During the third quarter of 2022, venture capital (VC) investments and deals globally fell to levels not seen since the beginning of the Covid-19 pandemic. This slowdown in investment is hitting North America and Europe particularly hard – but Asia is being affected too.
During 2022, the slowdown in investments hit both high-income and emerging Asia, with Asia’s largest economies, India and China, being heavily affected. Layoffs of tech workers are becoming increasingly common.
The negative outlook is the result of a complex combination of factors: the largely hawkish policies of central banks, developed economies attempting to curb post-Covid-19 inflation (primarily the rate hikes by the United States Federal Reserve resulting in a very strong US dollar), Russia’s invasion of Ukraine and the subsequent volatility in food and energy prices. While 2021 was an ideal year to be an early-stage tech entrepreneur and investor, the same cannot be said for 2022.
The amounts raised by Asean start-ups were down by around 40 per cent during the second quarter of 2022 compared with the previous year. The digital economy so far appears to have remained resilient. Start-ups and deals related to the tech and Internet sectors were affected by smaller declines, if any. But investors are now more cautious, especially vis-a-vis late-stage investments, as IPO gains are becoming less likely in the current macroeconomic scenario.
A vast majority of leading Asean venture capital firms and funds are headquartered in Singapore, but there is an opportunity for an expansion of activities in other Asean countries. Policies to support the emergence and consolidation of innovation ecosystems both in individual Asean member states and on a regional level could significantly accelerate this process.
These reasons for cautious optimism for growth and the evolution of the Asean start-up ecosystem should not delay much-needed policy developments. Innovation-driven entrepreneurs have much to benefit from more integrated Asean economies. More coherent and cohesive regulation, especially in the digital space, and enhanced improvements in physical and digital infrastructure and cross-country connectivity are just a few advantages. Most important of all, increased integration allows significant investments in skills development as well as talent attraction, retention, and circulation on a regional and global scale.