The Business Times' Column | South-east Asia venture capital hitting the wall in 2024

This column was first published on The Business Times.

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Pessimism abounds, but despite the challenges, this year could prove to be a foundational one for building portfolios with the potential for strong returns.

RECENTLY, I completed my first 21 km mountain trail run in Sapa, Vietnam. Finishing it was an incredible feeling, not to mention the breathtaking views along the way. However, I vividly recall a particularly challenging moment at around two-thirds of the route in which I experienced “hitting the wall”.

For runners, this is a tough phase when the body has depleted its glycogen stores, leading to extreme fatigue and a high chance of giving up. But once you push through it, the body transitions its energy system, and the experience becomes even more rewarding.

Throughout 2024, I felt that the South-east Asia venture capital (VC) sector was experiencing its own version of “hitting the wall”.
Many have asked me how bad the market really is, with industry insiders widely considering this year to be significantly more challenging than the past five, and some VCs dropping out of the race. Pessimism abounds, and few seem to look ahead with optimism.

Yet, as I reflect on my journey since joining Vertex Ventures in 2010, I believe that 2024, despite its challenges, could prove to be a foundational year for building portfolios with the potential for strong returns over the next five to 10 years.

Beneath the market uncertainty lies a consistent pattern: Some of the best investments are made during periods of doubt and fear.

When the noise of market exuberance subsides, founders and investors alike can focus on long-term vision rather than chase short-term wins. With less pressure to deliver explosive short-term results, valuations become more reasonable, enabling sustainable growth.

Historically, we made some of our best investments – in companies such as Grab (2012), Patsnap (2014), and Nium (2016) – during times when optimism was subdued, and the landscape was free from overvaluation.

These environments allowed us to work with resilient founders focused on creating lasting value, a principle that continues to guide our investment strategy.

Focus on vision, return to rationality

In any economic slowdown, investors tend to become more cautious, often pulling back from the high levels of deal-making seen in boom years. The result is a less crowded market, which paradoxically can be an advantage.

During these quieter times, founders can dedicate themselves to building and refining their vision without the external pressures of excessive competition or hype-driven expectations. They become true founders, driven by resilience and a determination to create lasting value rather than the short-term gains that often accompany market over-excitement.

During the boom years around 2022, I found it very difficult to invest, personally, as valuations were going through the roof. An angel round for the startup of a big corporate background talent easily went up to a pre-money valuation of S$15 million to S$20 million. In contrast, I started my career looking at an average pre-money valuation of S$10 million for a Series A round for a company with proven traction.

Today’s market offers a return to more reasonable valuations. With fewer competitors bidding for every promising startup, prices have stabilised, allowing VCs to make investments at more logical entry points.

Dynamic market with diverse opportunities

While the early 2010s saw South-east Asia’s VC market predominantly focused on pure marketplaces and Internet-first businesses, today’s landscape is far more dynamic and diversified. Investors now have a range of options to consider, with promising sectors emerging across the region.

Deep technology, for example, is gaining traction, particularly in Singapore, which is seeing an influx of innovation in areas such as artificial intelligence (AI), biotech and green tech.

Malaysia is building a vibrant ecosystem around semiconductor technology, a critical industry that serves as the backbone for countless technological advancements. Vietnam has also shown its potential with its pool of AI talent, attracting interest from international players – for instance, Nvidia acquired Vietnamese AI company VinBrain in October this year.

Meanwhile, profitable software-as-a-service companies with substantial revenue run rates have also expanded across the region. They demonstrate that South-east Asian startups are capable of not only surviving but thriving in this competitive environment.

Earlier this year, Vertex invested in a stealth-mode semiconductor company in Singapore and also a fabless design startup – BigEndian – in India. We also invested in a direct-to-consumer brand, Coolmate, which pursues an innovative online-to-offline multichannel strategy while maintaining profitability.

These types of investments would have been hard to imagine a decade ago, showcasing just how much the market has matured and diversified.

South-east Asia’s venture ecosystem, while still developing compared to that of established markets such as the US and China, has matured significantly over the past decade.

There is now a growing pathway for exits, including initial public offerings, trade sales, and secondary offerings, although these opportunities remain limited. Local tech giants are also beginning to show an increased appetite for acquisitions.

While the number of exits is still below expectations, they were almost non-existent before 2020. This shift signals South-east Asia’s expanding capacity to support high-growth startups through every stage of their journey.

While the region’s market is currently dominated by caution, we’re seeing a surge of optimism fuelling a boom in India’s public market. India was a challenging market for tech exits just 10 years ago, but sentiment has shifted dramatically. The same will happen in South-east Asia.

While we can’t predict exactly when market sentiment will turn, an improving macroeconomic environment suggests it will happen. For investors and founders, now is the time to stay focused and build – fortune favours those who are prepared.

A promising future with new challenges

Looking forward, there are still many questions about the trajectory of South-east Asia’s VC landscape. For one, geopolitical tensions and economic shifts can impact investment flows and startup operations. Additionally, regulatory frameworks continue to evolve, adding new layers of complexity for both founders and investors.

However, the growing maturity of South-east Asia’s VC environment, combined with a more rational market, makes me believe that the region is better positioned for sustainable growth than it has ever been.

Since beginning my career at Vertex in 2010, I’ve seen the region’s VC landscape transform from an emerging market into a thriving, competitive ecosystem with opportunities across diverse sectors.

While challenges remain, there is no doubt that the VC industry in South-east Asia has contributed meaningfully to improving lives in the region, supporting businesses that create jobs and provide essential services. Personally, the past 14 years have been incredibly rewarding, and I look forward to seeing the remarkable growth and innovation that the next decade will bring.

As we approach 2025, I feel that 2024 may well go down as a transformative year for South-east Asia’s VC landscape. Not because it was easy, but because it forced both investors and founders to focus on creating lasting value.

With a clearer vision, more grounded valuations, and an increasingly developed ecosystem, we are poised to enter an exciting new chapter in the region’s startup journey. Here’s to a vibrant and prosperous 2025.

*Edited by *Rahul Thayyalamkandy, Director, Vertex Ventures Southeast Asia & India.

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