We were delighted to host our investors, partners, portfolio companies, and special guests for our annual Genesis LP Day at the iconic Raffles Hotel on 23 May 2024.
It was a fantastic gathering, filled with insightful discussions and a wonderful sense of community and we are grateful to overseas guests who travelled from Hong Kong, Indonesia, Korea, Japan, Malaysia, Thailand, and USA to join us
In addition to sharing about the performance of our Funds, our guests were treated to an insightful line-up of speakers:
Chin Hwee TAN (Energy Market Authority (EMA) Authority) explores the new multi-polar world in his latest book, “Economic Success: Fate or Destiny?” to the upcoming generation with the tools to understand and navigate this evolving landscape.
Ian Potter (Foundational Capital) on energy trends: “We’re adept at finding new ways to use energy, but less adept at finding new ways to produce it.” A thought-provoking perspective on the energy market’s future.
Bruno ROCHE (New Mutualism – The Economics of Mutuality) on responsible capitalism: Bruno offered valuable insights on the future of capitalism, emphasizing responsible business, sustainability, ESG, and mutual value creation. (Read his highly-recommended his book online for free here.)
The day continued with a Portfolio Showcase featuring six of our visionary founders who shared their aspirations and plans:
As a special thank you, we presented everyone with a unique gift: a pair of handcrafted porcelain teacups inscribed with 起源 (qǐyuán, meaning “origin”) and 创始 (chuàngshǐ, meaning “creation”). Each cup also features the Genesis leaf symbol, representing our shared commitment to cultivating growth and innovation, and ultimately, brewing a better future together.
Relive the afternoon’s highlights with our Recap Reel:
The equity winter is well underway and has impacted tech ecosystems globally. The catalysts behind this funding drought – rising interest rates, economic uncertainty, and a recalibration of valuations – are well-documented. While hopes for an imminent thaw remain, investors and start-ups have adapted to the new reality of longer and more difficult fundraising rounds with many companies choosing instead to cut costs, preserve cash, and raise bridge rounds from insiders until the equity market returns.
How has venture debt fared during this time? Have lenders been able to plug the gap or have they experienced similar trends? How did the collapse of venture lender behemoth Silicon Valley Bank (SVB) in March 2023 impact the lending ecosystem? Will venture lending developments in the United States (the undisputed market leader for venture lenders and borrowers) signal what’s round the corner for the Southeast Asia ecosystem?
We consider these questions and in parallel highlight key observations from Dr Jeremy Loh’s attendance at the second annual Venture Debt Conference held in March 2024 in New York (where Genesis participated in discussions and networking opportunities with the likes of prominent banks with venture lending businesses such as Silicon Valley Bank, a division of First Citizens Bank, HSBC, Deutsche Bank, Comerica and a spectrum of private debt funds ranging from dedicated venture debt funds like Runway Growth, Vistara Growth, Bootstrap Europe to private credit players such as Horizon Tech Finance.
Surprising Early Resilience Despite Headwinds
Figure 1: Data aggregated from PitchBook and Deloitte Tech and Media Predictions
Market predictions following the SVB saga anticipated a significant decline in US venture debt financing for 2023. Forecasts suggested a potential drop exceeding 50%, ending a four-year streak of annual activity above $30 billion.
However, conference participants were bullish about venture debt pipeline opportunities. In fact, PitchBook data revealed a surprising resilience, with 2023 marking the fifth consecutive year surpassing the $30 billion threshold (Figure 1). Despite this positive development, a slowdown in capital availability within the venture sector is expected to impact 2024 figures. Estimates suggest a potential decline to a range of $14-16 billion but the outlier driving strong venture debt demand could push figures up to 2018 level of $27 billion.
A deeper analysis of venture debt deal count by startup stage sheds light on the allocation of venture debt capital (Figure 2, next page). PitchBook data indicates that seed and early-stage companies have experienced the most significant decline in deal volume. This aligns with the fact that SVB, which previously held a 50% market share in early-stage bank venture debt, has seen its lending shrink to roughly 20%. Conversely, late-stage loan activity has seen resilience and exhibited minimal decline, with 2023 emerging as the second-most active year in terms of deal count. Interestingly, PitchBook believes that there will be a continuation of the overall trend, predicting that venture debt in the US will exceed $30 billion for a fifth consecutive year in 2024. This optimistic outlook stands in contrast to the prevailing market sentiment, and only time will tell if it materialises when the first-quarter data of 2025 becomes available.
Figure 2: Venture debt loan count by stage
New Normal For Venture Debt: Proven Performers Welcome, VC Backing No Guarantee
The current economic climate has left many startups’ balance sheets in a less than ideal state compared to just a couple years ago. This tough environment has prompted investors and lenders to offer founders advice that may differ from what they’re accustomed to hearing. The message from Conference participants was clear: take the capital you can get – even if it’s at a down round with a liquidation preference – if that’s the only way to keep fighting.
Major venture and growth debt lenders are signalling a notable shift in their priorities. They are now open to financing established businesses with proven revenue models, even if they haven’t secured a recent equity round. In contrast, companies with dated equity rounds, limited traction, and a failure to reduce cash burn are the least preferred borrowers.
The focus for lenders has shifted to evaluating a company’s fundamentals – strong products, revenue generation, and a clear plan to bridge their funding gap. Profitability is seen as a major plus. Interestingly, the prestigious pedigree of a startup’s venture backers (e.g. Sequoia, Khosla Ventures) now carries less weight. As one lender put it, the key question used to be “Who’s backing you?”, but now a solid business case and financial runway are paramount in addition.
This evolving funding landscape requires startups to adapt their approach and messaging to appeal to the new priorities of investors and lenders. Those that can demonstrate financial discipline, revenue traction, and a clear path to profitability will be best positioned to secure the capital they need to weather the current economic storm.
Partnering With The Right Lender
When it comes to securing venture debt financing, the choice of lending partner is a crucial decision for startups. Considering that 76% of venture debt loans require amendments throughout their lifetime, startups must focus on finding a lender who can truly work alongside them as a strategic partner for the best possible outcome.
Lenders that take a “full platform approach”, tracking not only the financial performance of its portfolio, but also the holistic relationship and overall support provided to each company and founder are ideal partners. This level of commitment and consultative approach is key for startups navigating the complexities of the venture ecosystem.
Lenders with deep relationships within the venture capital community are also an important factor when choosing a reliable debt provider. These lenders are often involved in the debt raise conversation, providing valuable insights and alignment with the startup’s investors. Startups must be fully aware of the debt terms, such as meeting cash runway covenants, and understand the reporting requirements and third-party items demanded by the lender. The management team (and their key equity stakeholders) must be well-versed in navigating the positive and negative covenants.
Building trust and confidence in the counterparty relationship is paramount. Startups should seek lenders with a proven track record of working through challenging cycles and decisions alongside stable management teams. Forging these relationships proactively, and picking the lender’s brain on debt structure, can give startups an advantage. Creativity and sophistication in negotiations can also help bridge gaps, as the terms of warrants and other financing events can vary. Thorough due diligence is key, as startups can expect longer and more involved processes when selecting a venture debt partner.
Here’s a summary of the key points discussed by Conference participants:
Venture debt is more art than science – it’s crucial to find a lender that truly understands your business and the innovation economy;
Look for lenders with the right “Four Cs”: Capital, Commitment, Consultative approach, and Consistency through economic cycles;
Venture debt should be used judiciously, not as the sole source of runway – it needs to be part of a balanced financing strategy;
Startups must perform extensive due diligence on potential lenders, not just the other way around;
Venture debt can provide benefits like non-dilutive capital, runway extension, and acquisition/CAPEX funding – but the right lender partnership is key.
Navigating Venture Debt In A Challenging Funding Climate
As startups navigate the current funding landscape, the consideration of venture debt has become increasingly important. However, startups must approach this financing option with strategic foresight, balancing the benefits with the potential risks. In the current climate, the priority should be on securing access to capital and maintaining flexibility, rather than getting too caught up in the mathematical details.
One key factor to consider is the interest rate environment. While most lenders anticipate that interest rates will start to fall towards the mid-to-late 2024 timeframe, this could affect the repayment burden if rates are kept flat or for unforeseen circumstances begin to rise. This shifting rate landscape should factor into a startup’s decision-making process when evaluating venture debt.
Overleveraging debt can lead to negative outcomes, so startups must take the appropriate amount of leverage and have a clear repayment plan. Lenders view a “Hail Mary” situation as a red flag, so startups should aim to have a clear path to new equity or an M&A term sheet to make the venture debt more viable.
