While many are of the view that the tech sector is experiencing a so-called “funding winter”, Indonesia-based AC Ventures still sees opportunities in several sectors despite a more challenging macroeconomic condition.

The VC firm is seeing more rational pricing in financing rounds, which is a healthy correction, its Managing Partner Helen Wong said.

“On valuation, we see more rational pricing in financing rounds, which is a healthy correction from frothy levels in 2021 and 2022. Some VC firms which have not gone through any down cycles may have problems adjusting to the new environment,” she told TechNode Global in an interview.

“Deal flow may slow down in terms of the volume of deals, as a difficult fundraising environment may deter some would-be founders from taking the plunge. But we believe those who decide to start something in this environment are the most determined ones, and hence may be more likely to succeed,” she added.

Fundraising by Southeast Asia’s privately-held firms dropped to the lowest level in two years as the funding winter showed no signs of thawing, according to the latest report from DealStreetAsia DATA VANTAGE.

Homegrown firms raised $2.08 billion in the first quarter (Q1), down 25 percent from the previous quarter and 52 percent from the same period in 2022. Startups in the region clocked 195 equity funding deals in Q1, marking a sequential increase but a 37 percent drop on a year-on-year basis.

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, according to a report revealed by Momentum Works and Cento Ventures published earlier this month. According to the report “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.

While investors are expected to be more cautious as macroeconomic challenges and rising interest rates dampen sentiment, Wong said the VC firm eyes opportunities in the “sustainability” theme.

“Sector-wise, we are spending more time on the sustainability theme as we see interesting opportunities in Electric Vehicles (EV), circular economy, and sustainable agriculture. We have also been spending time looking at carbon offsets and hope to make an investment in this space soon,” she said.

In the interview, she also shared her views on the overall investment sentiment in Indonesia and gave updates on the deployment of its funds, among others.

Helen Wong, Managing Partner at AC Ventures

Below is the edited excerpt of the interview:

Some say early-stage deals are still hot, although it is now considered the “funding winter” for the tech sector. What’s your view on this? Is AC Ventures raising funds any time soon this year?

Overall the tech sector is in funding winter, especially for later-stage companies. Investors are more cautious, looking for strong unit economics and a path to profitability. The earlier stage is less affected, but we definitely see more rational investing for this stage of investing too. The good news is that the best companies can still raise funding, as seen by one of my previous investments, Akulaku raising more than $200 million earlier this year. AC Ventures’ portfolio companies EdenFarm and Broom also announced a new round of financing in January. For new deals, we continued to make new investments in companies – including SuperMom and another company that we will announce soon.

How is the overall investment sentiment in Indonesia as more are expecting slower economic growth in many parts of the world? How is the overall Indonesian startups’ valuation? Any sector is particularly popular or too much competition? How is the deal flow like moving forward?

Overall, venture capital is a long-term investment, and if we look at the longer-term horizon, there are few countries that have a large young population with a rising middle class and relatively strong economic fundamentals like 5 percent gross domestic product (GDP) growth and a trade surplus consecutively for the past 34 months.

On valuation, we see more rational pricing in financing rounds, which is a healthy correction from frothy levels in 2021 and 2022. Some VC firms which have not gone through any down cycles may have problems adjusting to the new environment. Deal flow may slow down in terms of the volume of deals, as a difficult fundraising environment may deter some would-be founders from taking the plunge. But we believe those who decide to start something in this environment are the most determined ones, and hence may be more likely to succeed.

Where are the opportunities AC Ventures see in Indonesia this year? Is there any sector AC Ventures prefers or prioritizes? AC Ventures focus on early-stage startups, (up till pre-Series A)? Will AC ventures expand to other stages for its latest fund? Why and why not? Are there any ticket sizes set?

Sector-wise, we are spending more time on the sustainability theme as we see interesting opportunities in Electric Vehicles (EV), circular economy, and sustainable agriculture. We have also been spending time looking at carbon offsets and hope to make an investment in this space soon.

How does the current economic situation affect AC Ventures’ exit strategy? Is this affecting your mid-term or long-term strategy?

We believe that if we invest in the best companies delivering value for their customers, the exit should come eventually. As early-stage investors, we have multiple exit options, including secondaries, M&A, and for the best companies, IPOs.

Would also like to know about the updates on your funds. Is Fund III fully deployed? How about IV and V? What’s the latest update?

We are fully deployed for new deals for older funds (but have room for follow-on investments). For our new fund, we have been quite fortunate to have invested at a steady pace for the past year.
Hence, we have quite a lot of dry powder. Other VC firms that invested at a rapid pace over the past two years will find it harder to fundraise. Hence they might have few bullets to deploy at this time when valuations are coming down.

What is the outlook of the tech sector in Indonesia? What are the opportunities and challenges?

The ecosystem in Indonesia is still in the early stages of development. Over the past few years, we have seen that several challenges have been mitigated, e.g., entrepreneur quality and quantity have improved. Nonetheless, we need to improve overall corporate governance to ensure that companies have good investor oversight.

The other issue is that the IPO market is still at a nascent stage. While we have made good progress in opening up the IPO market for tech startups, more IPOs will be helpful to boost investor confidence in the region. As the best companies continue to scale their operations, we should see more exits coming.

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