Southeast Asia (SEA) funding has seen a big drop of 74 percent in quarter-on-quarter in the third quarter, making it the lowest funded quarter in the last five years, said Tracxn on Thursday.
The global software as a service (SaaS)-based market intelligence platform said in its released Geo Quarterly Report: SEA Tech – Q3 2023 that the market for investments remains volatile globally and similar trends can be seen in the SEA region as well.
According to the report, the SEA tech startup ecosystem received its highest funding in the fourth quarter of 2021 after which there has been a steady decline in funding in the region, with a minor spike in the second quarter of 2023.
This was partly attributed to the global macroeconomic scenario that has significantly impacted funding in the region.
The report also noted that the SEA tech startup ecosystem raised a total of $835 million in the third quarter, a huge 74 percent drop from $3.2 billion raised in the second quarter of 2023 and a 66 percent decline from $2.5 billion in the third quarter of 2022.
Meanwhile, this space attracted late-stage investments worth $395 million in the third quarter of 2023, a massive 85 percent drop compared with $2.55 billion raised in the second quarter of 2023 and a decline of 57 percent compared to $922 million raised in the third quarter of 2022.
The third quarter of this year also witnessed early-stage funding worth $329 million, a fall of 37 percent compared with the second quarter of 2023, and also a drop of 75 percent compared with the third quarter of 2022.
A downward trend was observed in seed-stage rounds as well in the third quarter, which saw funding of $111 million, a 17 percent drop compared with the second quarter of 2023 and a 58.4 percent drop from the third quarter of 2022.
According to the report, food and agriculture tech, fintech and life sciences were the three segments that received the highest funding in the third quarter of 2023.
The food and agriculture tech segment secured funding of $248 million in the third quarter, which is a growth of 75 percent from $142 million raised in the second quarter of 2023.
However, this is a drop of 40 percent compared with the third quarter of 2022.
Fintech is also one of the segments that took a hit, with funding worth $236 million in the third quarter, which is a drop of 46 percent and 73 percent from the second quarter of 2023 and the third quarter of 2022, respectively.
Retail, insurtech and autotTech were most affected, falling 98 percent, 73 percent and 66 percent, respectively, compared with the second quarter of 2023.
The report also noted that there were no new entrants to the unicorn club in the third quarter.
The number of acquisitions rose slightly from 20 in the second quarter of 2023 to 22 in the third quarter.
Only one company from the overall SEA tech space went public in the third quarter.
According to the report, East Ventures, 500 Global, and Wavemaker Partners were the most active investors in this space in the third quarter.
East Ventures, Northstar Group Investible and were the top seed-stage investors in the third quarter, while Peak XV Partners, Patamar Capital and Genting Ventures were the top early-stage investors in the third quarter.
EDBI and Astra Digital, on the other hand, were the most active late-stage investors in the third quarter.
“Despite the challenges, there is considerable optimism in the region’s long-term growth, owing to factors such as the young population, large consumer base and its dependency on informal financial and commercial systems that provide a large number of untapped opportunities to both investors and entrepreneurs,” Tracxn said.
In terms of country, the report showed that the funding into Indonesia tech startups soared 110 percent in the third quarter.
It said Indonesia is the highest funded region in the SEA startup ecosystem followed by Singapore and Vietnam in the third quarter and ranks second in terms of total funding in 2023 year to date in the SEA region.
It noted that the Indonesian tech startup ecosystem ranks second in terms of overall funding to date in the SEA region, next to Singapore.
With favorable economic conditions and gross domestic product (GDP) growth of more than 5 percent, it said the region has gained investor interest attracting more investments.
While funding on a global scale across the stages has declined, it said Indonesian startups have shown an uptick this quarter.
Total funds raised by Indonesia tech startups in the third quarter stood at $448 million, a jump of 110 percent compared with $213 million raised in the second quarter of 2023.
However, this is a drop of 28 percent compared with the $628 million raised in the third quarter of 2022.
Across all stages, funding into Indonesian startups has seen an uptick in terms of quarter-on-quarter comparison, according to the report.
Late-stage investments in the country rose 89 percent to $300 million in the third quarter from $159 million in the second quarter.