Companies seeking large debt raises may be a concerning signal, as it could suggest limited equity availability. Combining equity and debt can provide working capital and growth capital, but the management team must carefully consider and align with their board on the best approach.
Building strong borrower-lender relationships is crucial, looking beyond just interest rates. Startups should prioritize choosing lenders with specialized expertise in their industry and focus on cultivating a strong partnership, rather than solely optimizing for the lowest rate. Preparing quality financial statements in advance is also key, as lenders have become more sophisticated in their scrutiny. Startups should aim for audited financials, if feasible, to streamline the due diligence process and potentially facilitate deal-making.
In summary, navigating venture debt in the current funding climate requires startups to be strategic, discerning, and proactive. By carefully considering the trade-offs, building strong lender relationships, and ensuring financial readiness, startups can leverage venture debt to fuel their growth while mitigating risks.
Dealing with Distress: Lenders’ Approach to Troubled Startup Borrowers
When dealing with distressed startups that have raised venture debt, lenders must take a collaborative and pragmatic approach to achieve the best possible outcome. Despite any initial dissatisfaction, a successful workout requires all parties – lenders, management, and other stakeholders – to work together transparently and recognize the inherent value in the company’s assets.
Lenders should be proactive in identifying signs of financial distress, such as a startup’s failure to meet key milestones or its inability to raise fresh equity. When these issues arise, lenders should be upfront about their concerns and work collaboratively with the startup’s management to find a mutually agreeable financial solution that supports the company’s growth and path to cash flow positivity.
Employees and the management team are the primary stakeholders in a distressed startup scenario. Ensuring their motivation and satisfaction is crucial, as they are the ones who will ultimately drive the company’s turnaround efforts. Creditors must be willing to take a collaborative approach with management, even if it means accepting a less-than-ideal outcome for equity holders.
The concept of “management carve-outs” can be a useful tool in guiding distressed startups through this challenging period. In these situations, management teams may be unfamiliar with the complexities of insolvency and financial distress. Experienced general partners from the venture capital world can play a valuable role in helping management navigate these uncharted waters and align their actions with their fiduciary obligations to all stakeholders.
The emphasis is on having sponsors with strong track records and a proven ability to navigate these complex distress scenarios effectively. A single sponsor may be more efficient and have a distinct risk perspective, while a syndicate may face greater challenges in reaching consensus, potentially carrying slightly more risk.
While lenders must adopt a cooperative and pragmatic mindset, the key outcome is to maximize recovery. By prioritizing the needs of key stakeholders, leveraging management carve-outs, and maintaining transparent communication, lenders can increase the chances of a successful turnaround and maximize the value of the company’s assets
The Golden Age Of Credit: The Landscape Of Venture Debt And Bank Capital
Private credit as a broad asset class continues to attract significant fundraising dollars, with the venture debt category following suit and resulting in an ever-growing lending landscape. In recent years, there has been a notable compression in the cost of capital across various types of lending, including traditional bank facilities and venture debt. The increase in overall interest rates has led to a narrower pricing spread between these financing options, making bank capital more competitive in the current environment.
The emergence of larger, traditional investors exploring venture debt as an asset class has further validated its importance. For example, BlackRock’s acquisition of Kreos Capital, a European venture debt platform, highlights the growing prominence of this financing avenue. Kreos Capital has invested more than €5.2 billion through nearly 750 transactions across 19 countries since 1998. Another notable acquisition is Monroe Capital’s purchase of Horizon Technology Finance (NASDAQ: HRZN), a non-banking leading specialty finance company that provides venture debt financing. Monroe Capital, a $18.4 billion private credit firm with a 20-year track record in direct lending, has directly originated and invested more than $3 billion in venture loans to over 315 growing companies. These high-profile acquisitions by major players like BlackRock and Monroe Capital underscore the increasing significance of the venture debt market. The influx of larger, traditional investors validates venture debt as an attractive asset class, ushering in a “golden age” of credit with favorable conditions for investors.
In the aftermath of SVB’s collapse, major global banks have been jockeying to position themselves as the new preferred lender for startups globally. Institutions like JPMorgan Chase, HSBC, and Deutsche Bank have all made concerted efforts to capture this lucrative market. JPMorgan, for example, has been actively expanding its venture banking division, seeking to leverage its deep pockets and extensive resources to attract startups. The bank has touted its ability to provide comprehensive financial services, from lending to treasury management, to cater to the unique needs of high-growth companies. This trend has been driven by the increased capital formation within the venture capital community, allowing companies to stay private and grow for longer. As this trend reversed, leading to greater need of venture debt, traditional lenders have improved their underwriting capabilities to facilitate larger transactions.
Mature venture debt markets, such as the US and Europe, have demonstrated that both private venture debt funds and venture debt banks can coexist harmoniously. This provides startups with access to different lender profiles, allowing them to choose the most suitable option – a private lender with more flexibility in their lending criteria or established venture banks that provide tailored banking solutions. The coexistence of private venture debt funds and venture debt banks has proven to be beneficial for startups, as it provides them with a diverse range of financing options to support their growth and expansion plans.
In the burgeoning venture debt markets of North Asia, excluding China and India, Japanese banks have been actively establishing a foothold to lend to Japanese startups. Major players such as MUFG, Mizuho Bank, Aozora Bank, and Tokyo Star Bank have been aggressively pursuing opportunities in this space, recognizing the growth potential of the local thriving startup ecosystem. Over in South and Southeast Asia, HSBC recently announced the launch of a $1 billion ASEAN growth fund and a $150 million venture debt fund dedicated to the Singapore market. This followed two other $100 million HSBC single market venture debt vehicles – a MYR$500 (~US$104) million fund for Malaysia, and AUD$227 (~US$147) million fund for Australia.
The venture debt landscape in Southeast Asia is undergoing a transformative phase, driven by several key factors regionally and globally. Firstly, the region is witnessing a surging demand for alternative financing options, fueled by the burgeoning startup ecosystem and the need for capital to fuel growth. This growing demand has attracted competition from traditional banks and specialized venture debt providers, giving rise to co-lending opportunities, enabling lenders to collaborate and share risk.
These factors are collectively shaping the trajectory of venture debt as an alternative financing option in Southeast Asia’s burgeoning startup ecosystem. Private lenders, such as Genesis Alternative Ventures, are well-positioned to capitalize on this evolving landscape. As startups adapt to challenging market conditions and prioritize profitability, private lenders can continue to grow alongside the ecosystem, deploying debt financing to support lean, efficient, and profitable ventures.
The venture debt landscape in Southeast Asia is dynamic and rapidly evolving, presenting both opportunities and challenges for lenders and borrowers alike. Those who can navigate this landscape adeptly, balancing risk and opportunity while embracing sophistication and collaboration, will be poised to thrive in this exciting and promising market.
An article written by Gabriel Li (Vice President, Legal at Kredivo Group Limited) and Dr Jeremy Loh (Genesis Alternative Ventures) explains liquidation preference. Published by the Singapore Law Watch.
If you’re in the process of seeking equity financing or have done so previously, you’ve likely encountered the concept of “liquidation preference.” While online searches yield numerous articles providing a general overview, they often lack region-specific insights, particularly for founders seeking funding for a Singapore private limited company. This article offers a comprehensive introduction to “liquidation preference” within the Southeast Asia context, along with practical negotiation advice.
Jeremy Lee: Cleaning Up the Planet, One Tablet at a Time
Welcome back to the Genesis Founder’s Playbook series is a collection of curated insights and experiences from exceptional startup founders. Within this treasure trove, entrepreneurs share their valuable knowledge and hard-earned lessons with the startup community.
In our first Founder series for 2024, we spoke to Jeremy Lee who brings to mind the movie “Moneyball,” which based on the true story of the Oakland Athletics baseball team. In this movie, Billy Beane (portrayed by Brad Pitt) served as the general manager who built a winning team with limited resources. How? By challenging a player selection system that had proven effective for over a century but gives richer teams the upper hand.
SimplyGood, Jeremy’s latest venture, was born from his observation of the inefficiencies within the cleaning and personal care products sector, a domain largely monopolized by major FMCG players with established brands. Notably, these products, constituting a whopping 96% water, pose logistical challenges due to their bulkiness and weight during transportation. Moreover, they contribute to environmental pollution with their heavy reliance on single-use plastics.
Jeremy’s innovative solution offers consumers the essential cleaning ingredients in a dehydrated tablet form, creating a product line that is 200 times lighter and 300 times smaller than a conventional 500ml bottle of cleaning solution. This saves packaging, transportation, and logistics while reducing carbon footprint. Cost efficiencies are passed on to the end users, allowing them to clean without guilt.
