Resetting Expectations on Southeast Asia with Arnaud Bonzom
Fresh out of the studio, Arnaud Bonzom, founder of Black Mangroves and angel investor, engages in a lively discussion with our host about the entrepreneurial and venture capital landscape in Southeast Asia for 2024. Arnaud shares his insights on the evolution of late-stage funding and the resetting of expectations in the region’s venture capital scene. He also offers valuable advice to founders on how to navigate the challenging fundraising climate and what success could look like for the region in the coming years.
"So if you have 1 billion to invest, we're not expecting you the same. return that if you invest 10 million. So, then at that time, when all this money flew to Southeast Asia, people think in Southeast Asia, Oh, we made it. Now all the world looks at us. We're finally a good ecosystem. Everyone will invest in us, but that is just the tide right? When the tide withdraws, the first place they're going to go out will be Southeast Asia because it's not the one offering the best outcome for them. So that is going out, and I don't think so it's coming back at any time. So people shouldn't expect to get those people to be as aggressive as they have been there. Lastly, I mean, two things. One, a great company will always raise capital. The top one will always find their way. So there's no issue for those. The thing is for the one just below them. So that will be very difficult for those people. And then you have, you may have different paths. Some will have to be way more capital-efficient for sure." - Arnaud Bonzom
Arnaud Bonzom, Founder of Black Mangroves and Angel Investor (LinkedIn, @ArnaudBonzom)
Here is the transcript of our conversation:
Bernard Leong: Welcome to Analyse Asia, the premier podcast dedicated to dissecting the pulse of business technology and media in Asia. I'm Bernard Leong and the venture capitalists in Southeast Asia are working out how to return their DPI for their LPs. What's the future moving ahead in a non-zero interest rate era for VCs in Southeast Asia? With me today, Arnaud Bonsom, founder and managing director of Black Mongroves and an angel investor within the Southeast Asia ecosystem will help us work out whether we should reset our expectations again for the Southeast Asia startup ecosystem. So Arnaud, welcome to the show again.
Arnaud Bonzom: Thanks for having me, Bernard.
Bernard Leong: Yes. the last time we spoke was somewhere around 2018. So since our last conversation. What have you been up to?
Arnaud Bonzom: We’ve experienced quite a lot, especially during the COVID era. Recently, I’ve been more active with angel investing and have also become an LP in several funds. This has given me a broader perspective on the ecosystem, not just in this region, but also in Europe and the USA.
Bernard Leong: So the last time you came on the show, I know you have already shared some lessons. Over this past decade, what are the lessons now you would share with my audience that you have learned?
Arnaud Bonzom: If you look at the [Southeast Asia startup] ecosystem, I had the opportunity to get involved in the startup scene in the South about 13 years ago. You’ve had the chance to observe it for even longer. Back then, we thought it was early, but in hindsight, it was incredibly early, even 13 years ago. At that time, we thought it was early, and even now, we still feel it's early. Our expectations back then were that the ecosystem was in its early stages, but it’s clear today that it’s still very much in its infancy. If you look at any metrics, it’s apparent that the Southeast Asia startup ecosystem is just beginning.
We’ve bought into the narrative that Southeast Asia is a large, unified market, but is it really? Why do we group these countries together and call it Southeast Asia? What’s the reasoning behind that? There’s also an issue of perspective. We often compare the region to single countries like China or India, even though, despite their size and complexity, they are still just one country, whereas Southeast Asia is made up of many diverse nations.
We also see comparisons between Southeast Asia and individual countries like Germany. But why do we take a region, sometimes referred to as ASEAN, without a unified currency, government, or regulation, and benchmark it against a single country like Germany? We don’t even compare it to Europe or the Eurozone as a whole.
I think the perspective has often been misguided, with efforts to convince us that Southeast Asia's moment has arrived. But in reality, it’s still very early. We’re still in the early stages. That’s why the recent Lightspeed [Ventures] Report highlights that, when you look at the data, it’s clear the region is just at the beginning of its growth.
Bernard Leong: We’ve met at several conferences recently, the most recent being the Tech in Asia SYNC AI conference. We discussed the Lightspeed Partners report titled Southeast Asia: Resetting Expectations. I’ve also come across a few other VC reports with similar insights.
We went through the hype phase, followed by the period of disillusionment, and now we’re all working towards resetting expectations. To kick off the conversation, there are a few key themes from the Lightspeed report that I’d like to explore, and we’ll be sure to include a link to it.
The first part of the report I’d like to discuss focuses on the global economic challenges, especially as we’ve moved into a post-ZIRP era—a term coined by people in Silicon Valley. Additionally, there have been several revised growth forecasts for Southeast Asia. However, according to the well-known Google, Bain, and Temasek report, Southeast Asia’s GDP reached $200 billion three years ahead of expectations. From your perspective, how do you view this new outlook for the region? What does it mean for the resilience of the startup ecosystem, particularly considering that I work closely with AI founders, and as an AI startup founder myself, I’ve noticed a more pessimistic view when it comes to the fundraising landscape?
Arnaud Bonzom: I’d say the outlook is more realistic now. It’s not as bright or as easy as some might have expected. A few years ago, many people began their entrepreneurial journeys during the COVID era, when there was an abundance of capital, and fundraising was relatively easy. If that’s what you’re used to, it’s not a good benchmark for today’s reality.
When you look at the region, yes, it’s growing rapidly. For example, the GDP growth rate is around 5%, which is something European countries would be thrilled to achieve. Many of them struggle to reach even 1% or 0.5%. But it’s important to remember that growth percentages depend on where you’re starting from. It’s much harder to grow when you have a $2-3 trillion economy than when you're at $1 trillion. That’s something people often overlook—while Southeast Asia is growing faster than regions like Europe, we’re starting from smaller numbers. Take Indonesia, for instance. Its GDP is now close to that of the Netherlands at around 18 million despite having a population of 260 to 270 million people. Indonesia is between Spain and Netherlands. That gave a sense that it was very early.
