Funding for Southeast Asian startups fell below $1 billion in the third quarter of this year, according to a report from DealStreetAsia. The region’s startups recorded 134 equity deals, raising a total of $979 million from July to September. This is the first time since 2019 that quarterly proceeds have dropped below $1 billion.
The downturn highlights the prolonged slowdown amid challenging global economic conditions. Southeast Asian startups are navigating a tougher fundraising environment, with a notable drop from previous quarters. The report, titled “SE Asia Deal Review: Q3 2024,” shows how much the regional startup ecosystem has been affected.
The reduced funding is a stark reminder of the hurdles faced by entrepreneurs and investors in the current economic climate. They are recalibrating their strategies to sustain growth and innovation. Despite the slowdown, there are signs of a potential rebound in 2024.
Arthur Leong, head of strategy and digital engagement at UOB, said in an interview during the Singapore Fintech Festival, “Just in the last five weeks [October-November 2023], we saw a significant uptick in funding.
Drop in Southeast Asia startup funding
We do think that in 2024, we could see a rebound already.”
However, Leong cautioned that the rebound would not reach the dramatic highs of the past few years.
Investors, particularly venture capital firms, are reportedly more cautious than ever. Fintechs who wish to continue receiving funding must demonstrate they have “stood the test of time.”
“They should be able to demonstrate to the VCs whether they have become more profitable and managed to lower their cash burn on a monthly basis,” Leong explained. Fintech funding in the region reached its highest in the first nine months of 2022, at just shy of $4.5 billion—higher than the combined sum from 2018 to 2020.
But even then, signs of a slowdown were apparent, with the number of deals falling to its lowest in two years during Q3 2022. In the first nine months of 2023, fintech investments in the six biggest ASEAN economies plunged 70% year-on-year to just $1.3 billion, according to the “FinTech in ASEAN 2023: Seeding the Green Transition” report. The current environment means that investors may not be willing to wait to get their investment’s worth, especially as fintechs grapple with fewer customers.
“A lot of traditional consumers of fintech are also being more cautious, especially on the corporate side,” Leong said. “They are spending less or deferring their spending.”
While the funding winter settles upon ASEAN fintechs, there are still opportunities for those who can adapt and demonstrate a clear path to profitability. Fintechs that can manage their cash reserves and provide a compelling narrative to investors may be able to weather the storm and position themselves for growth when the economy recovers.