Photo credit: SimplyGood
SimplyGood was born from his first venture, UglyGood, which he ran with a co-Founder during his university days. Driven by a commitment to sustainability and the circular economy, UglyGood ingeniously upcycled fruit pulp from local food manufacturers into valuable products such as animal feed, enzymes, and essential oils. Indeed one person’s waste is another’s treasure.
Now as a solo Founder who navigated SimplyGood through the challenging tech funding winter, he shares the following insights from his playbook:
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Jeremy’s journey in his own words:
Product-Market Fit is always a work in progress: When we launched SimplyGood, it was on the promise of eco-friendliness and sustainability. However, what we quickly realized was that while we had a small but very loyal following, it did not have broad-based appeal, making it difficult for us to scale. When we pivoted our messaging to convenience and value for money, we got a much better response. To date, more than 10,000 consumers have made the switch to SimplyGood. I don’t think our product-market fit is perfect yet and I believe it will always be evolving, rather than a one-time fix.
Listening to customers: We are very thankful to have customers who are very passionate about both sustainability and SimplyGood. Over the past few years, they have given us valuable feedback to improve our product design and customer journey, which we have incorporated.
Expansion through Strategic Partnerships: As a B2C business, I’m very mindful of the cost of customer acquisition (CAC). In the first year, spending a lot of marketing and brand building was inevitable as we were unknown. However, now that we have some brand awareness, we’ve expanded to B2B corporate partnerships, such as with property developers to provide starter kits for new home purchases, as well as business users like hotels, cleaning companies, and F&B businesses.
Balancing Sales and Brand Building: The conventional thinking is to build sales before brand building. However, I’ve discovered that tackling both simultaneously can open up new sales channels. Positioning SimplyGood as a sustainable and eco-friendly option has opened doors to collaboration with like-minded retailers. We are delighted to be chosen by MUJI Singapore to be part of their Sustainable Local Brands Project, and our range of products can now be found at their Plaza Singapura and Changi Jewel stores (at no listing fee!). Our products are also on the shelves at Commune Life stores, and we continue exploring partnerships with other retailers.
Support System: Having ventured into startup life first with a co-founder and now as a solo founder, I acknowledge the importance of a co-founder for emotional and mental support, even if it means a slower decision-making process. Therefore, I make it a point to connect with other founders to have a sympathetic listening ear and share experiences. I also take mini-breaks to rest and recharge.
People Matters: As a founder, I understand the multiple demands on our bandwidth. However, I think it is important to think about team and people management, especially if you want to scale. My experience has been to hire slow, but fire fast. As we are small and lean teams, wrong hires can adversely affect momentum, performance, and culture.
Tech Winter Survival Tips: In today’s uncertain fund-raising environment, founders should continue to focus on profitability, cash flow, and sound unit economics. Shifting our mentality from raising money to building sustainable businesses will serve us better in the long run.
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In the cleantech arena, Jeremy Lee stands out as a visionary force transforming sustainable living. He envisions a future where supermarket shelves are stocked cleaning tablets instead of the usual plastic bottles, aligning sound business sense with eco-friendliness and responsible consumption.
Feel free to reach out if you’re keen on contributing your own war stories to enrich the Founder’s Playbook and further strengthen our founder community. Together, we can build a network that thrives and succeeds.
Private Debt has been grabbing headlines, with terms like Private Credit, Venture Debt, and Growth Debt often used interchangeably. However, it’s crucial to grasp the distinctions and understand the nuances. In this article, we unravel the intricacies of the overarching term “Private Debt” and focus on two key verticals – Venture Debt and Growth Debt – which are valuable financing tools for startups and scale-ups respectively.
Private Debt, a form of Alternative Assets, encompasses debt financing provided by private markets to companies outside traditional bank lending. Players in this arena include Debt Funds, Hedge Funds, Family Offices, Sovereign Wealth Funds, Non-Bank Financial Institutions, and Crowdfunding Platforms.
Venture Debt: Empowering Tech Innovators
Venture Debt is tailored for early-stage tech or tech-enabled companies (Series A and beyond). These companies, usually less than three years old, show high revenue growth, and have a unique/disruptive business model but are still burning cash. Venture debt has been a common financing tool in Silicon Valley but is still relatively new in Asia. Since Genesis first launched our venture debt fund five years ago, VC-backed companies in Southeast Asia have become more sophisticated about using venture debt as part of their overall capital financing strategy,
Venture Debt Structures: The Nuts and Bolts
Venture Debt typically takes the form of a term loan with a tenor of up to 36 months, repaid through monthly Principal and Interest amortization. Borrowers can access 20-30% of their recent financing round or cash on the balance sheet.
Reasons to opt for Venture Debt:
Filling working capital gaps for tangible outcomes, such as buying goods or raw materials.
Diversifying funding sources and reducing the weighted average cost of capital.
Minimizing dilution of early investors and founders across successive fundraises.
When to avoid Venture Debt:
Filling in for shortfalls or failures in equity fundraising.
The remaining cash runway is short and no other funding is available.
Funding Research and Development without a clear path to a commercial outcome.
Growth Debt: Fueling Expansion for Tech Titans
Growth Debt goes beyond Venture Debt by offering larger cheque sizes to mid to late-stage tech companies with revenues ranging from $10 million to over $100 million. Unlike Venture Debt, Growth Debt is not solely dependent on equity fundraising events and may serve as a substitute for equity. Examples of Growth Debt are Genesis’ loan to a leading global spatial data company before their IPO, as well as to Indonesian fintech firm, Akulaku. In essence, growth debt is a financing tool customized for later-stage startups who are hyper-scaling and preparing for an exit event.
Reasons to opt for Growth Debt:
Consolidating debt across entities or jurisdictions.
Refinancing costly or small quantum debt to benefit from improved terms e.g. lower interest rates or upsized debt.
Financing final rounds leading to profitability or pre-IPO stages.
Substituting for equity, reducing dilution for founders and early shareholders.
Funding projects with robust cash flows supporting debt repayment solely based on internal cash generation.
Acquiring an M&A target.
Credit Underwriting for Growth Debt: A Quick Overview
The credit underwriting process for Growth Debt is intricate, focusing on the company’s existing leverage, ability to achieve growth targets, reach profitability, and navigate market dynamics. Lenders assess the company’s attractiveness as a buyout or refinancing target, considering potential challenges to the original business case.
Comparing Venture Debt and Growth Debt: Key Distinctions
Venture Debt complements equity, emphasizing the fundamental quality of the borrower and its Financial Sponsors. Growth Debt at times may act as a substitute for equity, focusing on the company’s ability to execute growth plans independently and repay debt from internal cash generation.
The Genesis’ Approach: More Than Just Capital
Whether providing Venture Debt or Growth Debt solutions, Genesis takes a value-add approach, partnering with borrowers beyond cash. For insights on integrating debt into your fundraising plan or capital structure, we invite you to engage with us and explore the possibilities.
The table below outlines the differences and similarities between Venture and Growth debt.
For more information about Venture Debt and Growth Debt, please email us at contact@genesisventure.co.
Tough, challenging, economic headwinds, cautious optimism, interest rate hikes, downrounds, pay-to-play, layoffs – all these were words that startup entrepreneurs and venture investors became familiar with 2023. However, the year also saw several noteworthy developments that had a lasting impact on the venture capital landscape. We will address them in this quarter’s House View.
AI Ascending
2023 was a defining year for the Artificial Intelligence (AI) industry. AI became increasingly integrated into various industries, including healthcare, finance, manufacturing, and retail. Developments in machine learning, natural language processing, computer vision, and robotics were at the forefront of AI advancements. These technologies were driving innovation across sectors. Businesses leveraged AI to improve efficiency, customer experiences, and decision-making processes. Large tech companies continued to acquire AI startups to enhance their AI capabilities and expand their market presence. Microsoft became a leader in AI adoption with close integration of ChatGPT into its Bing search engine since announcing a $10 billion investment in OpenAI, the creator of the ChatGPT chatbot. What is exciting is the combination of the power of large language models (LLMs) with data in the Microsoft apps to turn words into the most powerful productivity tool on the planet. But as AI adoption grew, there was also a growing focus on ethics and regulations surrounding AI applications, particularly in areas like data privacy and algorithmic bias.
Silicon Valley Bank Collapse
One of the most notable events of 2023 was the sudden collapse of Silicon Valley Bank in March, a venerable institution that had long been synonymous with the technology and innovation hub of California. Its downfall sent shockwaves through the startup ecosystem, serving as a stark reminder of the fragility that can underlie even the most established financial institutions. In the aftermath of SVB’s failure, startups and venture capital funds faced not only the practical challenges of disrupted financial operations but also the psychological impact of shattered trust in financial institutions. This event served as a critical lesson in risk management and diversification, reinforcing the need for resilience and adaptability in the ever-evolving landscape of the startup and venture capital world. It also highlighted the importance of contingency planning and the necessity of spreading financial risks across multiple trusted partners to safeguard the interests of all stakeholders.
