(October 12): For years, becoming a unicorn has been the main goal of startups. Now, with investment finance drying up and the survival of many young companies in doubt, another creature is the talk of the town: the cockroach.
Venture capitalists and tech leaders have gathered in Singapore in recent weeks for a number of high-profile annual conferences, marking the city-state’s major exit from Covid. However, the magic and talk of blitzkrieg are gone, and instead participants have focused on the dire need to conserve money and a lackluster future.
“It’s cockroach time — do whatever it takes to survive,” Tessa Wijaya, co-founder of Xendit, a $1 billion digital payments company, said during a panel discussion moderated by Piruze Sabuncu, partner at Square Peg Capital. “It’s a bit gross but it kind of works. If you can survive the next two or three years, you can probably thrive.”
In the past several years, Southeast Asia has attracted abundant capital from investors eager to bet on one of the fastest growing Internet economies. Enduring growth of teams has been the norm in well-funded companies, and for many young leaders and employees, this has been the only environment they have ever known.
The startup system is now facing a headwind. Global project funding fell to $74.5 billion in the past three months, its lowest level in nine quarters, according to CB Insights. This represents a 34% quarterly decline, the largest in a decade.
“Cash isn’t just king, it’s king and queen and everything else,” Raj Ganguly, who co-founded B Capital Group with Facebook co-founder Eduardo Saverin, said at SuperReturn Asia, a conference that has attracted a record 1,500 CEOs. “A lot of what we’ve been doing is getting companies to have more realistic discussions about the cash runway.”
This sentiment has been echoed by Jenny Lee, managing partner of GGV Capital and one of the most sought after speakers at five conferences, including the Forbes Global CEO Conference and the Milken Institute Summit in Asia.
“In my 22 years as an investor, this is probably the most complex environment globally,” Lee told Tech in Asia on September 21, held six floors below SuperReturn Asia in Marina Bay Sands. The most important thing to remember in economic downturns, she said, is never the valuation but your “ability to have a cash run.”
Her venture capital firm advises portfolio companies to have enough cash to stay afloat for 36 months without having to raise additional funds. About 80% of them are now in that bucket, said Li, who launched the first GGV office in China in 2005 and now leads fundraising activities in the United States.
After hitting high ratings, tech companies around the world have had the worst year of their lives amid soaring inflation and high interest rates. Many of them are cutting jobs and closing parts of their operations to support balance sheets before a possible recession hits.
In Southeast Asia, Sea Ltd and Grab Holdings Ltd, the largest technology companies in Singapore, are emblematic of this new reality: their US-traded shares have lost more than half their value this year, and Sea has warned it does not expect to be able to rally. money in the market.
The first investor Grab Day coincided with Formula 1 racing week in Singapore at the start of the month, with former Google CEO Eric Schmidt and General Atlantic Vice President Ajay Banga among the city’s 90,000 delegates. Senior Grab executives sought to reassure shareholders that it is coping with the downturn and accelerate efforts to reverse years of losses.
Shailendra Singh, managing director at Sequoia Capital India, said founders should not be afraid to raise money at a lower valuation.
“Lower courses like the 10th grade math exam: it might increase your anxiety at that point in time, but in the long run it doesn’t matter,” Singh said. “If and when you list, you will experience market volatility all the time.”
Founders who have gone through previous cycles remain optimistic about the prospects for companies with proven business models.
Julian Tan, founder of a startup FastGig that matches employers with part-time job seekers, said he has had no problems raising money this year and has received calls from investors looking for sustainable business, while trying to tackle social issues. He said Southeast Asia has so far few services for manual and semi-skilled employees, who make up the vast majority of the working population.
“The not-so-good startups have been liquidated. Now is the time for the real startups to shine, step out and raise value investors,” said Aung Kyaw Mo, who sold a portion of his 19-year-old 2C2P payments company to Ant Group Co this year. “We can’t go and buy a $1 return backed by $2 using investor money. This has to stop.”
As in previous downturns, efficiency is emerging as a major focus.
“It was a word that hadn’t been used for years,” Ganguly of B Capital said. “It was always about growing, growing, growing. Now we talk a lot about efficiency.”
Patrick Kao, president of GoTo, Indonesia’s largest internet company, said his company will focus on cutting subsidies and simplifying operating expenses, while providing services that merchant partners can monetize more. “We’ve accelerated our break-even goals,” he said, “but there’s still a lot of work to do.”
GoTo’s arch rival, Grab, has downplayed its long-standing mantra of being “the leading superapp in Southeast Asia,” a powerful mantra that has helped the company raise billions of dollars from investors including SoftBank Group Corp.
Its newly defined goal, published in its Investor Day presentation slides, underscores its intent to become even more focused after burning the cash since its inception: “The largest and most efficient on-demand platform in Southeast Asia that enables local trade and mobility.”