We’re still in the early stages. When you look at disposable income—not just for the top 1%, but even the top 10%—it’s still quite low because the region is just beginning to develop. It’s important to keep that perspective in mind. You also see many founders in Southeast Asia start in Singapore and then expand to Indonesia.
But, as I mentioned, the combined GDP of Southeast Asia is roughly equivalent to Germany’s. I don’t know any founders who would say, 'I’m just targeting the German market, and that will be enough,' nor any VCs who would back that vision, saying it’s bold enough. Yet, many investors and founders in Southeast Asia are content with having a vision that’s limited to the region.
Unfortunately, for many businesses, Southeast Asia is still too small a market. There are a few exceptions, like certain fintech companies, which can be big enough. Just take a look at the Forbes list of the 200 largest public companies globally—it's incredible how many of them are banks. I don’t recall the exact number, but there are hundreds. So, in some verticals, Southeast Asia’s market size might be sufficient.
However, when you compare it from a different perspective, such as looking at India, which is actually smaller than Southeast Asia in terms of market size, the dynamics can shift.
India, with nearly twice the population of Southeast Asia, presents an interesting comparison. Many B2B founders in India, like those at Zoho or Freshworks, don’t focus on the Indian market initially. Instead, they target the U.S. first and only later consider India. Even though India seems more uniform than Southeast Asia, it’s not entirely consistent—there are still regional differences. However, it shows that even in India, B2B founders often prioritize the U.S. over their home market.
This could serve as a model for Southeast Asian founders as well. How do you build a business aimed at the U.S. market? There are founders already doing this. Just a few weeks ago, I met a founder who raised nearly $6 million. Their team is based in Singapore, but they are solely focused on the U.S. market and haven’t raised any capital from Southeast Asian investors. They’ve flown completely under the radar.
There’s definitely potential here. You can look at Israeli founders, for example. They don’t focus on the Israeli market because they know it’s too small. Southeast Asia risks falling into the same trap that we had for many years in France, where founders believed the market was big enough until they realized it wasn’t. It’s often better to quickly shift to a larger market, like the U.S. unless you’re in a niche where Southeast Asia’s market size is sufficient. But those cases are the exceptions, not the rule.
Bernard Leong: So the exceptions would be something like a Superbase, which is now a Series C company. They got into YC [YCombinator].
Arnaud Bonzom: I don't know if I will qualify Supabase as Singaporean or Southeast Asia.
Paul [founder of Supabase] was part of the Entrepreneur First program with his previous ventures, a program that was supported by the Singapore government through SG Innovate. Now, with Supabase, they’re playing more of a U.S.-focused strategy. They went through Y Combinator, raised an initial $6 million, followed by $30 million, and their last two rounds were $18 million each.
They’re just shy of having raised $200 million in total, which is incredibly impressive. Supabase is an example of the kind of company that can emerge from Southeast Asia. It’s definitely possible, and there are a few other companies like that as well.
Bernard Leong: PatSnap is another example—they’re already in their Series D round with Vertex. Then there’s Mito Health, but they’re still in the early stages, having just joined the latest Y Combinator batch. The reason I’m bringing up these exceptions is to highlight that they are anomalies. I’m trying to explore why these companies stand out.
Arnaud Bonzom: The two biggest examples you mentioned are both B2B [Business to Business]. Supabase is very U.S.-focused, and what’s really impressive is that they managed to get Coatue involved in their first round—a crossover fund that typically focuses more on public markets than private ones. As for PatSnap, they started in China. The founder was based there during the ideation and early stages.
Bernard Leong: No. I know the founders from Patsnap. Jeffrey is a Singaporean. He went to study in Philadelphia for a year through NUS Overseas College. His co-founder, Guan Dian, was my student at NUS and yes, she was from China. The whole team was built out of Singapore.
Arnaud Bonzom: I'm not saying it’s not a Singaporean company—I know it is. But in the early days, its roots were more connected to China, and China remains one of its major markets. What’s interesting about both companies is that they rely heavily on either the U.S. or China as their largest markets, rather than Southeast Asia.
Looking at Mito Health, it’s still very early. Kenneth, the founder, is a repeat entrepreneur, and I believe he mentioned that there were only two Southeast Asian startups in this YC batch. It’s a bit disappointing that there aren’t more. It might be a combination of YC’s interest in the region and the number of founders actually applying. I’ve seen founders from companies like Aspire and Xendit being very supportive of helping others with the YC application process, but I wish we saw more of that.
If any government can support initiatives like this, they should definitely find ways to send more founders to YC. There are already some great Southeast Asian companies that have gone through YC, like Supabase, Aspire, and Zendit. But the real question is: how many of them are B2B or fintech?
When I see a company like Mito Health, I think if you have something unique to offer, it might be worth targeting the U.S. market first. Or, perhaps, bring U.S. tech into healthcare and adapt it to the Asian population. There’s potential there, but yes, Mito is still in its very early stages.
Bernard Leong: So, the funding patterns in 2021 and 2022 were definitely anomalies due to the ZIRP era. But looking at 2023 and 2024, how do you think the funding landscape compares to the pre-pandemic years, say 2019 and 2020? If we set aside the unusual years, what do you think today’s funding environment looks like?
Arnaud Bonzom: One thing to understand is how a venture capital firm typically operates. They usually deploy capital over a 10-year period, which works well in dynamic ecosystems like the U.S., where companies can grow, get acquired, or go public quickly. In the startup world, we often joke that a 10-year journey is an 'overnight success.'
In Southeast Asia or other emerging markets, it takes longer because there's less velocity. So, while VC funds are structured to run for 10 years, they often need extensions, which is why many funds have the option to extend for one or two years in their agreements with LPs.
Another factor is that the capital raised is usually deployed over three to four years. This means the money raised has to be spread out over that time. When we look at ecosystem growth, we often evaluate it using annual metrics, but that’s somewhat arbitrary.