End of IPO Ice Age?
The IPO market remained frozen throughout 2023, save for a few iconic listings like Arm, Instacart, and Klaviyo, depriving startups of a traditional exit strategy and forcing them to reassess their growth trajectories. Courier startup J&T Global Express, which launched in Indonesia before expanding across Southeast Asia and China was valued at $13 billion in its Hong Kong IPO, below its last private round valuation of $20 billion as reported. Singapore’s first SPAC, VTAC, listed in January 2022 and backed by Vertex Venture Holdings, the venture capital arm of Singapore’s sovereign wealth fund, Temasek Holdings. VTAC merged with Asia’s live streaming app 17LIVE to take the startup public on Singapore’s stock exchange in December 2023.
What could be the catalyst that rekindles the interest in tech startup IPOs? First and foremost, a resurgence of confidence in market stability is essential. Renewed assurance that market volatility could be normalizing may set the stage for increased IPO activity. Furthermore, decisions made by the US Federal Reserve and other central banks concerning interest rates will wield considerable influence. These decisions ripple through the technology sector, impacting future cash flows of companies, driving valuation rebounds, and shaping investor sentiment. The current challenging capital market conditions present an opportune moment to lay the groundwork for an IPO, especially considering that the preparation process typically spans 12 to 18 months. Commencing preparations today positions companies to be fully prepared when favorable market conditions eventually return. On the 2024 IPO pipeline watchlist are some exciting candidates, including OpenAI which saw a leadership drama cutting its valuation down to $50B, Stripe – the Fintech payment darling that played a key role in disrupting the payments world with an estimated $50B valuation and Canva, the Adobe competitor with a potential $10B valuation.
From Setbacks to Comebacks
As we navigated the year, venture capital funds found themselves closing the books on a tough and transformative period. VC deals, exits, and fundraising all experienced a dramatic downturn, challenging the industry’s resilience and adaptability.
Global VC funding plummeted to approximately $345 billion, a substantial decline from the robust $531 billion recorded in 2022. This was reflected in both declining global VC deal count and dollars as illustrated below.
Source: PitchBook Q4 2023 Global Venture First Look
Southeast Asia observed a near identical trend. According to DealStreet Asia’s Singapore Venture Funding Landscape 2023 report, the region registered a 30% year-on-year decline in deal volume in 2023 (9 months) with total deal value down by 50%. While Singapore continues to be the region’s top tech investment destination (64% of total deal volume), deal value (-49%) and deal volume (-21%) both registered declines in 2023. Seen in context however, funding activity has reverted to levels last seen in 2019 which is an encouraging sign given that “the subsequent funding surge during 2021-2022 was an anomaly fuelled by a global liquidity glut”. Further, we note that “Seed to Series B” deals garnered a larger share in 2023 “indicating a growing investor preference for moving upstream”.
Facing a capital crunch and a prolonged fundraising runway that typically stalled on the topic of valuation, startups have had to trim their operations to achieve financial sustainability. Those that were able to achieve this newfound cashflow breakeven were in a unique position to capitalize on a changing business landscape. Founders started to experiment with marketing strategies that increase ROI (return on investment) – for example, optimizing marketing spend by adjusting social media campaigns to reduce burn and drive outcomes, reducing product SKUs, negotiating and extending payment terms extending working capital cycles. With healthy cash reserves in bank accounts, these lean and financially positive startups were not just weathering the challenging market conditions but actively seeking opportunities to expand their influence and market share.
Founders also recognized that a tumultuous year had created fertile ground for strategic acquisitions and talent acquisition through acqui-hiring. One notable example was turnaround fund Turn Capital acquisition of Flash Coffee’s business in Thailand. This strategic move aimed at revitalising Flash’s coffee business and aims to open over 100 new stores within the next two years. Another compelling instance unfolded in the acquisition of Loom, a video messaging startup that had once achieved unicorn status. Collaborative software giant Atlassian recognized the potential and value in Loom and acquired the San Francisco-based startup for a substantial $975 million. Notably, Loom had recently raised $130 million in a Series C funding round in May 2021, at a valuation of $1.5 billion. Atlassian’s acquisition represented a strategic move to leverage Loom’s capabilities, and despite the 35% decline in valuation from the previous round, it underlined the significance of acquiring talent and technology to drive future growth in the rapidly evolving landscape of tech startups.
In the current global startup landscape, a positive and healthy recalibration period is underway, exemplified by success stories like Lenskart’s recent achievement. Securing a substantial $500 million investment from the Abu Dhabi Investment Authority at a solid $4.5 billion valuation, Lenskart’s remarkable journey showcases the potential for startups to thrive when pursuing profitability and strategic excellence. With a network spanning 2000 stores across India, Southeast Asia, and the Middle East, Lenskart not only highlights its impressive scale but also underscores its claim to profitability—a rare feat in the startup world. This milestone serves as a valuable lesson for all emerging companies, emphasizing the need to reevaluate their strategies. Startups are now encouraged to shift their focus towards profitability, exercise prudent expense management, and prioritize establishing a strong market position. However, Lenskart was not alone in its impressive feats. Other startups also closed spectacular funding rounds in the final weeks of 2023, solidifying the industry’s positive momentum. Klook, a trailblazer in the travel technology sector, secured an impressive $210 million in Series E+ funding. Simultaneously, Silicon Box, a key player in the semiconductor arena, raised a significant $200 million in Series B funding.
Fundraising Gains Momentum
Venture funds witnessed a decline in fundraising, reflecting a stark contrast to the previous year’s numbers. VC firms managed to collect only $161 billion, a considerable drop from the impressive $307 billion raised in the preceding year. Notably, New Enterprise Associates (NEA) stood out as a fundraising leader, securing slightly over $6.2 billion for two new funds, and with NEA announcing its first Indonesia investment into Gravel, an Indonesia-based construction tech startup raising $14m Series A to extend its capacity to help anyone build, renovate, and repair living, working, and recreational spaces efficiently by using technology to connect customers to not only qualified construction workers, but also tools, building materials, and experts. Meanwhile, Bain Capital Ventures, a San Francisco-based multi-stage venture capital firm, successfully closed two funds, amassing a total of $1.9 billion in commitments.
Vertex Ventures also made headlines by finalizing Fund V with $541 million, adding to the growing momentum of venture capital in the region. Meanwhile, Singapore-based Northstar Group achieved a significant milestone by completing the fundraising for Northstar Ventures (NSV) I, its first-ever early-stage fund, garnering a remarkable $140 million in capital commitments. Korea Investment Partners entered the Southeast Asia scene with a bang, announcing its inaugural $60 million Southeast Asia Fund. United States venture capital firm In-Q-Tel, Inc. (IQT) has announced the opening of a new office in Singapore.
These developments in VC fundraising underscore the evolving landscape of venture capital, reflecting a range of strategies and niches being explored by firms worldwide as they navigate the changing dynamics of the startup and investment ecosystem.
Stepping into 2024, it’s against the backdrop of remarkable resilience and adaptability that a series of transformative developments and a shifting mindset have left an indelible mark on the world of startups and venture capital. Positive signals of tailwinds are propelling startups toward profitability while refining sustainable business models with a focus on capital efficiency. Abundant VC PE dry powder has reignited dealflow, instilling hope among venture capitalists for increased investment in both emerging and established startups, poised to redefine the technology industry.
Kickstarting 2024: AI + HealthCare
In January 2024, the tech world geared up for two major events that promise to set the stage for an exciting year of technological innovations.
The first is the renowned J.P. Morgan Healthcare Conference (JPMHC), now in its 42nd year, which stands as the industry’s largest and most informative healthcare investment symposium. Held annually in San Francisco, it serves as a pivotal platform for showcasing groundbreaking healthcare technologies and trends.
In San Francisco, the JPMHC spotlighted 2023 as a robust year for mergers and acquisitions (M&A), driven by a flurry of nine M&A deals valued at over US$1 billion each that were announced towards the end of the year. The pharmaceutical giants, often referred to as Big Pharma, have been actively seeking strategic acquisitions to replenish their pipelines in response to drugs nearing patent expiration. These high-value M&A transactions primarily focused on target companies boasting late-stage assets, including marketed drugs and products with clinical proof of concept in phase 3 trials.
