Heaptalk, Jakarta — The investment trend around technology companies, including startups, is claimed to experience a significant decline in 2023. As Google, Temasek, and Bain & Company noted in its newest e-Conomy SEA report 2023, private funding in Southeast Asia, including Indonesia, reached its lowest level in the last six years, following a global trend showing increasing capital and challenges throughout the funding cycle.
In the archipelago, the report disclosed that Private funding trends fell by 87% YoY, from US$3.3 billion to US$400 million in the first half of 2023 compared to last year. Meanwhile, strategic investment trends in the Southeast Asian startup also fell by 69.2% YoY, from US$13 billion to US$4 billion during the first half of this year.
The Partner and Head of Vector in Southeast Asia, Bain & Company, Aadarsh Baijal, elaborated on multiple factors related to this decrease in this investment trend, including High capital costs, declining startup valuations, startup pathways to profitability, a more extended startup valuation calculations, and a challenging capital market environment, impacting on the complexity of performing exit strategy.
“The challenges faced include a general correction in valuation, after rising continuously during 2021, uncertainty in profitability in several companies, and a less conducive capital market situation, bringing difficulty for investors to exit,” Aadarsh added.
Although investors are more selective in injecting fresh capital into the region startups, this report reveals that Southeast Asian dry powder is still relatively high at US$15.7 billion at the end of 2022, compared to the former at US$12.4 billion in 2021. This matter indicates the fuel needed to drive further growth in the digital economy sector in Southeast Asia.
In resolving this funding winter issue around the startup ecosystem, Google, Temasek, and Bain & Company look forward to the startups increasing their valuation rationally following their business fundamentals, proven by their monetization models and clear strategies to achieve profitability.
Related to the promising sector to be invested in, the e-Conomy SEA 2023 unveiled that digital financial services remain the most profitable sector due to their high monetization potential. Other sectors also experienced increased investment, indicating that investors aim to diversify their portfolios.
The Head of Temasek at Southeast Asia, Fock Wai Hoong, voiced, “Indonesia’s digital economy continues to offer attractive investment opportunities due to its strong fundamentals, such as a growing workforce population, rising consumer incomes, and a dynamic technology startup ecosystem. We remain optimistic about the future of Southeast Asia’s digital economy and will continue to deploy catalytic capital to achieve sustainable and inclusive growth.”
