Resetting Expectations on Southeast Asia with Arnaud Bonzom
Analyse Asia with Bernard Leong
Deep Dive
Why is Southeast Asia not expected to offer the best returns for investors in the near future?
Southeast Asia is not expected to offer the best returns because it is not the most attractive market for high returns compared to other regions. When global investment tides recede, Southeast Asia is often the first place money leaves due to its relatively lower return potential. This trend is unlikely to reverse soon, and investors are expected to be less aggressive in the region.
What challenges do startups in Southeast Asia face in the current funding climate?
Startups in Southeast Asia face challenges in raising capital, especially those that are not top-tier companies. While great companies will always find funding, those just below the top tier will struggle. Many will need to become more capital-efficient and focus on achieving profitability quickly to survive in the current funding environment.
How does the size of a fund impact its ability to generate returns in Southeast Asia?
The size of a fund significantly impacts its ability to generate returns. Larger funds require larger exits to return capital to investors, which is challenging in Southeast Asia due to the smaller market size and lower exit valuations. Funds that are too large may struggle to find enough high-quality investments to generate the necessary returns, leading to reduced fund sizes and more disciplined investment strategies.
What is the significance of DPI (Distributions to Paid-In Capital) in measuring VC fund success?
DPI measures the money returned to Limited Partners (LPs) relative to the capital they invested. It is a critical metric for evaluating VC fund success because it shows the actual cash returns generated from investments. In Southeast Asia, achieving a high DPI is challenging due to lower exit valuations and longer investment horizons, making it difficult for funds to return 3x the invested capital, which is the benchmark for success.
What advice does Arnaud Bonzom give to founders navigating the 2023-2024 funding climate?
Arnaud Bonzom advises founders to focus on building great companies and achieving profitability. He emphasizes the importance of being capital-efficient and realistic about the size of the Southeast Asian market. Founders should also consider expanding to larger markets like the U.S. if their business model allows, as Southeast Asia alone may not provide sufficient scale for significant growth.
What does Arnaud Bonzom identify as the key bottleneck in Southeast Asia's startup ecosystem?
Arnaud Bonzom identifies the lack of discipline in fundraising and investment as a key bottleneck. Founders and investors often raise too much capital or invest at inflated valuations, which can lead to unsustainable business models. He also highlights the need for more government support, such as long-term visas for entrepreneurs and training for emerging fund managers, to enhance the ecosystem.
- Over-optimism in Southeast Asia's VC landscape.
- Money flowing to Southeast Asia was just a tide, and it's receding.
- Southeast Asian markets are often benchmarked against single countries (e.g., Germany) which is misleading.
- Many Southeast Asian founders have too small a vision, limiting their potential for growth.
Shownotes Transcript