Southeast Asian tech startups raised $10.4 billion in 2022, the third strongest year on record and on par with the pre-pandemic investment levels, said a report revealed by Momentum Works and Cento Ventures on Tuesday.

According to the report named “Southeast Asia tech investment 2022”, the total fund raised was down from $14.5 billion in 2021.

The region saw 929 deals in 2022, the second-strongest year on record. The deals, however, were down from 991 in 2021.

“Southeast Asia did not see an abnormal deficit of digital investment capital until the very end of 2022 despite the souring capital market’s mood,” the report said.

It said the region’s tech scene appeared slower to react to global changes than Latin America and India.

“Southeast Asia remained much closer to its 2017-2020 capital intake baseline than the peer regions, likely softening the inevitable early 2023 correction,” it said.

It also said the region underwent a rapid change of active investor composition halfway through the year, causing reallocation of capital between geographies and stages and significantly changing the valuation landscape.

According to the report, global late-stage investors powering Series C+ and mega deals categories were in retreat, redirecting their effort towards investment stages as early as Series B and then nearly leaving the market altogether.

Regional and North Asian investors remained present across late-stage deals, bringing mega-deal activity down to 2016 levels and Series C+ to late 2019 levels.

Funds managed by Southeast Asian investors, however, have accumulated enough dry powder to keep Series A-C going at a usual volume (capital invested in the second half of 2022 decreased by 48 percent versus first half of 2022, a drop off typical for 4 out of 5 preceding years), with a slowdown visible only in the very last weeks of 2022.

It is noted that the valuation landscape changed sharply through the year, with Series B valuations most volatile.

Indonesia’s Series B valuations surged during global players’ retreat into earlier stages only to come back down to late 2021 levels towards the end of the year, while Series B valuations in Vietnam have come down steadily through the year from the exceptional heights of 2021.

According to the report, in early 2022, as Series B valuations in Indonesia peaked and the search for the next regional growth story began, the Philippines’ investment volume overtook that of Vietnam, as the narratives of Vietnam’s “Next China” and the Philippines’ “Next Indonesia” were being tested against each other.

As the year went on, investment volumes came down in both markets, with Vietnam ahead for the second half of 2022, albeit narrowly.

Meanwhile, despite the subsequent weak performance of listed stock, private market liquidity (trade exits and secondaries) and initial proceeds from initial public offerings (IPOs) delivered the best year for exits on record, with four liquidity events generating more than $500 million in proceeds each – GOTO and BELI IDX IPOs; 2C2P and Coda Payments transactions.

Additionally, ten liquidity events delivered north of $100 million in proceeds each.

The top quartile median exit valuation has continued its steady rise from under $100 million in 2018 to nearly $500 million in the first half of 2022, setting a new benchmark for the value of a well-built regional digital platform.

The report also revealed that digital financial services remained the key investment theme for the Southeast Asia region, representing 46 percent of overall 2022 liquidity, 43 percent of all 2022 equity funding.

It is also noted that billions in private credit facilities lined up to support an array of non-bank lenders across the region.

As private credit grew more sophisticated and available, investment into digital financial services shifted from powering lending facilities and user acquisition to upgrading the key financial infrastructure of the region, with payments value chain and capital market systems being primary beneficiaries.

The report said the sector’s vitality reflects rapid updates to regional payment infrastructure and regulations, a variety of bank charters available to tech companies, and the shift of focus by existing digital platforms as they leave the “super-app” thesis behind in favor of financial services origination and distribution.

Singapore’s emerging tech startup landscape maintains steady momentum amid challenging early-stage fundraising environment, report shows