VENTURE capital investors in South-east Asia have allocated more funding to seed and earlier-stage startups in 2022 according to a report, State of the Technology Ecosystem: 2022, by venture capital firm, January Capital. The flight to earlier stages follows the roiling of tech stocks and rising interest rates last year.

Seed, Series A and B accounted for US$5.4 billion, while Series C was allocated US$5 billion. The region saw total funding fall by US$4.8 billion from US$15.2 billion in 2021 to US$10.4 billion. Deal count for 2022 was only slightly lower than 2021, with 671 deals in 2022 versus 685 deals in 2021.

Investors turned more cautious in the second half of 2022, with most of the decline in investment recorded in that time period.

Average deal sizes and pre-money valuations have risen across all stages from 2017 to 2022. Seed-stage rounds have experienced an 8 per cent year-on-year (yoy) growth in 2022, with round sizes growing 21 per cent yoy, as founders were willing to shrink their shareholding for funding certainty and runway to establish product market fit.

Pre-money valuations for growth-stage deals Series B and C have increased by 14 per cent yoy, but deal sizes have declined 14 per cent yoy. January Capital says this implies that investors are holding back on writing bigger cheques. Series A companies saw their pre-money valuations grow the fastest on average at 25 per cent yoy, but deal sizes have declined 5 per cent yoy, which is likely driven by reduced follow-on investment.

Geographically, Singapore still sees the lion share of the deal count and investment amount. Of the 671 deals in 2022, Singapore accounted for 379 of them, with Indonesia second with 159 deals. Singapore also grabbed 43 per cent of the US$10.4 billion invested in 2022, with Indonesia second at 28 per cent.

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E-commerce and fintech continue to make up the bulk of investments, with the two sectors snagging 52 per cent of capital invested in 2022. But logistics and software-as-a-service (Saas) have also seen an increase in investment. Logistics secured 8 per cent of the capital invested, up from 6 per cent the year prior. Saas grabbed 10 per cent of the amount invested, up from 9 per cent the year before.

This is a sign of a maturing ecosystem, according to January Capital, with other sectors that have experienced tailwinds in 2020 seeing an inflow of capital.

“Some of these sectors will prove foundational while others may see cyclical interest, such as healthcare and real estate,” said the firm.