In 2023, start-ups experienced what international news outlets dubbed the “year of extinction”, a term that aligns with the concerning statistics. In the US, 543 start-ups ceased operations due to bankruptcy or dissolution, surpassing the previous year’s count of 467, equity management firm Carta Inc reported. The third quarter of 2023 alone witnessed 212 shutdowns, marking the highest number since the firm started collecting data five years ago.
Highly funded start-ups, including WeWork, Olive AI, Convoy, and Veev, have filed for bankruptcy or closed their doors, signalling what The New York Times characterises as the initial stages of a broader tech start-up collapse.
The repeated interest rate hikes over this year by the US Fed, which has resulted in the present 22-year high of 5.25%–5.5%, can be considered the root of all problems for the global economy. For start-ups, cautious investor sentiment combined with the slowing of spending has forced a reset and, eventually, a lowering of valuations.
“As an industry, we should all be braced to hear about a lot more failures,” said Jenny Lefcourt, an investor at Freestyle Capital who was interviewed by The Times. “The more money people got before the party ended, the longer the hangover.”
Closer to home, the trend of extinction has caught on. Starting at the funding stage, reports of a funding winter have long plagued the headlines across 2023. KPMG’s 3Q2023 Venture Pulse report saw VC investment in Asia falling for the seventh straight quarter to US$20.3 billion ($27.3 billion) across 2582 deals.
Enterprise Singapore and DealStreetAsia’s report found that the 9M2023 deal volume and value across six Asean markets — Singapore, Indonesia, Malaysia, Philippines, Thailand and Vietnam — experienced an overall decline. Deal volume and value in Singapore dropped 21% y-o-y to 410 transactions, while deal value plunged 49% to $4.32 billion. Outside of Singapore, deal volume dropped 30% y-o-y for the 9M2023, while deal value reported a steeper decline of 50%.
Concrete figures detailing the extent of start-up failures in Singapore and its Southeast Asian counterparts have historically been incomplete, lacking a comprehensive regional summary. TechinAsia’s November attempt to quantify these figures revealed that 16.1% of all start-ups in Singapore and 15.2% of all Indonesian start-ups have closed.
In October, the Singapore-based coffee chain Flash Coffee closed its 11 stores. Despite operating in Indonesia, Thailand, Hong Kong, and South Korea and raising US$50 million in an extended Series B funding round in May 2023, the chain reportedly still owes its employees’ salaries.
A month earlier, German delivery giant Delivery Hero reportedly discussed selling its operations under the Foodpanda brand in Singapore, Cambodia, Malaysia, Myanmar, the Philippines, Thailand, and Laos to Grab. While Foodpanda experienced growth during the pandemic, its momentum slowed as restrictions eased, with the company’s gross merchandise value (GMV) in the region down 6.2% y-o-y to US$6.8 billion in 3Q2023. Meanwhile, PropertyGuru is withdrawing from Indonesia, with the company’s Indonesian platform ceasing operations in November.
While Flash Coffee, Foodpanda, and PropertyGuru represent consumer-facing start-ups, the well-funded biotech start-up Tessa Therapeutics entered liquidation in July. The Temasek-backed clinical-stage biotech company failed to secure investors to continue funding the development of its cancer treatment cell therapies. As stated in a letter to shareholders, Tessa Therapeutics’ board decided to halt the company’s operations due to a market downturn, making raising additional funds or finding a strategic buyer challenging.
Then, rumours of troubles in other Temasek-funded start-ups emerged. A December report by TechinAsia found that Trustana lost over 40% of its staff this year, while over one-third of Affinidi’s staff exited the company. Documents revealed that Affinidi offered employees a voluntary separation scheme from around June to July.
In the meantime, LemmaTree — the parent firm of these three start-ups — saw a staff count decrease by roughly 50%, with departures mainly from the HR and other compliance teams. The few that remain in LemmaTree are largely working in its investment team.
In the crypto space, crypto firm Cake Group, has applied to the Singapore High Court to wind up the company.
But despite growing economic uncertainty across the globe, Singapore’s emerging tech start-up ecosystem is expected to produce a steady pipeline of start-ups, a report by SGInnovate, a funding vehicle fully owned by the Singapore government, notes.
In 2019, 93 emerging tech start-ups were incorporated in Singapore, before slowing down in 2020 due to economic uncertainties and the implementation of social restrictions. Thirty-five emerging tech start-up incorporations were noted in 2022, but based on ecosystem trends, the final number is expected to be approximately 60, considering new emerging tech start-ups that have yet to exit stealth mode.
This echoes a similar pattern observed in the 2021 edition of SGInnovate’s report, which initially noted that 36 emerging tech start-ups were incorporated last year, but has the final number at 63.
Tong: There’s still a lot of liquidity out there... As long as interest rates remain stable, people will slowly come out of their shell and start to put money into the ecosystem again. Photo: SGInnovate
Executive director of SGInnovate, Tong Hsien-Hui, says that 2023 has been challenging for everyone, particularly in the medtech and biomedical space.
“The good thing is that a lot of them had raised funds just before the economy took a hit, so they were sort of hunkering down or keeping their burn rate low and going on,” he says. “But they’re going to need to raise some funds in the early part of next year.”
Tong points out some bright spots in other sectors, including start-ups in the sustainability and advanced manufacturing space. Particularly those focused on innovations around renewable energy such as hydrogen, carbon credits, have seen “general optimism”, he notes.
Tong’s observations hold some truth. In early December, Singapore-based insurtech firm Igloo closed a US$36 million pre-Series C funding round at an increased valuation of 50% from its Series B+ round in 2022.
Then, telemedicine platform Doctor Anywhere announced a US$40.8 million Series C1 extension round, a year after closing its US$38.8 million C1 round.
“The latest funding aligns with the positive trajectory observed in the previous round, reflecting continued investor confidence and favourable market conditions,” says the company. “While we are unable to discuss our valuation, Doctor Anywhere is maintaining a strong growth trajectory in line with our business targets. The consistent investor confidence evidenced in previous funding rounds further validates our performance.”
On Dec 13, another medical company, Foundation Healthcare Holdings, which was formed in March, announced it has raised some $400 million in both debt and equity. Key investors include Seatown Holdings, a Temasek subsidiary, which invested $150 million.
In August, Singapore-based digital wealth platform Endowus raised US$35 million in its latest funding round participated by Citi Ventures and MUFG Innovation Partners, aside from four of Asia’s wealthiest families.
Other notables include manufacturing tech start-up Phasio, who raised US$2.5 million in its seed round this year, and wastewater treatment start-up Hydroleap, who raised US$4.4 million in its Series A round.
This aligns with global trends, as emphasised in KPMG’s Pulse of Fintech report for the first half of 2023. The report identified fintech sectors — payments, crypto, AI and machine learning — that consistently received substantial funding despite prevailing market conditions.
However, with interest rates showing signs of stabilising, Tong predicts that investors will soon be deploying capital again. The executive director explains that the present global economy is holding steady — with no global depression or economies contracting in sight, financial markets are presenting as resilient.
“There’s still a lot of liquidity out there and people are not sure where to put the money,” says Tong. “I think that as long as interest rates remain stable, and the indication from the US Fed is consistent, people are going to slowly come out of their shell and say, ‘I think we can start to put money into the ecosystem again.’”
