Venture capital has enormous potential

Venture capital (VC) fundraising in Southeast Asia took a significant hit in 2024, plunging 68 per cent against 2023 and marking a four-year low, according to a recent report from DealStreetAsia Data Vantage. Despite the turbulence in the regional market, Vietnam remains a bright spot. Speaking with Vietnam Economic Times / VnEconomy, three investment funds - Ascend Vietnam Ventures (AVV), Monk’s Hill Ventures, and Antler - emphasized that Vietnam continues to offer the stability needed to attract venture capital, reinforcing its position as a resilient destination for investors.

Mr. Justin Nguyen, Managing Partner at Monk’s Hill Ventures, said the fund is not overly concerned about these short-term fluctuations. On the contrary, he believes that this is one of the best times to invest in Southeast Asia, particularly in Vietnam, a market that continues to demonstrate stability despite broader challenges.

Mr. Eddie Thai, Managing Partner of AVV, and Mr. Erik Jonsson, Managing Partner at Antler Vietnam, are both of a similar mind. They affirmed that their funds remain well-capitalized to support promising startups.

That said, experts have acknowledged that the success rate for startups in securing funding has declined compared to previous years. Even those that do secure investment often face longer fundraising timelines and lower capital volumes than previously.

Global headwinds

Discussing the key reasons behind the slowdown in VC flows in recent years, fund representatives agreed on two main factors.

First, on a global scale, economic cycles, market volatility, and rising interest rates have made investors more cautious. Fundraising has become increasingly difficult as institutional investors prioritize asset preservation over high-risk deals.

Second, in Southeast Asia specifically, the region faces several internal challenges, including fraud scandals, ineffective fund management, and mounting pressure for exits to realize returns. These factors have exacerbated an already tough global fundraising environment, making it even more challenging for the region.

Highlighting the issue of inefficiency, Mr. Thai pointed out that an eight-year-old VC fund in the US may have already returned over 50 per cent of its capital to investors, while in Southeast Asia the figure could be as low as 10 per cent. This explains why investors tend to favor US-based funds, especially in today’s uncertain climate, where they seek safer alternatives over high-risk investments.

However, Mr. Nguyen emphasized the need for a long-term perspective. Southeast Asia’s VC ecosystem is still in its early stages. The region is currently at a similar stage to where China was in the 2000s, with Covid-19 acting as its equivalent of a “global financial crisis”. The fundamentals, however, remain strong: a young, dynamic population, a rapidly-growing digital economy, and improving infrastructure. The real boom is still ahead. The priority now is to continually build the ecosystem, nurture promising startups, and create locally-driven success stories that will attract the next wave of investment.

Resetting investment criteria

Though VC funds continue to maintain a stable pace of disbursement, they are becoming increasingly cautious about selecting which startups to invest in. Mr. Jonsson said Antler is now placing greater emphasis on core business fundamentals such as financial sustainability, market fit, and operational efficiency. “Last year, we received 2,348 applications but invested in only 24, or some 1 per cent,” he explained. “This was not because we want to make it difficult for startups, but because we aim to build companies that can withstand any economic turbulence.”

The era of “burning cash for growth at all costs” is over. With capital no longer as cheap or as easily accessible as before, funds are eliminating distractions and concentrating resources on the most resilient startups, those with sustainable revenue models and visible profitability.

In this challenging landscape, founders with strong financial management skills have a significant advantage. Not only can they help their businesses navigate market headwinds, they can also convince investors and unlock new growth opportunities.

Mr. Thai noted that the decline in “hot money” in the market brings certain benefits. Funds now have more time to build relationships with founders, conduct thorough due diligence, and secure reasonable deal terms, rather than being swept up in the overly optimistic market sentiment of previous years. Over the next 5-10 months, AVV expects to lead at least five new investments.

Meanwhile, Mr. Jonsson observed that the VC market is gradually returning to its fundamental nature. During periods of cheap capital, many companies without true “VC-scale” potential were still able to secure funding, even though their business models were better suited to other financing channels. Now, as capital becomes more expensive and investors exercise greater caution, this natural filtering process has become more apparent, a shift that, in the long run, benefits both startups and investors alike.

Evolving preferences

Representatives from three VC funds believe that startups with product models supporting digital transformation will strongly attract investors. “We are optimistic about technology sectors benefiting from digital transformation, such as industrial digitization and smart manufacturing,” Mr. Jonsson said. “These fields have significant growth potential, playing a crucial role in enhancing operational efficiency and driving innovation.”

Mr. Nguyen pointed out that global supply chain shifts and rising FDI inflows are accelerating Vietnam’s adoption of technology in manufacturing. Local businesses are increasingly recognizing digitalization as the key to competitiveness and meeting international standards, creating substantial opportunities for startups in supply chain optimization, digital transformation, and enterprise technology.

Additionally, “rural-tech” is another sector holding potential. With more than 60 per cent of Vietnam’s population living outside of major urban areas, this remains an underexplored market in industries such as financial services, e-commerce, and agricultural technology.

Mr. Thai expressed interest in startups operating in education, agritech, and industrial technology.

Gradually rebounding

As the market enters its third consecutive year of capital contraction, the key question remains: when will the recovery begin?

According to Mr. Jonsson, predicting the exact timing of a full recovery is challenging, but he remains cautiously optimistic. “History shows that downturns often set the stage for strong growth cycles,” he said. “Under the right conditions, VC fundraising in Southeast Asia could gradually recover over the next few years.”

Mr. Thai highlighted that one of the key drivers of market recovery is the increasing number of exit deals. Over the next 2-5 years, several significant transactions are expected, initially driven by strategic merger and acquisitions (M&As), private share sales, and secondary transactions. “We expect that in the years ahead, some companies will reach sufficient scale to pursue IPOs [initial public offerings],” he said. “At AVV, we anticipate that key policy reforms in 2026-2027 will create a more favorable environment for VC investment.”

For his part, Mr. Nguyen emphasized that the issue is not a lack of capital but rather that investors are waiting for truly compelling opportunities. “This is a period of market ‘cleansing’, refocusing attention on sustainable business models, both for VC funds and startups with disciplined growth and clear profitability roadmaps,’ he continued. “In the long run, this will strengthen the ecosystem.”

With late-stage funding becoming scarcer and investor sentiment more cautious, startups are also adjusting their fundraising strategies. While VC remains a critical funding source, many startups are exploring alternative financing channels. Venture debt has emerged as a popular option for companies with stable revenue and short-term profitability potential, allowing them to extend their runway without excessive equity dilution. Additionally, private investments and structured secondary transactions are becoming more common, particularly for growth-stage companies struggling to secure later-stage funding.

Experts predict that this trend will persist even as the market recovers, as investors increasingly favor startups with strong capital management strategies, diversified funding sources, and the ability to adapt to macro-economic fluctuations.