The idea of looking at funding cycles from January 1st to December 31st is completely arbitrary. We need to remember that these funds plan their capital deployment over three to four years. They make capital calls and deploy that money over this period, so the dynamic for a fund is more like a three-to-four-year window for their initial investments. Then, as time progresses, they overlap those years with follow-on checks.
During the COVID era, many funds raised amounts that were too large, leaving them with excess capital to deploy. The problem is that some companies, even before COVID, were already used to inflated valuations that didn’t necessarily align with sustainable business models, especially for VCs in this region.
You have to consider exits—how big they are, what valuations they reach—and that makes it very tricky for a VC to turn a profit. Before COVID, valuations were already a bit high for the region. I see deals in Europe with experienced, repeat founders, and sometimes the valuations are similar to those of first-time founders in Southeast Asia. The markets aren’t the same size, and the odds of success are different. Sometimes, Southeast Asia feels overpriced.
Bernard Leong: I agree with you—the title of the report we’re discussing today, Resetting Expectations, is fitting. From your perspective as an LP, do you think investors have been overly optimistic about the region’s potential? What do you believe are the more realistic expectations moving forward? Is it in the light of current global or regional headwinds or tailwinds for that matter?
Arnaud Bonzom: Another challenge in the region is the size of the funds. For example, when you look at the first fund by Garry Tan and Alexis Ohanian from Initialized Capital, it was interesting to see that their initial fund was under $10 million—somewhere around $7 or $9 million. Despite its small size, they invested in Coinbase, and the returns from that fund are now close to half a billion dollars.
They started small, even though they were already well-established individuals with great track records. In Southeast Asia, however, funds tend to get very large very quickly. The real question then becomes: when you do the math, what size should the exits of your portfolio companies be to return the fund at least three times over?
Since only about 80% of a fund’s capital is typically deployed, you actually need to generate more than a 3x return to achieve that for your LPs, especially after accounting for management fees. This is why many funds are now too large. For example, Peak XV recently announced that they’re returning money to investors, not as a DPI (Distributions to Paid-In), but by reducing the size of their fund and choosing not to call the remaining capital. It’s a recognition that while raising money is great, there also needs to be disciplined in how many high-quality teams you believe you can find and generate returns from.
That’s the challenge in this region—many funds have become too big. Peak XV took the tough step of reducing their fund size, and I’m curious to see if other funds will follow suit. This kind of rebalancing is necessary to create a healthier environment.
At the same time, though, I wouldn’t discourage founders and VCs from being optimistic. Without that optimism, things simply won’t work. I’ve had the chance to speak with several unicorn founders, and when you ask them privately if they would have started their companies knowing how hard it would be, most of them say, ‘No, never.’ Fortunately, they were optimistic and underestimated the difficulty, and that’s why they succeeded. So, I’d never tell a founder or VC not to be optimistic.
The key balance here is discipline. It’s about not raising too much money and not overcommitting when valuations are inflated. This applies to both sides, and not everyone shows that kind of discipline. Don’t raise too much capital, and don’t deploy when valuations are sky-high.
As an angel investor, I barely invested during the COVID era because I felt the market was out of control. The challenge, of course, is timing—you're investing now, but the exit might not come for another 10 years. Predicting what the market will look like a decade from now is nearly impossible.
Ten years ago in Southeast Asia, we didn’t have a clear picture of how exits would unfold, so we had to trust that things would work out by the time exits happened. But now, with many funds in their third or fourth rounds, LPs are saying, ‘We trusted you during the first decade, but now show us how the exit landscape is shaping up.’ It’s harder to keep asking for patience and saying, ‘Just wait a few more years—we’ll get there.’
That’s why you’re seeing more funds focus on liquidity events, continuity funds, or even stock exchange strategies. A lot of these initiatives are aimed at providing liquidity. Just this week, for instance, Malaysia's sovereign wealth fund, Khazanah, announced the launch of a founder fund, with part of it dedicated to emerging fund managers. This shows that we’re still in the early stages of the ecosystem. When governments are creating founder funds for emerging fund managers, it’s a clear sign that the ecosystem is still developing.
Bernard Leong: So, in the past, we’ve seen a restructuring among major VC firms like Insignia and PeakXV (formerly Sequoia India). I’ve also noticed some VCs getting into roll-ups as a way to return DPI, which makes sense—if it works, why not? I’ve heard of VCs starting to pursue roll-ups in Southeast Asia as well.
You’ve painted a picture of the restructuring happening with early-stage VC firms, but what about the larger players who entered Southeast Asia, like Coatue and Tiger Global? They were heavily involved in the mega funding rounds for companies like Grab and Gojek (now GoTo), but have since scaled back their participation. What does that mean for the region?
It seems there will still be early-stage funding, as many VCs have dry powder left. But for startups looking for late-stage funding, especially in the Series B to Series E range, there’s a growing gap. Where will that leave startups in this region as they try to scale? It feels like we’re heading toward a chasm where late-stage funding is increasingly hard to come by.
Arnaud Bonzom: So you mentioned Peak XV, which was formerly Sequoia India and Southeast Asia. You got GGV which splits into two now.
Bernard Leong: Granite Ventures
Arnaud Bonzom: You also have firms like Matrix Partners that have split across different regions globally. These were among the few investors involved in Series A and beyond. Most were multi-stage funds operating across various regions—from the U.S. to China, India, and Southeast Asia.
Interestingly, Lightspeed is one of the few still operating across all these regions. The split for many others was largely driven by the tensions between the U.S. and China, making it difficult to invest in both markets simultaneously.
Then there’s another category—late-stage crossover investors like Coatue and Tiger Global, who were also active in Southeast Asia. But their involvement was largely context-driven. It was a period when raising capital was easy due to low interest rates. At that time, almost anywhere you invested, the value would increase quickly.
These investors typically prioritize the U.S. market first, as it’s often considered the best market, and most of them are American, so naturally, they start with the U.S.
