What’s Happening with Startup Investing in Emerging Markets as Venture Capital Slows Down? Here’s a Rundown in a Few Bullet Points

Endeavor Catalyst, investment arm of global entrepreneurship community Endeavor Global, recently held its invite-only annual investor meeting and shared insights on the shifts we’re seeing globally. As a $500M+ AUM firm with investments in 35 markets, Catalyst has a unique view into emerging-market trends, including the promise of Southeast Asia.??

1. The slowdown took hold only recently in emerging VC markets, with growth in deal activity only starting in May 2022. Endeavor Catalyst uses a rules-based system to invest in Endeavor Global entrepreneurs beginning with the Series A. So our activity offers a unique “indexed view” into VC activity in emerging hubs. Internal data shows our deal activity actually grew in Q2 2022 compared to the previous three months, but things started slowing in May 2022 and deal volume roughly halved in Q3.?
2. Time between rounds is stretching again, and unpriced rounds and extension rounds are proliferating. The best companies are no longer raising rounds in 6- or 9-month intervals. Meanwhile, SAFE and convertible notes are being used to address price uncertainty, even in deals going to hotly-pursued companies. As well, many of the best companies are raising extensions to their last financing rounds. As our previous research showed , debt deals are making a comeback.
3. Despite the macro reversals, the globalization and spread of VC into new markets is not going away. "Venture capital is becoming increasingly global every single year,” says Allen Taylor, managing director at Endeavor Catalyst. That is partly because of VC investors’ new comfort with Zoom investing, but also because of founder and angel “mafias” spawned by successful startups like Colombia’s Rappi, and the growth of homegrown VC industries in geographies including Latin America and Southeast Asia.
4. Massive-AUM asset managers like Tiger Global and Coatue, known for prolific startup investments in 2021 and prior years, have lessened activity as the market slowed down. As of Q3 of this year Endeavor Catalyst had shared more than 60 deals with Softbank, Tiger Global, and Coatue. But these firms have pulled back. “Softbank is still active but it’s down significantly from its peak,” says Endeavor Catalyst Managing Director Jackie Carmel. Tiger and Coatue are noticeably less active.
5. In addition to Egypt and South Africa, which are among the top five fastest-growing markets for Endeavor Catalyst investments, the team believes three populous countries in particular are poised for accelerated entrepreneurship growth in the years ahead: Nigeria, Pakistan, and Vietnam. Endeavor launched a new office in Pakistan this year, as well as a new Singapore office to support Southeast Asia-based founders.
6. The data shows a lot of momentum in Southeast Asia, including Indonesia — already one of Endeavor Catalyst’s top three countries for investments. There’s also optimism regarding the Philippines and —?as already mentioned — Vietnam, says Caela Tanjangco, head of Asia and senior manager at Endeavor Catalyst. The region’s strong macroeconomics and new founder networks (including a diaspora of ex-Grab employees) are creating fertile ground for new-company formation. Southeast Asia is the “next frontier … we are very bullish on this region,” says Tanjangco.??
7. The market for tech and VC-backed IPOs has completely dried up. After a flurry of tech-name IPOs and SPACs in 2021. Morgan Stanley data shows 124 tech IPOs in 2021, and only one in 2022 through September 8th. “That’s pretty staggering,” says Carmel.?

For all the analysis, charts, and commentary, see the full article on the Endeavor Global website and the latest Endeavor Catalyst Annual Report .?