Venture capitalists shift focus to offline businesses amid market downturn

Southeast Asia's venture capital landscape has been significantly affected by a downturn over the past two years, prompting a shift in investment strategies. Previously known for backing high-risk, high-reward startups, many venture capitalists are now concentrating on established companies that demonstrate profitability and strong cash flow. This new approach echoes sentiments from industry insiders like Aaron Tan, CEO of Carro, who noted that venture funds are beginning to resemble private equity funds, aiming for lower returns of three to four times rather than the traditional high returns associated with venture capital. The downturn comes at a time when the startup ecosystem in Southeast Asia is experiencing ongoing challenges, with many startups remaining unprofitable despite large amounts of capital raised. According to Jeremy Tan, co-founder of Tin Men Capital, there is a notable absence of exemplary tech deals, and many funds have struggled to provide satisfactory returns for their investors. This predicament has forced these investors to reassess their options, resulting in a more cautious investment approach in the region. A lackluster performance from Southeast Asian companies that have gone public has further compounded this situation, leading to investor disillusionment and a reluctance from limited partners to commit new funds. Carro's Tan indicated that numerous startups are currently overvalued, and an expected valuation correction has not yet occurred. In the challenging landscape, investors are navigating through a tightening market, balancing the need for investment opportunities with the desire for safe returns. Ultimately, the shift towards investments in brick-and-mortar businesses represents a significant transformation for the venture capital scene in Southeast Asia. This transition indicates a growing realism among investors still seeking profit amid high competition and a challenging economic environment. The focus on traditional businesses may offer a smoother path towards growth and sustainability in a landscape where tech startups are increasingly viewed with skepticism.