The Fed’s 180-degree turn on monetary policy this year – from quantitative easing to rate hikes – put investors on edge. Stock markets entered a bear market, and venture capitalists began the year with a strong sense of déjà vu, bracing for another startup bloodbath.
The broader economy, too, contracted. GDP growth in the first quarter fell to -1.5%, shrinking again in the second quarter. These two-quarters of negative growth technically mark a recession.
While media headlines painted a dire picture of a startup world in crisis, the reality is that many startups – especially those in Southeast Asia (SEA) and Africa – have come out relatively unscathed. CBInsights’ most recent report on startups found that average valuations at every stage below Series E increased since 2020.
Strong growth in SEA and Africa
Not only have valuations remained consistent, but fundraising and deal activity in SEA and Africa have accelerated. The physics of capital makes it easier for low-volume regions to experience massive percentage gains in deal activity compared to established startup ecosystems. But the data nevertheless reveals a strong appetite for early-stage startups in these regions, even as the world has been grappling with a technical recession.
This underlines the value of geographic diversification in a portfolio. In an economic downturn in any region, startups in other regions can act as a stabilizing force. Let’s look at the data.
According to TechCrunch, African startups set deal count and volume records in 2021, and 2022 is set to exceed those values easily. Africa has recorded massive three-digit growth in the first quarter of 2022, with venture funding up 150%.
The African crypto landscape, in particular, has found itself amid a perfect storm, with a trifecta of factors – high inflation, lack of access to traditional financial services, and a young, tech-savvy population – coming together to create fertile ground for crypto adoption. African crypto startups won more VC funding in Q1 2022 than in 2021, representing a 1,668% year-on-year increase in cash inflow.
In Southeast Asia, the picture is similar. The local population is young, Internet-savvy, and already warm to the crypto industry, with significant adoption of play-to-earn games and DeFi protocols. Four Southeast Asian countries (Thailand, the Philippines, Vietnam, and Malaysia) rank in the top 10 nations by crypto adoption. In Thailand, over a fifth of Internet users own crypto, and the rest of the region isn’t far behind.
More broadly speaking, SEA’s tech scene has grown four-fold from 2015 to 2021. The region’s post-pandemic economy is booming, with the biggest economies experiencing GDPs rising faster than inflation. This, combined with a favorable regulatory environment, has resulted in an influx of institutional investors and VCs into the SEA startup ecosystem.
A recent report shows that the region received $1 billion in funding this year and is on track to surpass 2021’s total. Notably, this growth is not just confined to SEA’s unicorns – it extends to earlier-stage companies as well. The message is clear: startups in high-growth regions can thrive amid an economic downturn.