Previously, investors would prioritize markets like Europe, China, Japan, and India before even considering Southeast Asia. Southeast Asia wasn’t a 'must-have'—it was more of a 'nice-to-have' because there was so much money in the system. The more capital you have, the harder it becomes to find the perfect place to invest it.
For example, if you have $1 billion to invest, you're not expected to achieve the same returns as you would with $10 million. So, when all that money flowed into Southeast Asia, people here thought, ‘We’ve made it. The world is finally looking at us. We’re a great ecosystem.’ But it was really just a temporary surge. When the tide pulled back, Southeast Asia was the first place investors scaled down because it wasn’t offering the best outcomes. I don’t think that level of aggressive investment will return anytime soon.
However, great companies will always find a way to raise capital. The top-tier startups will continue to secure funding. The real challenge will be for those just below that tier, as it will become increasingly difficult for them. Some companies will need to become much more capital-efficient and may need to focus on reaching breakeven sooner.
In the later stages, the trickiest part is around Series B and C. It also depends on the size of the round. For larger rounds, the investors who participate tend to invest globally, so it varies depending on the scale of the raise. In Southeast Asia, even at the earlier stages—whether it’s angel, pre-seed, or Series A—there aren’t that many top VCs or partners you dream of having on your cap table. The pool is small.
In the U.S., if you're raising your Series A, you have a long list of amazing VCs to choose from—Sequoia, Andreessen Horowitz, Benchmark, Bessemer, and many others. But in Southeast Asia, it's hard to name even five top VCs you'd want on your cap table at each round. The ecosystem is still small, and it takes time to develop. Silicon Valley, for example, has been built over 70 years. Sequoia alone is 50 years old. In Southeast Asia, very few GPs have been in the game for more than a decade. A single fund often takes 10 to 15 years to complete its cycle, and many funds here haven’t completed their first tour of duty yet.
Bernard Leong: A counterexample is China. Yaw Shin recently spoke in my class at NUS Business School, and he highlighted the incredible scale China achieved in such a short time. For instance, Pinduoduo went public in just three years, the fastest IPO to date. China managed to reach the scale that Silicon Valley took decades to achieve, and it did so in under 20 years. Despite its current challenges—which we won’t get into here—China has essentially accomplished in 20 to 30 years what took Silicon Valley much longer.
Arnaud Bonzom: They’ve definitely moved much faster, I fully agree. But they’ve also been much more protective of their markets. Can you name a big foreign company that’s succeeded there?
Bernard Leong: Yeah, there’s none. Uber managed to claw 30% market share, and Kayak got sold to Baidu.
Arnaud Bonzom: Exactly, it’s very difficult. It’s a large market, but they’ve fully protected it. You can achieve massive outcomes there, and I agree—if you look at what Sequoia China (HongShan) has accomplished, it’s incredible. What Neil is doing there is amazing, and they’ve made some remarkable deals. But it’s also a closed market and a very large one at that.
That’s why I always emphasize the U.S. It’s the largest accessible market for anyone. I’m not saying it’s easy, but it’s the most uniform, open market where you can find everything—from clients and investors to acquirers or an IPO path. China has certainly managed to achieve great things, but at what cost? And what does the future hold for it? There are still many unanswered questions. It’s useful to compare the two, but you can’t fully apply the same approach here because there isn’t a unified ASEAN.
There’s no strong leadership with one voice to unite all the countries in Southeast Asia as you have in China with its provinces.
Bernard Leong: Do you think Southeast Asia should be compared to Europe? For me, that’s the best comparison, rather than trying to align it with China, India, or the U.S. Those are more singular markets—if you succeed in one, you can operate across the whole country. But I don’t think Southeast Asia works like that. Maybe with the exception of Indonesia, where the population is growing and could eventually approach India’s size.
Arnaud Bonzom: It’s still hard to make that comparison, though. Otherwise, you end up comparing Germany to all of Southeast Asia, and if you’re only looking at current GDP, that doesn’t account for purchasing power parity. And even within Germany, you’re dealing with one country, but in reality, it’s really just two or three major cities driving the economy.
In Southeast Asia, you’re talking about how many cities, languages, currencies, and regulations? At some point, I wonder if we should stop trying to group the region as ‘Southeast Asia’ and just focus on specific countries like Singapore or Indonesia.
Bernard Leong: Or perhaps focus on Vietnam, Indonesia, and the Philippines—what AC Ventures refers to as the VIP markets.
Arnaud Bonzom: Yeah, at one point we even talked about 'Greater Southeast Asia,' including Taiwan. For me, though, I think it makes more sense to look at individual countries since each is so different. A lot of founders try to expand across several Southeast Asian countries and then end up going to Australia, only to find they're making more money there than in all their Southeast Asia expansion plans combined. It’s a lot more work to cover all those markets."
Bernard Leong: I agree with you, but I have a slightly different approach now. I’ve started thinking about the entire Asia Pacific market in a new way. Let me explain.
Arnaud Bonzom: "Asia Pacific?"
Bernard Leong: Yes, when I say Asia Pacific, I’m really talking about three distinct markets.
Arnaud Bonzom: You know that the Middle East is in Asia Pacific.
Bernard Leong: I see three main market categories in the Asia Pacific region. The first is the developed markets: Hong Kong, Singapore, Australia, New Zealand, Japan, Korea, and Taiwan. These seven markets share common characteristics, like higher SaaS costs, with the average being around $80 to $100 per user per month.
Then, you have the developing markets—Indonesia, Malaysia, Thailand, the Philippines, and Vietnam—where cheap labour tends to outperform SaaS solutions. For example, according to a top consulting firm, the average SaaS cost per user per month in Indonesia is only $5. This means that in these markets, it often makes more sense to pay for cheap labour than to adopt SaaS software. That's why the SaaS market hasn't really taken off in these regions, despite what some VCs seem to think. They talk about needing a SaaS market, but the economics just don’t make sense when the costs are so low.
