believe.
Continuing friction between the US and China is denting deal and fundraising activity in APAC, and with no end in sight to the bickering between Washington and Beijing, it’s no wonder that valuations, fundraising and exit multiples have taken a hit.
Rising real interest rates and funding costs aren’t helping, either. Witness the avalanche of interest in Genesis Alternative Ventures after they launched a venture debt business to provide lending to Southeast Asian startups. Increasingly starved of equity capital, startups from across the region bombarded Genesis -- one of the few funds focused solely on lending to early-stage ventures.
Against that background, what are APAC’s VCs and other early stage equity investors focusing on?
From China and Japan to Southeast Asia and India, tech remains a key focus for VC funds. However, as funds have grown in size (following last year’s record fundraising haul) and the number of failures among VC-backed early stage tech firms has ballooned, investors have turned their attention to larger, more mature tech firms, according to a 2019 report Bain & Co. report tracking APAC investment trends. Good news if you’re Gojek, Grab, Tokopedia or another one of Asia’s unicorns. Not so great for the next generation of unicorns.
The silver lining to the cloud hanging over early-stage startups in APAC is that investors have started to pay more attention to environmental, social and governance impact investing. Well done if you’re focused on any of those areas!