Joash Lee, a seasoned investor and newly appointed Venture Partner at VNTR Capital, paints a realistic picture of the current market dynamics and forecasts a brighter future for venture funding in 2024. His insights, particularly relevant to the Asia-Pacific (APAC) region, reflect a deep understanding of the venture capital landscape.
Market Dynamics and the Recent Downturn
The market has recently undergone significant shifts. The era characterized by easy capital for startups, often referred to as the "free money" period, has ended. This change is attributed to a confluence of economic factors, including growing recession fears and escalating interest rates. These elements have collectively resulted in a notable decrease in startup valuations and deal activity. In the APAC region, this downturn is evidenced by a 20.6% year-over-year decline in deal activity from the first to the third quarter of 2023.
Optimistic Outlook for 2024
However, the future looks promising. According to Lee, the venture funding landscape is expected to rebound in 2024. This resurgence is not just a matter of increased funding but also a strengthening of startups that withstand the current challenges. Lee believes that there is substantial uninvested capital ('dry powder') on the sidelines, ready to be deployed, and innovation in various sectors continues unabated. Startups in the AI space are also facing fewer challenges compared to others. Despite this optimism, Lee cautions that the industry has not fully recovered and emphasizes the importance of continued diligence and efficiency among both venture capitalists (VCs) and startup founders.
Strategies for Investors and Founders
For investors, the key strategy moving forward involves maintaining strong relationships with Limited Partners (LPs), supporting portfolio companies with efficient cash management, and developing well-thought-out sector theses. Lee highlights an opportunity for established fund managers to explore funding from pension funds and sovereign wealth funds like GIC, which have traditionally under-invested in venture capital. In contrast, emerging fund managers might find potential in tapping into Registered Investment Advisors (RIAs), known for their growing interest in venture capital.
Founders, on the other hand, are advised to focus on financial prudence, extending their operational runways, and prioritizing the path to profitability. Investors are particularly stressing the importance of effective cash flow management, marking a shift from the previous focus on rapid growth at all costs.
Key Areas to Watch
Yuri Rabinovich, VNTR's Global Managing Partner, contributes additional insights, particularly emphasizing the potential of startups with positive unit economics. He advises founders to maintain and build relationships with investors and strategic partners. Rabinovich also points out the exciting prospects of emerging technologies such as Web3 and AI. He notes the significant growth potential in Asian markets, especially in emerging economies like Indonesia and Vietnam. VNTR's expansion to Singapore is a strategic move to leverage the city-state's position as a financial hub and a gateway to Asia, supported by favorable government policies and a robust infrastructure. Lee's expertise in Climate Tech and Web3 will be instrumental in scaling VNTR's presence in these regions.
About VNTR Capital
VNTR Capital stands as a leading investor community and syndicate, with a presence in over 40 cities worldwide. The firm engages a vast network of over 50,000 active investors and organizes more than 100 events annually, fostering a vibrant community of professionals in the investment sector. Since its inception in March this year, VNTR membership has experienced rapid growth, now boasting over 800 qualified investors across the globe. The firm is open to partnerships and co-investment opportunities. Interested parties can contact Joash Lee.
In summary, despite the recent downturn, the outlook for venture funding in 2024 is optimistic, with an expected revival in investment activities and a stronger emergence of resilient startups. This forecast, coupled with strategic actions by investors and founders, sets the stage for a dynamic and prosperous venture capital landscape in the coming year.