This space attracted early-stage investments worth $104 million, an 181 percent increase from $37 million in the second quarter of 2023.
Seed-stage funding in the country, too, grew 154 percent to $44.5 million from $17.5 million in the second quarter of 2023.
The report also showed food and agriculture tech, healthtech and transportation and logistics tech were the top-performing segments in the Indonesia tech space in the third quarter.
Startups in the food and agriculture tech space for Indonesia also secured funding worth $233 million in the third quarter, a 166 percent jump from $108 million in the second quarter of 2023.
The report also highlighted that no new unicorns were created and no initial public offering (IPOs) took place in the overall Indonesia tech sector in the third quarter.
However, five acquisitions were observed during the quarter, as against four in the second quarter of 2023 and six in the third quarter of 2022.
Among Indonesian cities, Bandung ranks first in terms of funding in the third quarter of the year.
Startups based in Bandung raised $200 million in the third quarter, followed by those headquartered in Jakarta ($140 million) and Tangerang ($73.5 million).
East Ventures, AC Ventures and Alpha JWC Ventures were the most active investors in the Indonesia tech space, according to the report.
Northstar Group, East Ventures and B.I.G. Ventures were the top seed-stage investors, while TMI, Horizons Ventures and SWC were the most active early-stage investors.
Astra Digital was the most active investor in terms of late-stage funding.
As for Vietnam, the country’s tech startup ecosystem continues to make waves, maintaining its position as the third highest-funded startup ecosystem in the SEA region through the third quarter.
In the year to date, the region witnessed a substantial decrease in funding, with only $138 million raised, representing a 72 percent drop compared to the funding during the first three quarters of the preceding year, 2022.
Cited World Bank report, the report noted moderate economic growth for the region in 2023, with expectations of an acceleration in growth over the next couple of years.
It is noted that the Vietnamese government is taking proactive steps to boost long-term growth within the startup ecosystem.
Initiatives include tax exemptions for information technology (IT) companies and favorable land rent concessions, signaling a commitment to fostering a conducive environment for startups to thrive.
Additionally, the government is driving efforts to establish a cashless economy, further supporting the burgeoning fintech sector in the region.
In a striking turn of events, the third quarter witnessed an exceptional leap, with Vietnam’s tech startups securing a total of $50.1 million in funding—a tremendous 504 percent increase compared with the second quarter of 2023.
Despite this substantial growth, funding was down by 40 percent when compared with the third quarter of 2022.
Breaking down the funding landscape, the early-stage rounds played a dominant role, contributing almost 98 percent of the total funding for the quarter, amounting to $49 million.
However, seed-stage rounds experienced an 87 percent drop to $1.1 million in the third quarter, compared with the second quarter of 2023, and a 92 percent drop compared to the third quarter of 2022 amounting to $13.8 million.
In the third quarter, key segments that garnered significant funding included fintech, life sciences, and enterprise applications.
FinTech emerged as the highest-funded sector, securing $29 million in the third quarter and exhibiting a remarkable 180 percent growth compared with the third quarter of 2022.
While the third quarter did not witness any unicorns or IPOs, the Vietnam startup ecosystem remains promising, driven by government support and a strategic push towards a cashless economy.
In contrast, there was one acquisition in the third quarter, marking a 75 percent decrease compared to the second quarter of 2023 and a 50 percent decrease compared to the third quarter of 2022.
Notably, Ho Chi Minh City and Hanoi were the only cities in Vietnam that attracted the most significant funding, showcasing their prominence in the growing tech startup landscape.
Startups in Hanoi secured funding worth $33 million, while those based in Ho Chi Minh City raised $17.1 million.
Nextrans, VSV Capital, and CyberAgent Capital are the top investors in the Vietnam Tech space.
Resolution Ventures and VCAM were the lead investors in seed-stage investments in this quarter. Peak XV Partners, Granite Oak and JAFCO Asia were the most active investors in the early stage.
“As Vietnam’s startup ecosystem continues to evolve, collaborations and strategic investments are expected to propel growth and drive innovation within the region,” Tracxn said.