Lastly, you have the frontier markets: Laos, Cambodia, and Myanmar, though Myanmar's potential has been disrupted by civil unrest. If you categorize the region into these three buckets, it helps you focus on the markets that make sense for your business. For example, if you target just the developed markets, leaving aside China, Japan, and Korea, which tend to be more insular, and add the other six markets, you'd already be a significant player in the region.
Arnaud Bonzom: No, I fully agree. That’s why, as an angel investor, one of my quick questions when investing in companies outside the U.S. is, ‘When are you going to the U.S.?’
Bernard Leong: As soon as possible?
Arnaud Bonzom: Exactly, but it depends, right? There are two options. Either you want to be the next eBay and need to be in the U.S., or you need to explain why you want to focus on emerging markets like OLX. What’s your strategy, and why does it make sense? Maybe it’s because eBay is already too dominant in the U.S., and you believe it’s an impossible battle. So, there are options, but you need to be clear about your rationale. I also agree with you on SaaS.
But for me, there are a few additional angles. One issue is that people in the region aren’t used to paying for software. There’s also a potential ego factor, where people prefer to say they manage a team of 100 versus a smaller, highly paid team of five that’s boosted by software. The mindset here isn't about having lean teams, even though someone like Elon Musk has shown you can cut 80% of the staff and still run a company like X (formerly Twitter) with a smaller, more efficient team.
The preference here is often for larger teams, whereas I prefer smaller, lean teams using the right tools to move faster. But that’s not the norm in this region. Also, SaaS is often seen more as a cost rather than an investment. In the U.S., when someone has to pay for software, it’s seen as a smart investment. But in emerging markets, it’s more like, ‘Why waste money on that? I can do it myself or hire someone.’
It’s a different mindset, and it also depends on where a company is in its development. In Silicon Valley, where developers are paid $200k a year, paying for a SaaS subscription is nothing compared to the overall cost of the employee. But in Vietnam, where fresh graduates might earn $300 to $400 a month, the cost of software becomes a significant percentage of their salary. So, I think we’ll eventually get there, but it’s going to take time.
That’s why you see companies offering different pricing across regions. For example, YouTube or Spotify charges significantly more in Singapore than in other Southeast Asian countries. They adjust based on purchasing power. If I were selling SaaS software in Southeast Asia, I’d have to target markets where people are used to paying and have the infrastructure—like credit cards—to do so. The U.S. is much more accustomed to that model.
Of course, we’re also seeing some fatigue with subscriptions, and there’s a move back to the old model—like when you paid once for a Windows license and had it forever. Some SaaS companies are shifting back to that model, which might be a better fit for Southeast Asia and other emerging markets. Pay once, own it forever. And if you know your long-term value (LTV), you might even make more money from a one-time sale than from a subscription model.
Bernard Leong: One question I have is about the current slowdown in IPOs and M&A activity across the region. How do you see startups and VCs adapting to this prolonged drop in exits? You mentioned earlier that VCs are starting to explore other avenues, like working with stock exchanges and trying to figure out new strategies.
Do you think there are any other ways they can navigate this exit slowdown?
Arnaud Bonzom: I think for many startups, the last 12 months have actually brought some good news. A lot of founders I’ve known in the region for over a decade have managed to turn profitable. This gives them an unlimited runway and more time to weather the current conditions, which is great news.
For startups in Southeast Asia, achieving profitability is a huge advantage, especially since breaking even here can be challenging. Right now, the best strategy for startups is to either focus on becoming profitable or maintain strong growth to stay attractive for potential funding. As for exits, VCs have several options, such as selling through secondaries, but it's not always easy. Many funds have high valuations on their books, and they don’t want to mark them down because it would hurt their internal rate of return (IRR) and make it harder to raise their next fund.
So, they’re in a tough spot—do they show discipline and reflect the real value of their portfolio, or do they try to maintain higher valuations to help raise future funds? It’s a tricky situation for many.
The IPO market isn’t just closed in Southeast Asia—it’s closed globally. But for Southeast Asia, the path to IPO has always been harder, even in good times. Some have resorted to selling full funds to their investors through secondaries, but it's still going to be a tough period.
You know the saying, ‘Hard times create great people, great people create easy times, and easy times create weak people.’ I like the hard times because they correct a lot of imbalances. It forces a reset, even though it’s painful. It pushes founders to focus on building 'must-have' solutions instead of 'nice-to-haves.' In the past, there was too much funding that allowed for 'nice-to-have' businesses.
The issue now is that many companies are struggling, but they’re not shutting down. You have what we call 'cockroach startups' in Southeast Asia.
Bernard Leong: I have a name for them: zombie companies.
Arnaud Bonzom: Cockroach startups or 'zombies,' as some call them. A lot of these companies manage to keep going without shutting down. Maybe one out of a hundred will eventually find a way to survive and thrive. But overall, it's a huge misallocation of talent and resources. It would be much healthier for the ecosystem if most of them shut down.
I understand that, as a founder, it’s hard to give up. Many don’t want to quit, which is understandable. But in the U.S. or Europe, you’ll more often see founders saying, 'We’re growing too slowly, this isn’t working the way we’d hoped over the past year.' They’ll shut down, return whatever money is left to their investors, and move on to build something new.
Bernard Leong: Interesting that you say that. The only founders who have returned capital to me so far have been crypto startup founders in Southeast Asia. That’s happened much more frequently in crypto, but not as much with other web 2.0 companies where I’m an angel investor. That’s something I’ve noticed.
Arnaud Bonzom: We need to see more of that—founders being comfortable with saying, 'It’s okay, let’s move on.' Focus your energy on something else instead of dragging it out.
Bernard Leong: So, given everything you know now, what’s one thing you understand about the Southeast Asia startup and VC ecosystem that very few people do?