Meanwhile, venture capitalists (VCs) in the healthcare and life sciences sector remain well-positioned with significant capital reserves ready for deployment. Notably, new funds like Goldman Sachs’ impressive US$650 million fund, West Street Life Sciences I, have emerged with a specific focus on early- to mid-stage therapeutic companies. These companies are characterized by multi-asset portfolios and encompass tools and diagnostics firms within their investment scope, signaling a dynamic and active investment landscape within the healthcare and life sciences sectors.
The data indeed reflects a notable trend: Seed stage and modest Series A financings continue to thrive in the investment landscape. However, when it comes to larger Series A and subsequent funding rounds, a clear division persists between the ‘haves’ and the ‘have nots.’ For the fortunate few, particularly those operating in hot therapeutic areas or are armed with recent data readouts that significantly de-risk their programs, capital remains readily accessible.
A striking example of this phenomenon is demonstrated by Aiolos Bio, which secured an impressive US$250 million in a Series A round for its Phase II-ready asthma/anti-inflammatory antibody targeting the TSLP pathway—technology in-licensed from Hengrui. Aiolos Bio later astounded the market by announcing its acquisition by GSK for a staggering US$1 billion upfront, with the potential for an additional US$400 million in milestones, underscoring the value of strong data and de-risked programs.
Meanwhile, Indonesia’s leading health-tech platform, Halodoc, which offers a range of healthcare services through telemedicine, medicine delivery, lab tests, and doctor appointments via smartphones, secured a substantial $100 million in Series D funding, highlighting the continued interest in health-tech innovations.
Consumer Electronics Show (CES), originating in 1967 with 250 exhibitors and 17,500 attendees in New York City, has since evolved into a global tech extravaganza. CES not only presents the latest technological advancements but also offers a glimpse into the future of the tech world. Notably, both events share a common theme: the pervasive presence of artificial intelligence (AI). AI’s influence is palpable, whether it’s in drug development, robotics, or consumer products, reaffirming its pivotal role in shaping the future of technology.
Among the groundbreaking innovations showcased at the event, Betavolt, a startup hailing from China, introduced a truly revolutionary nuclear battery technology that promises to generate electricity continuously for an astounding 50 years without the need for recharging or maintenance.
What sets Betavolt’s creation apart is its groundbreaking integration of 63 different isotopes into a module that’s smaller than a standard coin, marking a significant leap in the field of atomic energy. This achievement challenges conventional wisdom associated with nuclear technology by achieving the remarkable feat of miniaturizing atomic energy. The battery’s compact dimensions measure just 15 x 15 x 5 millimeters, constructed from delicate layers of nuclear isotopes and diamond semiconductors. It is envisioned as a remarkable technological marvel that holds the promise of keeping electronic devices charged and fully operational for an astonishing half-century. This breakthrough ushers in a transformative era of sustainability and unprecedented longevity in the realm of portable power solutions.
ChatGPT will be shoe-horned into everything. Teamwork between Volkswagen and Cerence to harness its Chat Pro “automotive grade” artificial intelligence platform, which enables the ChatGPT integration. This expands the German marque’s existing IDA voice assistant so it can now deal with natural speech prompts for both control of the vehicle’s functionality and broader queries.
Motion Pillow revealed a self-inflating, AI-powered smart pillow designed to curb snoring. Once the system identifies snoring, the pillow gently inflates to subtly adjust the sleeper’s head position. Through the movement of 7 airbags, it dynamically adjusts the positions of the head and back, creating a comfortable breathing environment and reducing snoring. The product has been further enhanced with an increased number of airbags, the vital ring for oxygen saturation measurement, circadian rhythm lighting, and a space-saving charging system, all contributing to improved performance, usability, and adding a touch of sophistication. This side-lying posture is known to be less conducive to snoring, as it helps keep airways open. The inflation mechanism is designed to be both quiet and gradual, ensuring minimal disturbance to the sleeper.
ElliQ, the innovative care companion robot introduced by Intuition Robotics, plays a vital role in addressing the growing sense of isolation experienced by older adults in our increasingly technology-driven world. This is particularly crucial in an era when staying digitally connected is paramount due to the limitations on physical interactions. With approximately 50% of adults grappling with concerns related to social alienation and declining health, ElliQ emerges as a solution designed to bridge this gap.
ElliQ serves as an interactive tabletop health companion, thoughtfully crafted to assist older adults in maintaining their mental and social well-being. By engaging in various activities and providing companionship, ElliQ not only alleviates feelings of isolation but also encourages essential mental and social interactions. It represents a compassionate response to the challenges faced by older individuals in our technology-centric society, reaffirming the potential for technology to enhance the quality of life for all generations.
The success of any startup is inherently tied to the effectiveness of its financial management, making the role of the Chief Financial Officer (CFO) a cornerstone of the company’s growth trajectory. However, the decision to hire a CFO must be well-timed, taking into account the specific needs and stage of the startup. In this article, we have outlined the critical factors about when, what, and how to select a CFO for your startup.
When to Bring Onboard a CFO
Founders often opt to manage the finance function themselves or work with an accountant until they reach Series C or even later stages. This approach can be acceptable, particularly if the founder has a finance or banking background (although it can be a significant distraction for them!). Alternatively, it might work if their investors are actively involved in daily operations. However, linking the decision to hire a CFO solely to the funding stage, rather than considering the internal business needs, can be detrimental to the startup. It not only distracts the founder but also deprives them of a valuable, independent perspective during the crucial early scaling phase of their business.
“Once a startup has achieved product-market fit, and can afford an experienced CFO, it should start looking to fill that role … [to] help the CEO in fine-tuning pricing, tracking unit economics, evaluating alternative business strategies through a financial lens, and figuring out the funding roadmap”
Jaideep Lakshminarayanan, CFO of the AI fintech Trusting Social, recommends that once a startup has achieved product-market fit, and can afford an experienced CFO, it should start looking to fill that role. That person would help the CEO in fine-tuning pricing, tracking unit economics, evaluating alternative business strategies through a financial lens, and figuring out the funding roadmap. Having the CFO be a strategy partner at the C-suite is impactful, since many founding teams are from tech or product backgrounds.
Similarly, Kelvin Li, CFO of the market research and data analytics startup, Milieu Insight, emphasizes two primary considerations for determining the right time to bring in a CFO, primarily concerning fundraising and scaling. During institutional funding rounds, having a CFO onboard becomes vital, as fundraising can be time-consuming. A skilled CFO can streamline the process, allowing the leadership team to focus on other business aspects. Additionally, a CFO’s guidance on deal structure ensures fair terms and maximizes value for existing shareholders. With growing scale, setting up entities in multiple markets requires substantial attention and time, necessitating a CFO’s focus on these intricate operational and regulatory aspects, enabling successful market expansion.
What to Look for in a Startup CFO
The responsibilities of a startup CFO transcend traditional financial stewardship. Their role demands a specific skill set tailored to the complexities of a dynamic startup environment. This includes proficiency in financial planning, financial modelling, fundraising, treasury management, strategic thinking, tax planning, and ensuring compliance with a range of financial, tax, and employment laws.
“A startup is expected to take some time to achieve cashflow breakeven, so having a thorough understanding of the revenue and cost levers enables the company to manage its cash flow effectively before it achieves profitability,” says Kelvin from Milieu Insight.
“A startup is expected to take some time to achieve cashflow breakeven, so having a thorough understanding of the revenue and cost levers enables the company to manage its cash flow effectively before it achieves profitability”
Furthermore, there are many unknown risks that a startup has a deal with. Therefore a startup CFO must possess forward-thinking abilities, capable of envisioning the broader landscape, preempting potential hurdles, and identifying opportunities – while articulating this clearly to financial and non-financial stakeholders, both internally and externally.
“The startup environment is super fast-paced and a CFO should be adaptable to change and capable of making quick and informed decisions – often without complete financial information,” says Dominic Ong, CFO of digital wealth platform, Endowus.
“The startup environment is super fast-paced and a CFO should be adaptable to change and capable of making quick and informed decisions – often without complete financial information.”
Relationship-building and risk-mitigation skills are just as important. Jaideep adds that, “a startup CFO serves as the primary point of contact for the company with investors and strategic partners, utilizing external market insights, and identifying potential acquisition prospects. Additionally, the CFO can play a defensive role by pinpointing various risks within the business, such as customer concentration, currency exposure, and contractual vulnerabilities, and taking proactive measures to mitigate these risks.
How to Choose the Right CFO for Your Startup
Hiring the right CFO for your startup is a critical decision. Here are some strategies for finding and selecting the ideal candidate:
Figure out a Hiring Model
Startup Founders often face the challenge of juggling multiple responsibilities, making the task of financial management particularly demanding. Nevertheless, the availability of accurate, real-time financial data and strategic insights remains crucial for making informed decisions that can significantly impact the company’s trajectory.
