From unicorn to cockroach

For years, becoming a unicorn was the main goal of startups. Now, with venture funding drying up and many young firms’ survival in doubt, another creature is the talk of the town: the cockroach.

Venture capitalists and technology chieftains converged in Singapore in recent weeks to hobnob over a number of high-profile annual conferences, marking the city-state’s grand coming-out-of-Covid party. Yet gone was glamour and talk of blitzscaling, and participants instead focused on the drastic need for conserving cash and a dimming future.

“It’s cockroach time — do whatever it takes to survive,” Tessa Wijaya, co-founder of Xendit, a digital payments firm valued at $1 billion, said during a panel discussion moderated by Square Peg Capital partner Piruze Sabuncu. “It’s a little bit gross but it kind of works. If you can survive the next two, three years, you’re probably going to thrive.”

In the past several years, Southeast Asia attracted abundant capital from investors eager to bet on one of the fastest-growing internet economies. Perpetually growing teams was the norm at richly funded companies and for many young leaders and staff, this was the only environment they’ve ever known.

Now the startup ecosystem is facing headwinds. Global venture funding slumped to $74.5 billion in the past three months, its lowest level in nine quarters, according to CB Insights. That represents a 34% quarterly drop, the biggest in a decade.

“Cash is not only king, it’s king, queen and everything else,” Raj Ganguly, who started B Capital Group with Facebook co-founder Eduardo Saverin, said at SuperReturn Asia, a conference that drew a record 1,500 senior executives. “A lot of what we’ve been doing is pushing companies to have more realistic cash runway discussions.”

That sentiment was echoed by Jenny Lee, a managing partner of GGV Capital and one of the most sought-after figures who spoke at five conferences, including Forbes Global CEO Conference and the Milken Institute Asia Summit.

“In my 22 years as an investor, this is probably the most complex environment globally,” Lee said at the Tech in Asia Conference on Sept. 21, held six floors below SuperReturn Asia at the Marina Bay Sands. The most important thing to remember in a downturn, she said, is never the valuation but “your ability to have a cash runway.”

Her venture capital firm is advising its portfolio companies to have enough cash to stay afloat for 36 months without having to raise additional funds. About 80% of them are now in that bucket, said Lee, who launched GGV’s first office in China in 2005 and now leads the firm’s US fundraising activities.

After reaching sky-high valuations, tech companies the world over have seen the worst year of their lives amid surging inflation and interest rate hikes. Many are cutting jobs and shutting parts of their operations to shore up balance sheets ahead of a potential recession.

In Southeast Asia, Sea Ltd. and Grab Holdings Ltd., Singapore’s biggest tech companies, are emblematic of this new reality: Their US-traded stocks have lost more than half their value this year, and Sea warned it doesn’t anticipate being able to raise funds in the market.

Grab’s first investor day coincided with Singapore’s Formula One race week at the turn of the month, with former Google Chief Executive Officer Eric Schmidt and General Atlantic Vice Chairman Ajay Banga among some of the 90,000 delegates in town. Grab’s top executives sought to reassure shareholders that it’s adjusting to a downturn and speeding up efforts to reverse years of losses.

Shailendra Singh

Shailendra Singh, managing director at Sequoia Capital India, said founders shouldn’t dread raising funds at a lower valuation.

“Down rounds are like your 10th grade math exam: It might increase your anxiety at that point in time, but in the long term it doesn’t matter,” Singh said. “If and when you list, you will face market fluctuations all the time.”

Founders who’ve been through previous cycles remained upbeat about the prospects for companies with proven business models.

Julian Tan, the founder of a startup whose app FastGig matches employers with part-time job seekers, said he hasn’t had problems to raise funds this year and got calls from investors looking for sustainable businesses while trying to tackle social issues. He said Southeast Asia has so far had few services for manual and semi-skilled employees, which make up the vast majority of the working population.

“Not-so-good startups have been filtered out. Now is the time for real startups to shine, go out and raise from value investors,” said Aung Kyaw Moe, who sold a chunk of his 19-year-old payments company 2C2P to Ant Group Co. this year. “We cannot go and buy $1 revenue with $2 subsidy using investors’ money. This has to stop.”

As in previous downturns, efficiency is emerging as a key focus.

“This was a word that wasn’t used for years,” B Capital’s Ganguly said. “It was always about growth, growth, growth. Now we talk a lot about efficiency.”

Patrick Cao, president of Indonesia’s biggest internet company GoTo, said his firm will focus on reducing subsidies and streamlining operational expenses while offering services that merchant partners can monetize further. “We’ve accelerated our break-even targets,” he said, “but there’s still a lot of work to be done.”

GoTo’s archrival Grab downplayed its long-held slogan of being “Southeast Asia’s leading superapp,” the powerful tagline that helped the company raise billions of dollars from investors including SoftBank Group Corp.

Its newly defined goal, posted in its investor day presentation slides, underscores its intention to become more focused after burning through cash since its inception: “Southeast Asia’s largest and most efficient on-demand platform that enables local commerce and mobility.”


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