Arnaud Bonzom: I’d say one of the biggest issues is the lack of discipline across the board—from founders to investors. Two things stand out: first, don’t raise too much; second, raise from the right people. Whether you’re a founder or a GP, your investor base matters a lot.
If you raise a fund and your investors are primarily angels, high-net-worth individuals, or corporates, they likely won’t be there for you in tough times. When things get difficult, they’ll say, ‘Sorry, I’m not investing in the next fund.’ But if you put in the extra work to get fund-of-funds or institutional investors, those people are much less likely to withdraw. When they write the first check for your initial fund, they already plan to invest in fund two and fund three.
That’s not the case with corporates, angels, or high-net-worth individuals. The same principle applies to founders—be mindful of who you’re raising from. Understand the vintage of their fund, know the size of their fund, and get a sense of their expected returns. Some funds in the U.S. file with the SEC, so you can access a lot of information. For example, if a VC has fewer than 40 LPs across their third or fourth fund, that’s a good sign—they’re likely seeing traction and won’t struggle too much to raise the next fund, meaning they’ll have more time to support you.
I’ve been surprised by how many GPs and founders don’t fully understand their investors and how things work. They don’t ask enough questions—they’re often just focused on what makes life easier today without thinking long-term.
Bernard Leong: "I’m going to ask you a bit of a definitional question. There’s a term called Distributions to Paid-In Capital, or DPI. Could you explain what DPI is for our listeners and why it’s such an important metric for measuring the success of VC funds? And how does it apply to our market?"
Arnaud Bonzom: In short, DPI is the money you return to your LPs. To break it down simply: imagine you have a $100 million fund. As a VC, you raise that money from LPs—limited partners—who give you their capital to invest. Essentially, you’re investing other people’s money, not your own. You can think of a VC as a service provider, managing money on behalf of sovereign wealth funds, insurance companies, founder funds, and others, and investing it into startups.
Out of that $100 million fund, you’ll actually only deploy $80 million, because typically, 2% goes to management fees. Over the course of 10 years, that means $20 million is allocated to running the fund, leaving $80 million for investments.
In the early stages, the main metric used to measure success is IRR, which reflects the value of your portfolio, even though you haven’t realized any exits yet. A common way to evaluate your portfolio is by looking at the valuation of the last funding round, ideally one led by someone other than yourself. That gives a more objective measure of value, rather than just relying on your own internal valuation. Of course, there’s a lot more we could discuss on this, but that’s the basic idea.
Bernard Leong: Yeah, we’re not going to mention any specific VC firms or their DPI numbers, but others have already done that for us.
Arnaud Bonzom: Exactly. But let’s break it down further. Think of IRR as a snapshot of how well a fund is performing in the early stages—like the first few meters of a 100-meter dash. A good start is a positive sign, but it doesn’t guarantee how things will finish, because some funds might perform better in the long run.
DPI, on the other hand, is what matters when exits happen—it’s the actual cash returned to your LPs. So, if you raised $100 million and deployed $80 million, the first $100 million that comes back goes to the LPs because they gave you that capital upfront. I’m simplifying a bit here, not getting into GP commitments or other details. If you return 1x, that means you’ve just given the LPs back the initial money they invested.
But it’s not ideal if this happens at the end of the fund’s lifecycle. Timing is important. If you start returning capital after just two or three years, it’s a strong signal, and it can help you raise your next fund because your LPs might reinvest the money they’ve just received. One of the best ways to raise a new fund is to start returning capital from the previous one.
However, returning 3x to your LPs—which is the benchmark many use based on public markets—is going to be incredibly difficult for most Southeast Asian funds. Liquidity events like secondaries usually come with a 20-30% discount on the last valuation to provide liquidity, and if that valuation was inflated, you might see cuts as large as 50-70%.
Bernard Leong: Have we had any cases like selling to SoftBank, where early investors sold their stakes early, got solid returns, and then it was mainly the institutional funds that held on, for example, Grab?
Arnaud Bonzom: If you look at Grab, and from what’s been shared publicly, Vertex timed their exit quite well. You could almost call it a 'Cinderella strategy'—leave before midnight because eventually, every company faces challenges. With Grab, it depended on when you entered and exited. If you got out when they were valued close to $40 billion, you did well. But today, they’re worth about $14 billion, after raising more than $10 billion in capital.
Timing matters a lot. Many VCs focus heavily on the entry price, which makes sense, but some aren’t very price-sensitive, which can be a mistake. For example, if you invest in a company at a $25 million valuation versus a $2 million valuation, a $50 million exit means something very different. In one case, you make good money, though it may not return the entire fund. In the other, you barely make any money. So, both the entry and exit points are crucial.
Another challenge is managing a company as it transitions from private to public markets—those are two completely different jobs. Even investing in a pre-seed round versus a Series B or C round are very different skill sets. For many investors, it’s hard to know when to take some money off the table and start returning DPI to your LPs. Sometimes, you need to sacrifice some of the potential performance of Fund 1 to ensure you can raise Fund 2.
For example, as an LP in Fund 1, I know the managers will have to make those sacrifices at some point, even if it means slightly compromising returns, in order to build a firm and raise the next fund.
Bernard Leong: Timing-wise, Vertex did really well with Grab, and also with Spacemob, which they sold to WeWork. They cashed out during the SoftBank round when WeWork was at its peak.
Arnaud Bonzom: Exactly. And if you look at it, even the WeWork founders made a lot of money despite how things turned out.
Bernard Leong: Yeah, but here we’re focusing on the VC funds that backed companies which sold to WeWork, and then cashed out.
Arnaud Bonzom: It all comes down to timing. For example, with SEA Group, when the shares were around $250, investors made a lot of money. The challenge is knowing when to take the money off the table—it’s tough to get the timing right. It’s interesting to see who has the discipline to pull some money out when necessary. Vertex, for instance, has a team with a lot of experience, like Kee Lock and the others, who’ve been doing this for a long time. They know what they’re doing, and they’ve developed a discipline not only for investing but also for divesting.