When considering hiring a CFO, startups can choose from different models, including full-time/in-house, interim, or fractional, depending on their stage, business complexity, and budget constraints. Opting for a fractional CFO can provide the necessary level of expertise within a limited budget.
Unlike consultants who simply recommend a strategy, fractional leaders have full ownership of the role and function within the organization, and are working towards KPIs and outcomes. They engage in strategic planning, execute initiatives, measure progress, and adapt strategies as needed.
According to Elena Chow, Founder of ConnectOne, a talent solutions firm focused on startups, “Engaging a fractional CFO is a practical option for early-stage startups, providing the necessary expertise and resources to streamline financial operations without the need for a full-time team or a significant financial commitment. Such an arrangement can work well if it is structured with very specific outcomes and deliverables.”
“Engaging a fractional CFO is a practical option for early-stage startups, providing the necessary expertise and resources to streamline financial operations without the need for a full-time team or a significant financial commitment. Such an arrangement can work well if it is structured with very specific outcomes and deliverables.”
Consult your lead VC or Advisory Board member with deep industry experience to help assess your startup’s needs and identify suitable CFO candidates. Your VC has worked with many CFOs and their experience can be invaluable in recommending a candidate with a proven track record and culture-fit. Your VC or Board member can also partner you in the interview process and act as a sounding board.
Technical Qualifications
An effective startup CFO offers deep strategic financial expertise that complements the technical skills of the C-suite and aligns with the company’s core business objectives. They must have the capability to identify essential metrics for effective business management and enforce a structured approach to tracking and reporting these metrics. This ensures that the decision-making process within the C-suite is both well-informed and timely.
Key prerequisites for a competent startup CFO include:
A minimum of 10 years of industry experience, preferably in Corporate Finance.
Background experience from “Big 4” accounting firms, along with CPA or MBA certifications.
Previous involvement in fundraising, mergers and acquisitions (M&A), and initial public offerings (IPOs).
Proven experience in leading startups through successive scale-ups.
A history of serving as a reliable sounding board for the CEO, particularly highly stressful situations
Some operational experience in identifying inefficiencies and bottlenecks and devising actional plans to address them.
Essential Soft Skills
According to Dominic, a startup CFO needs to be a forward-thinker, capable of seeing the big picture, and anticipating potential challenges and opportunities – while articulating this clearly to financial and non-financial stakeholders both internally and externally. While there is no “one-size-fits-all”, there are certain attributes that are critical for startup CFOs, which include:
Conflict Management: As the role of finance is to provide checks and balances, the CFO’s ability to disagree and forge a compromise is an essential skill.
Change management: A top startup CFO must be comfortable with change and ambiguity, adapting quickly to dynamically evolving circumstances.
Relationship Building: Beyond being a “cost gatekeeper”, a CFO capable of fostering strong relationships both internally and externally can help channel collective resources and efforts toward accomplishing the company’s mission.:
Emotional Self-Mastery: Because startups will go through business pivots and funding crises, an essential trait that a CFO should have is keeping a cool head as you work through the challenges together.
Creative Problem-solving: A startup’s growth journey is often non-linear, so a CFO must be able to devise customised solutions for dynamic situations must be able to juggle and prioritize multiple workstreams
Gather Feedback
All the CFOs in this article agree that honesty and integrity are non-negotiables, therefore carrying out due diligence on the candidate is paramount. Conducting comprehensive background checks, including thorough network assessments with the candidate’s former colleagues, business partners, and clients, is crucial to verifying their professional history and character. Your VC, trusted advisor, or Board Member can assist with a confidential check regarding their ethical standards, work ethic, and overall performance. This process not only safeguards your company from potential risks but also allows you to make an informed decision that aligns with your organization’s values and long-term objectives.
The ultimate goal is for the CFO to become a strategic partner, contributing to long-term planning and decision-making, including pricing, expansion, acquisitions, and more. It is multi-faceted and evolves as the company grows. Timing the hire correctly, understanding the specific skills and qualifications required, and adopting the right hiring model are crucial for ensuring your startup’s financial health and long-term success. A skilled CFO can help guide your startup through the challenges of scaling while contributing significantly to bringing your dream to life.
The term “funding winter” has permeated discussions from panels at tech conferences to casual cafe conversations over the last twelve months. The fundamental question pertains to venture capital liquidity constraints induced by prevailing macroeconomic and political challenges. Will these constraints persist in Southeast Asia, or can we anticipate a resurgence in funding levels to reach heights achieved in 2021? During that year, the tech sector in the region witnessed a historic high, with investments exceeding the unprecedented milestone of US$20 billion.
Let’s review the global funding trend over the past decade, encompassing venture capital investments into startups across the Americas, Europe, the Middle East, Africa, and Asia, including Southeast Asia. The chart below illustrates a consistent upward trajectory in funding from 2012 through 2022. Notably, 2021 emerged as an exceptional year, marked by an unprecedented surge in capital deployment with investments nearly 1.5 to 2 times higher compared to the preceding and subsequent years. As we approach the conclusion of 2023, it is important to acknowledge that the full-year funding figure is still awaiting final tallying. However, a preliminary estimate, based on a rough calculation, suggests that approximately US$340 billion may have been invested during this year. This would represent a dip from 2021-22 but on par with 2018 through to 2020 funding levels.
In retrospect, the venture capital landscape witnessed an unprecedented bull run in 2021, characterized by a substantial influx of investment dollars from both corporate and venture tourist investors into the startup sector. If we were to eliminate the 2021 funding spike from the chart above and draw a trendline across the past ten years as shown in the chart below, a compelling narrative emerges. Over this period, invested capital has displayed a consistent and progressive growth pattern, expanding by a noteworthy factor of 5 to 7 times.
What sets this trend apart is the discernible shift in capital allocation, with an increasing proportion being directed towards the Asia and EMEA (Europe, Middle East, and Africa) regions. This transformation in the funding landscape signifies a fundamental reorientation of global investment priorities within the tech and venture sectors. The significant surge in investment activity in 2021, driven by both corporate and venture investors, underscores the industry’s dynamic evolution and its resilience in the face of economic challenges.
In the context of venture funding in Southeast Asia, the second quarter of 2023 saw a notable increase, reaching a total of $2.1 billion. It’s worth observing that despite the increase in total funding, the deal count was lower during this period. According to CB Insights, Indonesia emerged as the leading recipient of funding in the region during 2Q 2023, with its startups securing $1 billion, an extraordinary 233% surge compared to the preceding quarter. Singapore (a base for Southeast Asia startups) closely followed with $914 million in funding, although this represented a 15% decline quarter-over-quarter.
The past quarters also witnessed an uptick in exits within the Southeast Asian startup ecosystem. This was particularly evident in the increased number of M&A exits for the second consecutive quarter. In this evolving economic landscape, more tech companies are grappling with the challenge of managing their liabilities and raising funding. As a result, an increasing number of these companies are opting to pursue mergers with larger competitors as a strategic move to sustain their operations and keep their businesses afloat. Startups are adapting to the challenges posed by evolving market conditions, which may include increased competition, funding constraints, or changing investor sentiment. Mergers and acquisitions can offer a viable path forward for startups seeking stability and growth, while also presenting opportunities for larger companies to expand their market presence and capabilities in the region.
In the current funding landscape startups are facing the imperative of planning for an extended runway as the process of closing financing rounds has become considerably protracted. Notably, earlier-stage companies, ranging from Seed to Series A, are finding it necessary to allocate up to 2 years for fundraising, representing an increase from the 16-month average observed just a year ago. Meanwhile, statistics reveal that later-stage companies, specifically those at the Series B stage and beyond, experience even more extended timelines, with fundraising cycles stretching to as long as 34 months.
Several factors contribute to these extended timelines, with one significant reason being the heightened focus of global VCs nursing their existing portfolio companies. Many VCs have slowed down their pace of new investments, with some openly admitting that they have not committed to new deals over the past 12 months. This trend has particularly impacted fund deployment, which has contracted by 25-30% in the current year, especially in regions like Indonesia and at the Series B+ stage. However, VCs remain active in earlier-stage cycles, notably at the Seed and Series A stages.
