Investors flock to AI as startup funding winter drags on: Asian VCs

IInvestors are increasingly focusing on opportunities in artificial intelligence (AI) technologies as the startup sector faces rising geopolitical tensions, rising interest rates and rising macroeconomic headwinds, Asian venture capitalists said Tuesday at the Forbes Under 30 Summit. The funding situation is going to get worse. Asia 2023 was held in Singapore.

KPMG said in a report published in October that venture capital funding fell 27% to a four-year low of $77 billion in the three months ended in September compared with a year earlier, and the seventh consecutive decline since peaking in 2021. A decline was recorded in the quarter. According to the report, in the third quarter, Asia recorded a huge decline of 40% year-on-year to $20 billion.

“Next year will be even worse,” Yinglan Tan, founding managing partner of Singapore-based Insignia Ventures Partners, said in a panel discussion on navigating capital amid a tough VC landscape at the two-day summit. The alumni network of the 30 Under 30 Asia list is growing.

Given the high cost of capital and increased macroeconomic headwinds, investors are placing greater emphasis on the profitability of startups before investing and are paying attention to corporate governance practices in fast-growing companies. “The CFO used to be a nice person, but now it’s probably a mandatory requirement, or at least appoint a finance vice president or finance manager,” Tan said.

Tan said given the rising cost of capital, rising geopolitical tensions and a slowing global economy, especially in China, venture capital firms are not rushing to invest in startups. Insignia has $500 million of dry powder waiting to be deployed, he said.

“It’s a very difficult environment to raise capital, especially if you’re in a growth stage and looking for capital where you want to grow and continue to grow,” said David Goude, managing partner of Singapore-based Jungle Ventures. ” $1 billion in assets under management. “I think it’s a very challenging space.”

Despite the challenging environment, investors are pouring new capital into some key areas such as AI. For example, Jungle Ventures was among the investors that participated in a $250 million Series D fund raising by London-based modular app-building platform Builder.ai in May. Goude said AI will help increase efficiency and cost optimization across industries, just as migration to the cloud increased productivity and reduced costs over the past decade.

While AI is likely to be widely adapted across many industries over the next few years, investors should exercise some caution, said Hian Goh, founding partner of Singapore-based OpenSpace Ventures. “We need to be very skeptical about what is real and what is hype,” Goh said. While there are a lot of interesting AI applications out there, it’s not clear how these innovations can be monetized, he said.

Goh said investors are generally more cautious in their investments as they have to readjust their profitability targets amid rising interest rates. “There is money [to be invested] And there’s really pressure to find great companies at great prices,” he said. “So there is a market clearing level that we need to achieve.”