A comprehensive report by January Capital, analysing the ASEAN technology ecosystem for the calendar year 2024, reveals a nuanced landscape characterised by stabilising capital deployment alongside a continued decline in overall deal volume.
The State of the ASEAN Technology Ecosystem Report CY2024 draws extensively on data from Alternatives.pe, an affiliated platform providing private market data for the Asia-Pacific region.
Funding landscape: Stabilisation in capital deployment, decline in deal flow
Overall funding for ASEAN technology companies began stabilising in the latter half of the calendar year 2024, marking the first half-on-half increase in invested capital since CY2021. However, the total number of deals completed witnessed a 23 per cent year-on-year decrease, with seed and early-stage funding experiencing the most significant contraction. Fundraising remains a paramount challenge for founders in the region, with 74 per cent of surveyed founders identifying it as one of their top three hurdles.
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A closer examination of funding by stage indicates a growing scarcity of dedicated seed capital. While the seed-stage deal count saw the most significant decline in H2 2024, Series A and B financing stages show signs of stabilisation.
Notably, the amount of capital deployed stabilises, with Series A, B, and C deal values showing either half-on-half or year-on-year improvement in the latter half of 2024. Nevertheless, the seed stage remains the most constrained in terms of capital availability.
Despite average valuations stabilising or even rising across all stages in 2024, with venture stage (seed to Series B) valuations remaining relatively constant year-on-year, 58 per cent of surveyed founders reported raising at a valuation more than 10 per cent below their expectations.
This discrepancy is potentially due to ASEAN founders benchmarking against global peers in the US and Europe, where the fundraising recovery occurred earlier.
Average deal sizes at the Series A and B stages remained moderate, attributed to the absence of traditional follow-on momentum investors, necessitating greater capital efficiency from founders.
Conversely, later-stage financing rounds saw substantial improvements in average deal size in CY2024, suggesting the presence of growth and private equity capital eager to invest in proven business models.
Geographic trends: Emerging opportunities beyond Singapore and Indonesia
Geographically, Singapore and Indonesia continue to be the most active technology investment markets in Southeast Asia in terms of deal count. However, markets such as Malaysia, Thailand, and the Philippines have demonstrated greater funding resilience, highlighting emerging opportunities across the region.
Total investment declined materially year-on-year in Indonesia and Vietnam, although other markets showed sequential stabilisation in the second half of 2024.
Looking ahead, 31 per cent of surveyed founders anticipate Indonesia will offer the most startup opportunities over the next five to ten years, followed by Singapore (28 per cent) and Vietnam (20 per cent). Most ASEAN markets saw a stabilisation of deal activity in CY2024, with Singapore experiencing a material year-on-year decline in seed activity and Indonesia seeing a lesser decline than the previous year. For most markets, capital invested remains below CY2020 levels, with Singapore being an exception.
Annual valuation changes remained relatively stable across most markets, with seed to Series A valuation uplifts consistently trending at 4-6x.
Sector-specific insights: Fintech dominates, AI investment lags
In terms of sector-specific funding, fintech remained the most active sector in CY2024 in the ASEAN region, followed by healthtech, food & beverage/agritech, and software/AI. All sectors, except HRtech, experienced a year-on-year decline in deal count, with edtech seeing the most pronounced decrease.
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A significant 41 per cent of all capital invested in CY2024 flowed into fintech companies, indicating the relative maturity of this segment in ASEAN.
Interestingly, the report notes that there has not yet been a substantial increase in AI investments in the region, contrasting with trends in North America and Europe.
Seed valuations across most sectors remained relatively consistent, below US$10 million, while Series A valuations showed more variability.
SaaS and AI, as well as e-commerce, exhibited strong valuation growth in Series B and Series C+ respectively, driven by a few larger deals. Average deal sizes generally moderated at the seed stage across most segments, while Series A rounds hovered between US$7.5 to US$10 million.
The founder journey: Fundraising challenges and investor priorities
The report also delves into the founder’s journey, based on a survey of 125 Southeast Asian founders who raised funding in the last three years. An identified market opportunity stands out as the primary motivation for starting a business (81 per cent for first-time founders, 73 per cent for repeat founders, and 52 per cent for serial founders).
Securing the first investment remains challenging, with 68 per cent of founders engaging with more than 10 investors for their first institutional round.
On average, founders experience 18 per cent dilution in their first institutional fundraise. A significant 64 per cent of founders complete their first institutional fundraise within 12 months of starting their business.
Valuations for initial institutional rounds are typically at or below US$10 million. Notably, 58 per cent of founders reported raising rounds at lower-than-expected valuations in 2024, a significant increase from 29 per cent in 2023. Market conditions (39 per cent) and lack of traction (32 per cent) were cited as key reasons for not meeting fundraising targets.
Despite a challenging fundraising environment, 77 per cent of surveyed founders remain confident in scaling their businesses in the ASEAN region. When selecting lead investors, founders prioritise potential value add (80 per cent of all founders) and strategic fit (76 per cent). The biggest challenges faced by founders in working with venture capitalists include finding the right investor fit (49 per cent), lack of support post-investment (33 per cent), and misalignment of vision or goals (37 per cent).
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