Despite these challenges, there exists a prevailing sentiment of cautious optimism regarding the future. VCs believe they will gradually increase their investment activities toward the latter part of 2023 and into 2024, provided that macroeconomic conditions continue to improve and unforeseen disruptive events are avoided. In the midst of this downturn, industry insiders, like Oswald Yeo, CEO of recruitment startup Glints, underscore the resilience and growth potential of the Southeast Asian startup ecosystem. Across various industries and verticals, a positive outlook toward sustainable growth persists, with a significant percentage of surveyed companies (86%) expressing their intentions to continue hiring in 2023. This challenging period is also expected to cultivate the emergence of strong founders who can weather such adversity, building businesses that can withstand even the most challenging circumstances.
Tech IPO Window Resumes Business, But Not Wide Open
Despite these challenges, there are positive offshoots returning to the public markets with several high-profile IPO listings leading the charge, which hopefully would trickle down to the private markets. The month of September 2023 witnessed a series of notable IPOs, underscoring the enduring interest in technology-driven firms seeking public equity. Among these, Arm Holdings plc, a Softbank-backed entity, stands out, with an IPO that initially valued the company at approximately $54.5 billion and at one point surging to nearly $72 billion. Arm Holdings specializes in the architecture, development, and licensing of high-performance, energy-efficient IP chip solutions, integral to the functioning of over 260 technology companies worldwide, including major smartphone manufacturers such as Samsung, Huawei, and Apple.
Another prominent tech IPO in the same period featured Instacart, a grocery delivery service, which, having been previously valued at $39 billion, debuted on the NASDAQ with a fully diluted valuation just surpassing $11 billion. Concurrently, Klaviyo, a marketing automation firm under the umbrella of Shopify, made its debut on the New York Stock Exchange, achieving profitability and obtaining a $9 billion valuation, substantiated by $345 million in raised capital.
Conversely, some startups have opted to defer their IPO plans. VNG Ltd, a Vietnamese internet company with backing from Tencent, chose to delay its $150 million U.S. IPO until 2024, citing the prevailing volatile market conditions. VNG was established in 2004 and hailed as Vietnam’s inaugural unicorn, operates across diverse sectors encompassing online gaming, payments, cloud services, and the preeminent Vietnamese messaging application, Zalo.
Singapore-based cancer diagnostics firm Mirxes has submitted an application to the Hong Kong Stock Exchange for an initial public offering, potentially becoming the first non-Chinese and non-Hong Kong-based biotech company to list under a specialized provision. This decision follows a $50 million Series D funding round, which ascribed a post-money valuation of approximately $600 million to Mirxes.
Industry analysis by PitchBook indicates a queue of nearly 80 IPO candidates including TikTok, Stripe, Discord and more who are lining up to go public. While there exists a discernible opening in the IPO window, investors are currently leaning toward a cautious stance for the remainder of 2023. Venture capitalists are advising their startups to consider deferring their IPO plans until interest rates have stabilized. The possibility of further interest rate hikes in the year, coupled with reduced expectations for rate cuts in 2024, could further influence market sentiment. Moreover, volatility in share prices for both Arm Holdings and Instacart underscore the necessity for prudence in the prevailing listing environment.
More Dry Powder Reason For Optimism In Thawing Of Equity Winter
In 2022, while the number of newly established funds experienced a decline, the total capital amassed by global funds reached an unprecedented pinnacle, totaling a staggering $162.6 billion. This achievement marked the second consecutive year in which capital inflows surpassed the significant milestone of $100 billion, defying challenging economic conditions.
According to DealStreetAsia’s 2Q 2023 report, Southeast Asian investors successfully raised an impressive US$3.72 billion in the first half of the year. Notably, the recent announcements have catapulted Southeast Asian venture capital firms beyond last year’s fundraising record of $4.14 billion. Pitchbook reported that the US largest public pension scheme, Calpers, which manages some $444 billion in capital, intends to increase its venture capital allocation by more than sixfold, from $800 million to $5 billion. These developments highlight a robust investor sentiment in the region.
Vertex Ventures, for instance, substantially exceeded its expectations by closing its fifth fund at a substantial US$541 million, surpassing its initial target of US$450 million. This achievement notably exceeded the US$305 million garnered for the firm’s previous fund, which concluded in 2019. Similarly, Monk’s Hill Ventures concluded its second fund at a remarkable US$200 million. Additionally, Singapore’s Temasek announced its strategic collaboration with the National University of Singapore and Nanyang Technological University Singapore, committing US$55 million to foster the commercialization of deep-tech ventures emerging from the research pipelines of these esteemed institutions.
The VC market landscape has undergone a notable transformation, shifting away from its traditional startup and founder-centric ethos to one that is more favorably inclined toward investors. Several key drivers underpinning this transformation include the widening gap between capital demand and supply, coupled with a discernible decrease in valuation upticks across various developmental stages.
In light of this evolving landscape, VCs are poised to continue deploying their capital; however, the terms of these deals are expected to skew more positively towards investors. Consequently, entrepreneurs are faced with the imperative to refine their business models and present a meticulously delineated roadmap toward achieving cash breakeven and profitability. Those entrepreneurs who can exhibit robust unit economics and pragmatic growth projections will find themselves in the most advantageous position when competing for coveted VC investments.
Developments In The Venture And Private Debt Sector
Smart money continues to flow into private debt, drawn to the favorable risk-adjusted returns and with plenty of headroom for future growth. The collapse of Silicon Valley Bank (SVB) in March 2023 did not dampen the appetite for venture debt, a subset of private debt. Banks across the world have jumped into direct lending to startups, seizing opportunities in a post-SVB era. HSBC picked up some of SVB’s assets and its team and went on an aspirational strategy to become the next SVB. HSBC announced a $3 billion Hong Kong/China fund and separately a $105 million (RM500 million) Malaysia New Economy fund that will be dedicated to providing high-growth, innovative companies with a suite of tailored debt solutions in their respective jurisdictions. In Japan, Aozora Bank announced its third $60 million (¥9 billion) venture debt fund for local start-ups, while MUFG launched two new venture debt funds worth $400 million for Japanese and European startups, reflecting strong funding demand as the market for initial public offerings remains dull.
BlackRock Inc estimates that between the end of 2018 and the end of 2022, the private credit market doubled in size from roughly $750 billion to $1.5 trillion. To further deepen its private credit offerings, BlackRock acquired Kreos, a provider of growth and venture debt in technology and healthcare in Europe and Israel who has committed around $5.6 billion in over 750 debt transactions, demonstrating strengthening investor demand for exposure to venture debt and private credit.
Venture Debt Dealflow
In the US across all stages, startups closed $6.34 billion across 931 venture debt deals in the first half of 2023, compared to $20.07 billion across 1,513 deals in the same period last year. The diagram below shows the debt committed to startups across different stage of development. While the debt commitment has reduced across all stages, it is more evident for early-stage startups. One possible reason could be the collapse of SVB who primarily operated in the early-stage market, sometimes lending to pre-revenue companies, while its new owner, First Citizen Bank, does not expect to step up to fill that void.
Source: CBInsights
Debt capital remains in high demand among startups as companies turn to alternative financing. The number of new and repeat debt financing conversations has certainly increased. Lenders are however becoming pickier and seek more favourable covenant packages and warrant coverage, in addition to higher interest rates. Lenders also wants additional comfort that startups are on track to receive future investment and that their investors remain committed to the company. While lenders can benefit from a rise in interest rates, the converse is an increased loan repayment risk as increased cost of borrowing and tighter covenants means that borrowers need to operate within their means.
Funding Outlook For The Next Six To Twelve Months
The million-dollar question is how the rest of 2023 and 2024 looks like for the venture and tech sectors? Not to oversimplify things, there seem to be two groups of startups in the market currently: those that have raised funding in 2021/2022 (albeit at a high valuation) but that have adapted to the volatile market, conserved cash and growing sustainably; and another group that has continued to trailblaze growth but that has run out of funding and struggled to raise capital. Valuation expectation will need to be moderated and lenders are certainly witnessing an increase of queries for debt financing with or without new equity injection. In all certainty, entrepreneurs will need to start funding conversations much earlier in anticipation of the longer process.
Venture investors that take the brakes off and continue to invest in startups that have undergone business and capital rationalisation at an attractive entry point valuation may be capitalizing on being ahead of the herd with significant de-risking as the company has demonstrated added traction. The revival of startup funding over the next 6-12 months is intrinsically linked to several key factors reshaping the entrepreneurial landscape. As venture capital firms find themselves flush with more dry powder, they are eager to channel these resources into startups that have proven their ability to survive a major down cycle. This surge in available funding, combined with a slowly opening IPO market, creates a symbiotic relationship where startups have a clear path to exit strategies that appeal to investors. Moreover, startups are emerging from recent challenges as leaner and more efficient entities, well-equipped to maximize the capital they receive. This newfound efficiency not only instills confidence in investors but also ensures that the funding received is utilized effectively, ultimately fuelling the remarkable resurgence of the startup ecosystem.