We talk a lot about investing, but not as much about divesting. Divesting is its own art—knowing when to hold and when to exit. That’s why Sequoia U.S. changed its structure to allow them to hold certain companies indefinitely. They’ve seen huge value created after IPO, like with Apple and others. But now, with so much money in private markets, you can also argue that a lot of value is being created before IPO.
That’s why you’ve seen crossover funds like Coatue and Tiger Global move into private markets—they were seeing sky-high valuations at IPO, which wasn’t the case in the past. For example, Amazon's IPO valuation was in the single-digit billions. Today, if a company goes public at a single-digit billion valuation, it’s considered small. We’re seeing companies go public with valuations of $20, $40, or $50 billion. So, there’s 50 times more value being created while these companies are still private.
Bernard Leong: Do you think the current DPI issues for Southeast Asian VCs are going to make it harder for them to raise their next few funds?
Arnaud Bonzom: Oh, absolutely. As I mentioned, the money you return is often the money that gets reinvested into your next fund. If you’re not returning much, it’s going to make raising the next fund more challenging.
Secondly, there are still big questions about exits in the region. How do you return that money to your investors? That’s going to be a tough one to answer, and it’s likely to make things difficult for Southeast Asian funds.
I wouldn’t be surprised if we start seeing some VCs raising smaller funds or slowing down their growth. But honestly, I think that’s a good thing. A smaller fund is more likely to deliver a strong DPI because it can focus on backing stronger companies. Plus, with less capital available, founders will be forced to focus on building ‘must-have’ products instead of ‘nice-to-haves.’ It will lead to better selection and more discipline.
That said, it will be painful, and we’ll probably see fewer VCs. But remember, it takes around 10 years for a VC to really die out, so this won’t happen overnight. I’d strongly encourage founders to do their due diligence when talking to VCs. Ask them how many deals they’ve done in the last six months. If they’re a pre-seed or seed fund and haven’t done any deals, that’s definitely a red flag.
Bernard Leong: I just want to ask a couple of questions and get your thoughts. First, what advice would you give to founders navigating the 2023-2024 environment?
Arnaud Bonzom: "I had a founder recently, backed by some of the top VCs in the region, ask me, 'What’s the best way to get acquired?' My response was, 'Build a great company.' It sounds simple, but the reality is much more complex. How do you make your company great?
I also told him that the best time to sell is when you don’t want to sell. I know a founder who sold his fully bootstrapped company in Southeast Asia for a mid-eight-figure sum. He owned 95% of it. At the time, people were saying, ‘Don’t sell—you’re on a growth trajectory, you’re leaving money on the table.’ But one or two years later, the business started to shrink. In hindsight, it was perfect timing.
It’s incredibly hard to know when to sell. My advice is to ask yourself: ‘Will you have any regrets if you sell now?’ It’s important to be clear on whether you’re ready to let go or if you want to go all in and really push the company to its limits."
Arnaud: "There are plenty of examples. Facebook turned down Yahoo’s offer of $1 billion, and then Yahoo itself was later sold for a fraction of its previous value after Microsoft’s $40 billion offer fell through. In hindsight, it’s easy to say when it was the right or wrong time to sell, but at the moment, it’s one of the toughest decisions to make.
My general advice is this: focus on building a great company, and the opportunities will come. But as you know, building a great company is extremely challenging. What are the next steps? How do you get there? These are difficult questions.
One thing I’ve noticed is that people who build great companies tend to be decisive. They make decisions quickly and move fast. They embrace risk and are bold in their vision, especially in the venture-backed space. If you’re building an SME, the approach is different, and that’s okay—it’s just a different form of entrepreneurship. We often place venture-backed businesses on a pedestal, but I have deep respect for people who are craftsmen in their fields, whether they’re chefs or artisans.
For most founders, the goal is to do your best to build a great business, and constantly think about what it takes to get there.
Bernard Leong: Great point. What’s one question you wish more people would ask you about the Southeast Asia entrepreneurial and investor landscape?
Arnaud Bonzom: I’d like to see governments ask more about what they can do to remove the current and mid-term bottlenecks.
Bernard Leong: So, let me ask you that now—what bottlenecks would you want removed?
Arnaud Bonzom: "If I were a government in Southeast Asia, I’d do a few things. First, I’d be aggressive about giving entrepreneurs long-term visas—five years instead of the typical one- or two-year visas. Entrepreneurs, especially foreign ones, shouldn’t be worrying about their visa status. They should be focusing on their cash runway and building great businesses. Look at Europe or the U.S.—a lot of big companies were built by foreigners. We need to bring in more foreign talent to enhance the ecosystem.
I’d also focus on training GPs (General Partners). I’d bring in experienced GPs from Europe or the U.S. to offer advice, support, and workshops to help develop the local VC ecosystem. They’re not competing, so there’s no downside, and it’s a great way to accelerate knowledge sharing. I think what Khazanah is doing with their founder fund is great, but I’d love to see a Southeast Asia-wide founder fund from the government, though I’m not sure that’s possible.
If I could dream, I’d want a Southeast Asian founder fund from the government that invests in the best funds, especially emerging managers in their first or second fund. Additionally, we need to think about creating secondary funds or even a fund-of-funds model to seed these smaller funds.
When comparing the region to others, I’d love to see a unified stock market or specialized stock exchanges for different types of companies. For example, tech companies could list on SGX, while other industries might go to different exchanges. Or, if it’s possible, merge them into one. But realistically, that’s tough because we lack the size and scale for such a move.
On a local level, something long-term, but impactful, would be teaching entrepreneurship to kids. I’d love to see children aged six to ten running small projects—like a lemonade stand—where they learn about costs, production, pricing, and branding. Let them experience what it’s like to run a tiny business, from A to Z, and give them a taste of entrepreneurship early on.
Lastly, I want to see more women building businesses in the region, especially scalable businesses. We don’t have enough women entrepreneurs here. For example, in France, around 40% of EdTech founders are women. We need more of that in Southeast Asia.
