Every year, Temasek partners with Bain & Company on the e-Conomy SEA report. It covers Southeast Asia’s digital economy and is published by Google. This year’s report, released today, highlights what many startups and investors already know: the region’s financing landscape is currently difficult to navigate. On the bright side, there is still plenty of “dry powder” to deploy.
Private financing of sectors linked to the digital economy has fallen back to 2017 levels, after reaching record levels in 2021. In the first half of 2023, total financing stood at $4 billion, meaning it is very unlikely to reach the $27 billion raised in total. of 2021. The number of deals fell to 564 in the first half of 2023, compared to 2,697 for all of 2021. The decline in funding affects all stages of startups, from seed to E+, and is occurring on Southeast Asian markets.
Although the report says the decline in funding is “consistent with global shifts toward higher capital costs and issues across the funding lifecycle,” it also notes that Southeast Asian funds returned less capital to investors than funds focused on other regions. and startups are under pressure to show they can be profitable and have clear exit strategies.
Among investors surveyed by Bain and Temasek, 87% said fundraising had become more difficult, while 64% said they had seen a decline in diligence and activity at the top of the funnel. 88% believe that going out is becoming more and more difficult.
“FSA-focused funds recorded significantly lower paid-up capital distributions than other funds focused on other regions, suggesting difficulties in generating returns for investors,” the report said. One reason for this is rising interest rates which have reduced the number of IPOs and listings on regional exchanges. Valuation discounts for secondary securities have also increased.
The digital economy is expected to reach $295 billion by 2025, but as Reuters notesthis figure was lower than the $330 billion estimate given in last year’s e-Conomy SEA report.
On a more optimistic note, the report reveals that “dry powder” is on the rise, despite investor caution. There was $15.7 billion in private equity and venture capital funds committed (less the amount called to invest) in 2022, up from $12.4 billion in 2021.
In 2023, Southeast Asia’s digital economy revenue also reached $100 billion for the first time, with a CAGR growth of 27% since 2021, e-commerce, travel, transportation and media contributing $70 billion. GMV is expected to grow 11% to $218 billion in 2023.
Additionally, digital payments are becoming increasingly popular, now accounting for more than half of transactions in Southeast Asia.