VCs positive on SE Asia's fundamentals, strategic positioning - AVCJ Forum
Venture capital investors remain bullish about Southeast Asia's prospects despite a sharp decline in activity this year, noting that the region is strategically well placed amid the US-China tensions.
“Despite the global macro headwinds, it’s useful to look at fundamentally where is Southeast Asia from the secular trends," Adrian Li, a founder and managing partner at AC Ventures, told the AVCJ Southeast Asia Forum, adding that his firm has made seven investments so far this year.
"Southeast Asia still represents, demographically, one of the most attractive regions, coupled with political stability. At times like this, you have a much higher filter for entrepreneurs willing to come out to start businesses, which leads to better quality entrepreneurs while talent is less costly."
Li added that Southeast Asia's need for soft and hard infrastructure makes it a logical target for investors out of the US and China.
This view was echoed by Steven Wang, founder and CEO of China-focused healthcare investors HighLight Capital, which recently opened an office in Jakarta. The firm wants to support Chinese entrepreneurs setting up in the region and China companies that are establishing manufacturing bases in Southeast Asia.
“We have a CDMO [contract development and manufacturing organisation] that produces raw materials for the global pharmaceutical industry," said Wang.
"Originally, its production was 100% within China, but with the geopolitical tensions, the founder began to shift some key component manufacturing to Indonesia. The company has 2,000 engineers and it sent 20 to Indonesia to train local workers."
Despite this rising interest, VC investment in Southeast Asia dropped from USD 8.4bn in 2021 to USD 6.5bn in 2022, and less than USD 1bn has been put to work so far this year, according to AVCJ Research.
Wilson Cuaca, a founding partner at East Ventures, described the current downturn as a second test for entrepreneurs after COVID-19. While market conditions are not conducive for exits, VCs can take advantage of some attractive investment opportunities. In addition, Cuaca believes start-ups are moving from concept to revenue generation faster.
“In the past, it took seven years for a company to hit USD 100m in annual revenue; this has been shortened to 3-4 years. Hitting USD 1m in revenue previously took two years and now it only takes one year. And recently, we saw a portfolio company reach USD 1m in monthly revenue within six months of inception," he said.
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