I crunched some data from Pitchbook and Crunchbase on the SEA funding. Only startups that have been backed by angels, seed fund, incubators/accelerators and venture capital are included in my analysis. The following are my findings and views on the landscape in 2016:
- Number of deals in SEA dropped by 32% from 2015
- Median deal size also hit record high at $1m
- Total funding hits record high at $2.2bn in 2016 (41% GAGR from 2013)
- HOWEVER, 80% of these $2.2bn went to the 8 most well-funded startups.
- That includes 6 Singapore-based startups (Grab, Garena, Paktor, Trax Image Recognition and AstroScale and 2 Indonesia-based startups (GO-JEK and Tokopedia)
- While E-commerce and marketplace app are still hot, there is an emerging trend of enterprise solution, B2C FinTech and AI/ML startups in smaller rounds
- Most investors are non-SEA based fund
Investors have been very cautious in 2016, mainly adopting the ‘wait-and-see’ approach to investing whilst placing fewer but larger bets on proven business models. It’s been a tough and cold funding winter for most startups looking to raise their venture round (late Seed to Series A/B). However, this year-long funding winter is not unique to only SEA, as outlined by VenturePulse, an analysis jointly published by CBInsights and KPMG. On another note, the increase in median deal size coupled with the fall in number of deals further support the argument that investors are looking at startups with proven business models, a large addressable market, traction and team experience investing at venture round.
Most SEA investors are still foreign funds, with the likes of East Ventures, Gobi Partners and Wavemaker Partners expanding their presence in SEA. This is a very different dynamics from the North America and European landscape, in which most early stage startups are funded by domestic VCs, which is shown by research to be one of the significant factors that determines the success of the startups due to the direct value-add from the domestic VC. Founder and VC alignment is especially important in early stage startups as capital injection from VCs often come with pressure on growth, so founders need to also understand what real value-add the VCs can bring to the table, such as subject matter expertise, market connectivity and scaling experience, other than just strategic advice. Time will tell if these foreign VC investment will realise.
2016 has been mostly a challenging year in terms of funding. How will 2017 look like?
December 12, 2016 at 8:15 pm
Very insightful analysis Eric! The question I have is then,
1. if startups would like to secure funding to grow their business, what should they focus on to increase the likelihood of being funded?
2. What would encourage domestic VCs to support SEA’s startups?
Thanks for the article, well written!
December 13, 2016 at 1:17 am
Thanks for the kind words KK.
1. Perhaps we can narrow down the discussion on startups that already has a viable business model and stable customer base. There are few questions that needs to be answered first:
i. why do you need funding? To build bigger dev or sales team? To expand to another country? To hire C-level execs? To expand customer base? Startups need to have a clear roadmap on how they are going to spend the capital before raising fund.
ii. where can you source for them? While there are bigger funds that are stage and sector agnostic (like Sequioa and A16Z), most funds have a specific investment mandate, for example late seed and Series A fund investing in data-related technology (like Susa Ventures). Startups need to do some homework beforehand to profile for the right funds to approach and build the relationship earlier on, rather than shooting out cold emails when funds are needed.
iii. Introduction. Just to build on the previous point, cold email works sometimes, but it’s always better to have a warm introduction, be it from a friend or business partner. So it’s key to start networking and build relationship before starting to raise fund.
2. IMO, it’s not that domestic VCs don’t support SEA startups. They are supporting the local startups. We just need more of them. I think we don’t have enough domestic VCs, and the active ones aren’t as well funded compared to the US/UK/China VCs. These have got to do with the culture and the state of wealth in SEA. Culturally, we are more risk-adverse, which is why unlike the pension funds in the western world, our pensions funds don’t invest in venture fund because of the significant risk profiles. Fewer investors in VCs, so fewer VCs in general. Secondly, most high net worth individuals are normally first-generation and there aren’t a lot of old money in the region, which is very often the Limited Partners (i.e. investors) in VCs. So first generation wealth is hard-earned money, which won’t be simply invested in high risk asset class, like startups. What I wish to see in the next decades would be the successful tech entrepreneurs will be more open to invest in the next generation of entrepreneurs and mentor them be it as an angel or VC. Looking at the scene now, we are going at the right direction.
Hope that answers your question. Feel free to disagree/comment 🙂
February 15, 2017 at 9:27 am
Good day to you, Eric. It was a good sharing and benchmarking analysis for both funder and founder.
Looking forward for more valuable sharing and article from you.
February 15, 2017 at 10:50 am
Hi Eddie, I am glad to hear. Do share it with more people as wider readership provide a chance for me to learn as well.
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