Web3, software and healthtech deals in SEA draw the likes of Temasek

More than 80% of Venture Capital (VC) firms expect to increase focus on healthtech, Software as a Service (SaaS) and Web3 in Southeast Asia, according to a new report.

“There is significant dry powder in the region; we remain excited about some of the new sectors that we’ve articulated… The new sectors such as web3, software, and certainly healthtech, continue to [draw] a lot of investor interest, which we’re excited about,” Fook Wai Hoong, managing director for Southeast Asia at Temasek, said at an event to launch the e-Conomy SEA 2022 report on Thursday (October 27).

The report was produced by Google, Temasek and Bain & Company, and covered six Southeast Asian countries namely Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

While VCs expected an increase in deal activity in healthtech, software and Web3 from 2025-2030 compared to today, fewer than half expect a rise in activity in edtech deals.

“Edtech certainly saw a boost in adoption during the pandemic, from young students to adults who came to take upskilling courses. [But] the reopening of economies in schools is expected to drive the normalisation of demand for online learning,” Fook said.

Source: e-Conomy SEA 2022

VCs remain vested in the region, the report wrote, with $15 billion worth of dry powder in 2021. Even though this was a slight slip from 2020’s $16 billion, it marks an increase from previous years.

“VCs are likely to re-invest in their own portfolio companies and weather through the funding winter,” it wrote, adding that “some VCs are ‘buying the dip’ at lower valuations, with the aim of seeking higher ROI opportunities from the 2022/2023 vintages.”

The study also found that most VCs (75%) expect valuations to continue dwindling and most believe it will take a few years for it to recover, with fewer than one in four believing that valuations will return to 2021 peaks in 2023-2024.

While total deal activity remained relatively constant at about 1.2K from H1 2021 to H1 2022,

Already, this year’s deal value has surpassed last year’s by roughly 15%, mainly driven by larger average ticket sizes. Deal count, however, has remained relatively constant at about 1,200 from H1 2021 to H1 2022.

“The recent increase in long-term US treasury rates has made investments in high-growth tech companies less attractive from a financial perspective, leading to a gradual slowdown in the latter half of 2022, akin to VC trends in the US,” the report said.

Source: e-Conomy SEA 2022

Investors have also started to show more interest in early-stage rather than late-stage investments. Southeast Asia has been relatively insulated from macro headwinds, as ticket sizes have increased by 40-60%, the report wrote.

Growth-stage investments hit an all-time high from H1 2021 to H1 2022. “Larger funds are active in the region and willing to follow up on previous investments, particularly in sectors and companies that accelerated during the pandemic,” it said.

In contrast, late-stage investments are on a downtrend as E+ megarounds have seen funding dry up amid global headwinds and a recent series of inflated late-stage valuations.

Source: e-Conomy SEA 2022

Indeed, investors such as family offices have started to take more notice of early-stage investments, AsianInvestor reported earlier in October. Some also lamented inflated valuations particularly in late last year.