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12 Crazy Months of 2022: An Asian VC’s Perspective

Published on December 30, 2022

After my nine-year-old daughter made me memorize the lyrics to “12 Days of Christmas” this year, I found myself with a mug by the fireplace recapping the 12 crazy months of 2022 and how they impacted Southeast Asia’s startups and tech investors.  

In the first days of January, my true love sent me, a radical career change. After more than 15 years, I decided to make the jump from the large, polished, homogenized tech market of China to the budding, fragmented, messy, and unvarnished landscape that is Southeast Asia. I joined AC Ventures, whose partners I felt had the most complementary experience to my global skillset.  

In February, Russia dramatically invaded Ukraine, which came as a shock to many of my European peers. Most did not expect to wake up to a war on their doorstep. Tied to the tech market was the energy crisis that quickly unfolded. The need for nations to diversify energy sources took center stage. This was actually an odd macroeconomic boon for Indonesia, though, as commodities exports surged and the stock market performed better than most. 

Our firm also has a focus on ESG investing and this currently includes a push to back innovative climate-tech and renewable energy startups. With the whole world looking for energy diversification in 2022, our conviction was fortified. 

In March, the Zilingo scandal grabbed headlines and a fresh debate over the need for better corporate governance in startups began to rage. Personally, I could never wrap my head around Zilingo. It felt like we’d missed something when Temasek led its last round and brought it to a near-unicorn valuation. I had trouble understanding where the company’s users came from and how its different business units fit together (e.g. offering financing to help your merchants buy from you?). 

After a whistleblower’s report led to the removal of Zilingo’s CEO, startups and investors began drilling into the root cause. We all know that corporate governance here has never been particularly stringent. But now with fewer avenues to proper liquidity for investors in the tech game, this became a fiery topic. 

Over the years, I’ve seen the oversight pendulum swing both ways. I personally hope that local founders begin to embrace well-functioning boards of directors. Getting challenged and having someone point out your blind spots ultimately strengthens the company. Investors, too, have an interest in what an entrepreneur considers “their baby.” 

In April, Shanghai went into full lockdown and my family was trapped before making our “great escape” from China. The experience really made me question the risks of centralized government. I would soon meet with various founders, GPs, LPs, and even placement agents from China in my hometown of Singapore. 

It was also this month that GoTo went public on the Indonesia Stock Exchange. This was a true milestone for ASEAN’s digital economy. It’s true that today the stock is not looking so good. Like most tech startups that went public over the past two years, local tech companies still need to show their ability to reach profitability and demonstrate long-term viability. 

In May, Terra’s blockchain native token Luna crashed. This triggered a domino effect that brought on a wider crypto collapse, including Three Arrows Capital (3AC). The Singapore-based cryptocurrency hedge fund was soon ordered to liquidate.

This one hit close to home for me, literally and figuratively. I started my career in investment banking decades ago, and one of the top lessons I learned during the Asian financial crisis was about counterparty risk. Do not think you can laugh your way to the bank when your counterparty is bleeding out. You might not be able to collect from them. Who you choose to do business with is extremely important. 

Another key lesson from back then, which rang true this year, was the double-edged nature of leverage. A lot of folks thought the 3AC guys were geniuses because they were making so much money. But it turned out that they were just using higher leverage than other players. So in the same way that they could be the winners during a bull market, they were also brought to their knees in a bear market.  

In June, inflation hit a whopping 9.1% and there was a risk of “stagflation” (high inflation and a stagnant economy). Fear gripped the global market about the US Federal Reserve raising interest rates at a faster pace, which could have negative effects on the global venture capital space. 

One LP asked me: “When was the last time the Fed hiked interest rates consecutively at such speed?” The answer: “Never!” We are living in unprecedented times. This created more angst among investors than ever before. 

It was certainly not good news for the VC industry, as cheap money had previously fueled explosive growth in tech and risky assets. As ten-year USD treasuries started earning 4%, tech companies’ uncertain future cash flows became far less appealing. However, top-quartile firms remain attractive due to their superior returns. There will continue to be a mass migration to top venture firms, and we’re just seeing the start of it.

In July, MissFresh, a publicly listed unicorn in the fresh groceries e-commerce space, saw its market capitalization drop from US$2.5 billion to US$12 million in one year. The company’s financial reporting was delayed and the previous year’s numbers were revealed to be inflated. 

MissFresh initially had good unit economics, but raised too much money (US$1.7 billion) and expanded too aggressively, leading to problems such as corruption and skewed financials. When it became clear that the company had only a few months of cash left, public investors sold off their stock and the stampede began.

August was a good month for me. AC Ventures completed the first close of its new fund, thanks to supportive backers. Southeast Asia still has strong demographic trends and maturing supply chains thanks to geopolitical evolution, as well as ongoing digital transformation across industries. Naturally, investors have different risk assessments of the global slowdown and inflationary environment. But overall, it feels like a relatively warm winter in our region.

In September, coinciding with the SuperReturn Asia conference, articles about Singapore’s popularity circulated on WeChat, with many Chinese investors telling me they’re considering setting up offices here and putting capital to work in Southeast Asian startups. That said, most are still more comfortable investing in Chinese founders and are unwilling to completely give up on the China market. Founders should consider how much time investors are spending in the region to gauge their true level of interest.

In October, the annual Google-Temasek report announced that the Southeast Asian digital economy reached US$200 billion three years ahead of projections. The report remained optimistic despite slower growth in overall digital penetration compared to levels during the pandemic.

Meanwhile, I had never seen such pessimism from my Chinese friends, which made me think that things were primed for a rebound. China stocks hit rock bottom and only began to recover as Zero Covid policies began to unwind after mass protests took place across China.

In November, as if 2022 wasn’t wild enough, FTX burned to the ground in spectacular fashion. Binance, a competitor and former shareholder, dumped FTX tokens, causing the exchange to go bust. The ensuing drama could not have been written by the best Hollywood writers. Corporate governance was once again top of mind, and news emerged about the complicity of media and influencers that were “bought” by SBF. In this age of social media and clickbait, we must be doubly wary of who we follow and trust.

Now at the end of December, I feel it has been a sobering year overall. The times of fast growth and excesses seem to demand their payback with headlines about falling stocks and tech company layoffs. Some experts are more pessimistic about this down cycle compared to previous ones, as it marks the start of a new era with no more cheap money and a longer-term slowdown in global economic growth. 

That said, Goldman Sachs projects Indonesia will be the fourth largest economy in 2050, so I think I’m in the right place. 

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