Through the first half of this year, Southeast Asia’s startups had a gold rush moment as private capital poured into the region on the back of an acceleration in the digitalisation of consumer lifestyles and business activities during the pandemic. The same, however, cannot be said for fundraising by venture capital (VC) firms in the region.
Southeast Asia-based VC firms witnessed muted fundraising during the second quarter, with only two venture funds holding a final close, finds the latest report by DealStreetAsia – DATA VANTAGE.
As a result of a subdued Q2, VC fundraising performance – measured in terms of both volume and value – in the first half of the year stayed below pre-pandemic levels as well as the first half of 2020.
According to SE Asia’s VC Funds: Q2 2021 Review, the first half of 2021 saw seven funds securing a final close. Though higher than six funds in the first semester of last year, the total proceeds raised was 21% lower at $874 million.
Final closes, however, do not necessarily reflect overall fundraising performance. The report looks at fundraising milestones to track capital raised within a specific time frame.
During the first semester, a total of 16 funds reported new fundraising milestones and $918 million in total proceeds, lower than 18 funds in the first half of 2020 ($1.1 billion) and 20 funds in the same period in 2019 ($1.9 billion).
“While LPs seem to be more cautious given the current uncertainty and volatility… it is also likely that they are waiting for funds to realize initial returns in the market for them to commit more money into new funds,” said Yinglan Tan, the founding managing partner of Insignia Ventures.
Tan believes that “the slowdown” is slowing down, adding that the public market debut of homegrown tech giants such as Bukalapak, Grab and GoTo, as well as the rapid creation of new tech unicorns, would result in a gradual increase in VC fundraising within the next few years.
Historical data shows that the corpus of funds raised by local VCs has been trending upwards in line with the growing capital needs of homegrown startups. This is reflected in the median value of closed funds, which increased from $60 million in 2018 to $68 million in 2019 and $100 million last year. The average value also followed the same trajectory.
However, the first half data on both median and average values suggests room for caution. Although the data is not conclusive, the fund managers we spoke to agree that general partners are lowering their expectations amid the current market conditions.
“Many fund managers have lowered their fundraising target, mostly trying to achieve a similar size as their previous fund as they rely highly on the continued commitment of existing LPs,” said Aldi Adrian Hartanto, partner at Arise, a new fund by MDI Ventures and Finch Capital.
Cautious LPs are either doubling down on existing GPs or stepping up their scrutiny of fund managers, looking at their track record and their overall strategy for a post-pandemic world.
Speaking from the perspective of fundamentals, Monk’s Hill Ventures managing partner Kuo Yi Lim said the surge in tech startup activities and the ecosystem’s growth had driven LP interest in the asset class globally. This, he argues, will help propel VC fundraising in Southeast Asia.
“LPs are likely to favour GPs that they are already investing with or have been tracking for a while,” he said, adding that VCs that raised their last funds in 2018 and 2019 are now back in the market to raise more capital.
As of the report’s publication, there are 62 venture funds in the market to raise a total of $5.6 billion. Of this, at least $1.3 billion has been secured through interim closes as of August.
Our latest report, SE Asia’s VC Funds: Q2 2021 Review, is available exclusively to DealStreetAsia – DATA VANTAGE subscribers.
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