Founder’s Playbook: Driving Change and Dollars in Pursuit of Impact
What happens when social impact meets business? Do they clash as diametrically opposing forces or do they find common ground? To serial Founder, SeauYeen Su, they can be symbiotic partners in creating a more equitable and sustainable future for all.
In this installment of Founder’s Playbook, we explore how individuals and businesses are re-shaping the definition of success by harnessing the power of profit to drive positive impact on a wider scale.
For SeauYeen, the turning point in her career coincided with the birth of her first daughter, prompting some soul-searching about her goals. Driven by the desire to make a positive impact, she left her corporate IT job in search of something meaningful to do. Rather than immediately diving into social entrepreneurship, she started a small venture from her own kitchen, baking pastries, cakes, and cookies to supply the growing cafe scene in Kuala Lumpur.
As cafes flourished, SeauYeen recognized an opportunity for growth but also realised the limitations that she as an individual can bring. The question of scalability plagued her so she decided to set up a central kitchen. This was where she found an opportunity to work with single mothers, a group facing unique challenges. As her kitchen was already a kid-friendly space that offered baking classes for children on weekends, it was a ready-made solution for mothers to bring their young kids to work, relieving the stress of finding childcare.
Source: Simply Cookies
Hence Simply Cookies was born. Enrolled in the Malaysian Global Innovation & Creativity Centre (MaGIC) accelerator programme, the social enterprise sought to break single mothers out of the poverty cycle by providing them with economic opportunities to balance financial independence and motherhood.
Seeking Scalability
As SeauYeen expanded her food venture, she encountered numerous hurdles, the biggest of which was once again, scalability. Her central kitchen was ill-equipped for mass production, and she did not want to go down the artisanal route and dilute the social impact of her venture.
She widened her target audience from single mothers to rural poor, especially the farmers in the Klang Valley. Working with these farmer communities, she also learned about the supply chain and how farmers lose out on the profit stack. What if one can remove middlemen from this chain – and this is how SeauYeen conceived of a platform, Fydu, to connect farmers with food service buyers, shortening the journey from farm to table. In a unique twist, pricing was set by the farmers instead of the buyers or distributors. This helped farmers get a fair price for their produce. Additionally, Fydu spotlighted the farmers’ social media, thereby instilling a sense of pride in their work and helping consumers trace the origin of their food.
However, just as Fydu was gaining traction, the COVID-19 pandemic struck, forcing SeauYeen to make the painful decision to close down her business. The financial toll and emotional distress pushed her into depression.
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SeauYeen’s journey in her own words
The pandemic was a challenging period for me, as I found myself in financial distress, having invested all my savings into Fydu. Nevertheless, I have since made significant progress in recovering from this setback, and hope that these learnings can be shared with other entrepreneurs:
Be Part of a Support Squad. I was very blessed to have a supportive group of friends who helped me find my footing again. They helped me see that the closure of Fydu was partly, but not entirely my fault; they affirmed my strengths in growing startups and my passion for purpose-driven ventures. They also did not withhold honest feedback. It is through them and my religious faith that I was able to pick myself up and continue my entrepreneurship journey. Address the Biggest Issue First. My next journey led me to Origo Eco, which recycles agricultural waste like rice husks into compostable products. While we started with F&B products like straws and cutlery, we recognized strong demand from the logistics industry for eco-friendly solutions to reduce their carbon footprint. This led us to temporarily pause our work on F&B products and focus on establishing a circular economy with global logistics companies. Our goal is to ensure that logistics pallets can return to the earth after use, addressing the issue of deforestation, where 170 million trees are cut down each year to support the pallet industry.
Source: Origo Eco
Profit and Impact are Partners. A common misconception suggests that doing good hinders profitability. I believe that businesses can and should prioritize both profitability and their responsibility to do good. Profit generation should empower further positive actions. It’s not an “either-or” situation but a “both” approach. Impact goes beyond charity, encompassing a broader commitment to sustainable and positive change.
Be Kinder To Ourselves and To Each Other. As founders, we often hold ourselves to high standards, especially in the face of failure. It’s the support of my team that got me through tough times. So, extend a helping hand and offer a listening ear, celebrate small victories, and foster trust by being the first to give. For founders and entrepreneurs, the journey is just as meaningful as the destination.
Learn the Art of Juggling Between Work and Family. Running a startup and raising a family are both all-consuming endeavors individually, and when combined, they can become a double-edged sword. On one hand, having a family serves as a powerful motivator, pushing you to strive for success as you have loved ones to support. However, the additional responsibilities can often feel overwhelming, leaving you with limited time to fulfill your daily tasks and perpetually engaged in a juggling act between family and work obligations.
It’s important to recognize that there will be moments when your primary focus must be on work, while there will be other times when family commitments take precedence. Striking the right balance is an art in itself.
Having a supportive partner who shares your vision and goals is not only essential but also something not to be taken for granted. I make it a point to set aside early Saturday mornings as dedicated, non-negotiable time to spend with my husband, cherishing the connection and shared commitment that makes it all possible.
Neuron Mobility, a leading Singapore-based shared e-scooter and e-bike operator, has swiftly gained prominence in the dynamic world of micromobility. As cities increasingly look for sustainable and safe transportation solutions, Neuron’s success in winning competitive tenders from forward-thinking cities underscores its reputation as an innovative urban mobility partner.
Since its inception in 2016, Neuron has been responsible for many e-scooter innovations. This has led to remarkable growth and the company now operates in 35 cities worldwide Neuron is the leading operator in Australia and New Zealand, and Canada, plus it also has operations in the United Kingdom.
In a conversation with Neuron Mobility’s CEO, Zachary Wang, we delve into the company’s origins and growth trajectory:
Tell us the origin and growth story of Neuron Mobility?
In 2016 my co-founder Harry Yu and I started Neuron in Singapore with the world’s first docked e-scooter system and the following year we rolled out the first shared e-scooter programme. The micromobility industry as we know it today did not exist back then, so in many ways, we had to pave the way as there were very few guidelines or other operators to learn from.
After testing our service in different cities across Southeast Asia for market fit, we made the strategic decision to concentrate our efforts on more regulated markets, with higher disposable incomes and better infrastructure for e-scooters and e-bikes.
Fast forward to today, Neuron is now the leading rental e-scooter company in Australia and New Zealand and as we complete our third year, in Canada we are the dominant micromobility operator there as well. Neuron now has a presence in over 35 cities around the world including Melbourne and Brisbane in Australia, Calgary in Canada, and Newcastle in the UK. We have learned a lot over the last few years and are incredibly excited about the opportunities for the future.
What is Neuron doing differently to achieve success where others have stumbled?
Neuron is first and foremost a tech company and we are well-known for innovating within the micromobility sector. We have introduced a long list of pioneering features like swappable batteries, integrated helmets, and advanced geofencing. It is not an exaggeration to say we have been leading the industry when it comes to introducing new technology.
Designing and building our own e-scooters and the systems that run them enables us to innovate quicker and more efficiently than other operators. We recently launched our all-new N4 e-scooter, the most rider-centric, sustainable, and toughest e-scooter ever built. It is purpose-built to win city contracts, increase our market share of riders, and importantly, lower our operational costs which significantly improves unit economics.
Another differentiator is our willingness to partner with cities – we often innovate specifically to meet their needs and they really appreciate this. We also prioritise safety which is a cornerstone of the company and this has helped us build trust among our most important stakeholders.
What are some of the positive impacts that Neuron’s e-scooter service is having on cities?
Our e-scooters make a significant positive impact in cities where we operate. They are replacing car journeys and in doing so, reducing harmful emissions and congestion. Additionally, e-scooters are a strong driver of prosperity, enabling riders to see more, do more, and spend more. Recent research showed two-thirds of all Neuron trips resulted in a purchase at a local business and in Australia, each e-scooter contributes a massive AU$70,000 per year to the local economy.
Our e-scooters have a broad appeal and the global gender split is now 60% males and 40% females, with more younger women than ever before using them to travel. Research has also shown that 5% of our riders have a disability or mobility issue, with many highlighting their benefits for allowing them to travel further and more frequently. We are also a local employer who invests in our people so they can advance their careers.
As cities worldwide strive for a more sustainable future, we’re proud to be providing a mainstream transport service that is delivering positive outcomes in the communities we serve.
Why did you pick Genesis as your venture lender?
We always strive to partner with organisations that deliver tangible value to our business. The Genesis team is no exception, they have played a vital role in helping to fuel Neuron’s international growth and technology leadership. This will continue to help drive us forward as we support more cities to achieve their sustainability goals.
