venture capitalists: VCs are backing startups in India and Southeast Asia despite the collapse of growth stocks

Singapore: The past few months have not been good for startups and their venture capital (VC) backers.

Growth stocks like Grab, Southeast Asia’s largest public transit and food delivery company, e-commerce giant Sea Limited, Indian companies

and Freshworks are a few examples of unicorns that went public recently but performed poorly compared to the rest of the market.

Grab and Sea Limited, both listed in the United States, are down 65% year-to-date. India-listed delivery company Zomato is down 49% while fintech company Paytm is down 53%.

Both are listed in India, while Nasdaq-listed software company Freshworks is down 40% for the year. This is in comparison with the Sensex which is down only 6% and the S&P 500 index down 14% since the start of 2022.

These growth stocks have been hurt by rising interest rates and inflation, which the market sees as bad for new businesses that typically need loans to grow quickly. The possibility of a coming recession and the uncertainty caused by supply chain issues and the war between Ukraine and Russia do not help.

Indeed, Amit Anand, co-founder of Singapore-based venture capital fund Jungle Ventures, told CNBC that three of his companies have postponed plans to go public. However, “companies will definitely go public in the medium to long term,” he said.

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The current market and economic doubts are by no means the only problem startups face.

A well-known venture capital firm, Sequoia Capital has been reported in the media for extending the closing date of its $2.8 billion fund for India and Southeast Asia. The reason given was alleged financial irregularities and corporate governance issues at some of its holding companies. It has been widely reported that trouble has arisen at two of the startups he has backed – lifestyle video app Trell and Singapore-based business-to-business (B2B) fashion company Zilingo.

Poor market sentiment toward growth companies also led SoftBank Group to report a loss of $13 billion in 2021, a sharp reversal from record profit of $46 billion a year ago. This was following a stunning $26.2 billion loss in its two Vision funds, which have more than $150 billion in funds under management. SoftBank’s Vision Fund is a venture capital fund that bets on high-risk tech startups.

The loss was triggered by the market downturn as some of its recent listings are trading below their IPO price as well as due to the revaluation of its unlisted portfolio due to weak public markets. .

Listed Grab, Didi Global, Coupang and Alibaba are among the companies in which Softbank has a significant stake.

Vision Fund has 475 companies in its portfolio and made 43 investments during the fourth quarter of 2021.

Its founder and chief executive officer (CEO) Masayoshi Son said at his earnings briefing in May that he was slowing the pace of investment as private prices lag behind falling public markets and s ‘expects to cut investment by a quarter to half of last year.

However, the market slowdown has not stopped other venture capitalists from accelerating the pace of their investments in India and Southeast Asia.

Nikkei Asia reported last week that venture capital (VC) firms backing startups in India and Southeast Asia are raising record sums for new funds as investors pull out of China.

Venture capital funds focused on India and Southeast Asia have raised $3.1 billion so far in 2022, according to data from London-based investment data firm Preqin. In contrast, fundraising by China-focused venture capital firms has fallen dramatically from $27.2 billion in 2021 to just $2.1 billion as investors turn away from Chinese startups. due to last year’s tech crackdown. This year, the harsh COVID measures introduced to slow community transmission of the disease are taking their toll.

“Fifty percent of the investors we spoke to are trying to diversify out of China,” said Anand of Jungle Venture, which recently raised $600 million for new funds to invest in Indian and South Asian startups. South East.

In May, Singapore-based East Ventures said it had raised $500 million to invest in startups in Southeast Asia, bringing assets under management to more than $1 billion. In April, India’s Elevation Capital said it had raised its biggest fund ever with $670 million.

The reason venture capital funds, which raise funds from investors ranging from pension funds and university endowments to high net worth individuals, find the area attractive is the rapid growth of startups. This is due to favorable demographics. Encouraging trends include a rapidly growing middle class, a young population, and growing digital adoption. Some of these trends have accelerated as a result of COVID.

Google, Temasek Holdings and Bain & Company’s 2021 State of the Digital Economy Report found that 40 million people in six Southeast Asian countries – Singapore, Malaysia, Indonesia, Philippines, Vietnam and Thailand – became new internet users in 2020 during the pandemic. This has been fueled by shutdowns and working from home, leading people to turn to tech-driven services.

According to a 2019 analysis by Bain & Company, if India’s economy continues to grow at a rate of 7.5%, 500 million people will move into the middle and high income bracket by 2030. Another report released in 2020 by IAMAI-Kantar ICUBE, indicates that active internet users in India will grow from around 622 million in 2020 to 900 million by 2025.

Anand thinks India and Southeast Asia are just getting started. In the same CNBC interview mentioned earlier, he said that the e-commerce ecosystem in Southeast Asia is still at “a very, very nascent stage.” “We haven’t even scratched the surface of that,” he added.

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