Bernard Leong: Well, speaking of which, I just saw one walk past my window—my wife, who’s the CEO of a high-growth company. My traditional closing question. What does great look like for moving forward in Southeast Asia?
Arnaud Bonzom: One thing I’d like to see more of is stories that haven’t been covered much, like the Cosmos Software/Milika story. It was a company started out of Singapore, and I got involved with them while scouting for AWS—I gave them AWS credits. Unfortunately, I didn’t get the chance to angel invest because they never raised capital, but they ended up being acquired by Dolby.
If you think about it, Dolby acquiring a Southeast Asian company for their tech is a huge story, but you don’t hear much about it. I want to see more stories like that—Southeast Asian companies building unique technology that brings value globally, not just within the region.
It’s a validation that great things can come out of Southeast Asia when you have a company like Dolby acquiring a local tech company. I’d love to see more global success stories like this, and I also want the media and others to stop being so picky about which stories they cover. Whether a company is built by locals or foreigners, in Malaysia or Thailand, we need to embrace these success stories. For instance, Malaysia should fully embrace Grab as a Malaysian company, and Thailand should do the same for Agoda.
Bernard Leong: You’re right, and speaking of missed opportunities, many VCs have completely overlooked some of the best crypto companies. Nansen AI is based in Singapore and funded by Andreessen Horowitz. YGG [Yield Guild Games] from the Philippines, also funded by Andreessen. Axie Infinity [Sky Mavis] in Vietnam, again funded by Andreessen. CoinGecko and Etherscan are both based in Malaysia. It’s frustrating to see these opportunities missed by regional VCs.
Arnaud Bonzom: I agree. Token 2049, which is held in Singapore, has become the biggest token event globally, but crypto still feels like a different world. It’s a separate subset of investors. Only a handful of Southeast Asian investors allocate a small percentage to crypto, but it’s definitely not mainstream here. Most regional reports don’t even mention crypto companies, almost as if they aren’t considered startups. It’s like there are three categories—startups, SMEs, and crypto—which is seen as something entirely different.
You mentioned some great examples, like Axie Infinity, which was also backed by 500 Startups. But yes, very few local VCs are involved in crypto. It’s interesting that Andreessen Horowitz, based in the U.S., is able to find opportunities here that local investors might be missing.
Bernard Leong: Very few.
Arnaud Bonzom: Exactly, and it’s telling that Andreessen Horowitz is finding these opportunities here that others aren’t. There are not a lot of crypto-focused funds in the region, and that’s an area we should see more of. When a new wave comes, like crypto or AI, it’s better to catch that wave early rather than trying to ride the last one, which is already dominated by incumbents.
Now, with AI as the next wave, the question is how to position yourself to ride it. There’s still potential in areas like SaaS and fintech in Southeast Asia, but founders need to be realistic about the market size and their ability to raise capital, sell their products, or even go IPO.
People sometimes mistake realism for pessimism. It’s not about being negative; it’s about being honest. When I ask for numbers to support overly optimistic projections, they often don’t exist. We need to have grounded expectations rather than hoping for a bright future without a solid reason to back it up.
Bernard Leong: Thanks for coming on the show. I think we had a great discussion about the Lightspeed Report, DPI, and some hard truths that not everyone agrees with us on. We’ll have to get you back before episode 500. To wrap up, two quick questions: any recommendations that have inspired you recently?
Arnaud Bonzom: Sure, two things. First, kudos to Lightspeed for that report. It’s refreshing to see people openly addressing the challenges, not just painting a rosy picture in every report. Second, congratulations to you—closing in on your 500th episode is a huge accomplishment. We’ve seen so many podcasts launch in the region, and most don’t even make it to episode 10. It’s not easy, so hats off to you.
As for something that inspired me recently, I came across a leaked memo written by MrBeast—it’s about 30 pages long and incredibly insightful. One surprising takeaway is how much he values consultants, which is unusual since most people tend to dislike them. What I love about the memo is its directness. He doesn’t polish his words, but the underlying principles are fascinating. For example, he wrote one guide for everyone on his team, emphasizing that they should all understand each other’s roles. It’s not perfect, but honestly, how many companies even have something like that?
It’s better to have something rough but functional than nothing at all. MrBeast’s approach to redefining the entertainment industry is inspiring—he’s bold and reinvests everything. In an interview, someone asked if he’d sell for $1 billion, and he said no. Even at $10 billion, he’s not interested. That kind of vision is impressive, especially since he built it from a remote location. It could have been done anywhere, even in Southeast Asia. And now, you can find MrBeast’s chocolate in 7-Eleven in Singapore—it’s amazing to see how far he’s come."
Bernard Leong: Exactly. He started as a low-level gadget reviewer when he was 10 years old and spent 10 years studying YouTube before becoming MrBeast. It shows that success takes time.
Arnaud Bonzom: Yes, and he’s incredibly detail-oriented. The amount of money he spends on things like thumbnails is no joke—he’s fully committed. He’s not cutting corners and invests heavily in the final product, regardless of the cost. He’s mentioned borrowing money because he was burning through so much. You need balance, of course, but I admire his all-in mentality. It reminds me of Jeff Bezos with Amazon, always reinvesting for the long term. It’s truly inspiring to see people being so bold and committed to their vision.
Bernard Leong: How can my audience find you?
Arnaud Bonzom: LinkedIn is the best way.
Bernard Leong: Great, thanks for being on the show. You can find us on YouTube and Spotify, and don’t forget to subscribe. We’ll catch up again soon."
Arnaud Bonzom: Thank you, Bernard.
Podcast Information: Bernard Leong (@bernardleong, Linkedin) hosts and produces the show. Proper credits for the intro and end music: "Energetic Sports Drive" and the episode is mixed & edited in both video and audio format by G. Thomas Craig (@gthomascraig, LinkedIn). Here are the links to watch or listen to our podcast.
