In the last week of May in Jakarta, the announcements started to tumble out: Tech-company layoffs were beginning. Zenius, a promising edtech platform, abruptly laid off over 200 employees, while fast-growing e-wallet LinkAja also fired “hundreds.” On their heels came a workforce cut by, an upstart e-commerce platform backed by Tencent’s 

Analysts have been warning that rising interest rates in the U.S. will hit the surging tech sectors of emerging markets, having already prompted investors to flee from blue-chip technology companies. Southeast Asia’s tech champions – superapp rivals GoTo and Grab, and e-commerce giant Bukalapak – were struggling to gain traction since their recent initial public offerings, and after the rate hikes, their already-deflated share prices slipped further. 

The turmoil isn’t yet a “meltdown” at the scale seen in India, whose tech companies have slashed employment and spending. But many of Southeast Asia’s growth-stage companies are likely to either wink out of existence or experience a “huge correction,” said Joshua Agusta, a director at Bank Mandiri’s corporate VC arm Mandiri Capital Indonesia. “Those who can stay alive [during this period] are going to be the ones who win the market,” he said.

For unlisted unicorns and so-called soonicorns — the next generation of billion-dollar companies — analysts say it means higher stakes for survival, as they’re forced to make their cash go further. The early pandemic days saw a tech-boom shakeout in the region, with cries of unicorn blood on the streets as funding dropped and sprawling decacorns tightened their belts. Things improved in early 2021, as fundraising picked up and companies adjusted to their new reality. But investors and analysts speaking to Rest of World said those earlier days are returning: intense focus on profits, need for a lengthy cash runway, and pressure on later-stage companies to hold to their IPO path. 

The mantra of profitability has grown louder and spread to earlier-stage soonicorns, analysts said. Investors have now become more demanding to even their growth-stage startups, and have started to ask for clearer road maps to profitability. “They must be prudent,” said Mandiri Capital CEO Eddi Danusaputro.

It’s later-stage companies that will likely take the most hits — especially those whose shareholders are U.S.-funded VCs, like Tiger Global and Lightspeed Venture Partners, said Mandiri Capital’s Agusta. He added that China-funded VCs would likely not be affected as much, as mainland funding partners are less entangled in the U.S. interest rate cycle, but would take advantage of the momentum to correct valuations all the same. 

Harry Su, managing director at Jakarta-based advisory firm Samuel International, agreed, but pointed out the tumble in the yuan’s value, which makes Chinese VCs’ overseas investments more expensive. The yuan has fallen as much as 7% against the dollar since March, weighed by strict lockdowns and suspicions of coming economic pain.

Jakarta-based soonicorn Ula counts backers from both countries. Its last fundraising pocketed over $23 million in an extended series B round from Tiger Global and Flipkart’s co-founder Binny Bansal. Before that, Ula raised $87 million from a slew of investors, including Tencent and Bezos Expeditions, a venture capital firm owned by Amazon founder Jeff Bezos — all feeding into a valuation of reportedly nearly $500 million

Nipun Mehra, Ula’s founder and CEO, admitted to Rest of World that there have been “ongoing conversations” with all of the company’s investors about the global situation, but he assured that they did not convey a sense of panic. Ula helps small roadside kiosks in Indonesia, known as warungs, manage capital, inventory, and delivery through an app, which means that it’s betting on more general behavioral changes and adoption of technology. It’s a model that’s drawing increasing interestand sometimes opposition — in the U.S., with corner stores taking up a second e-commerce purpose as “dark stores.”

“There’s no ‘Don’t do this,’ ‘Don’t do that’; it’s more measured, like, what is the right choice for the business,” Mehra said, describing the conversations with investors. “Tech companies are not getting [funding] because offline is coming back, but if you think about it, that’s good news for us because we are enabling the offline,” Mehra said. He added, too, that Ula had fortunately completed their latest funding round last November. 

Global funding of startups by VCs reached $143.9 billion in the first quarter this year, a 19% drop compared to the previous quarter — the largest percentage fall since 2012, according to a report by CB Insights. Exits via SPACs and IPOs were also slashed by 45% in the first quarter of 2022, the same report showed.

"Southeast Asia is now seeing fewer companies trying to raise more than $200 million for a half-a-billion valuation."

In January, it was reported that beauty product platform Social Bella was in talks with investors about raising up to $200 million — which, if successful, would have valued the site at over $1 billion, landing it on the coveted Southeast Asia’s unicorn list. It’s now reportedly lowered its valuation expectations for the fundraise. 

Sociolla declined to comment on the alleged fundraising difficulties, maintaining that the company “remains positive.” Like Ula, it says that it is looking to demand. “Understanding consumers’ needs and behaviors, in our opinion, are the critical components of our success … that must be kept in mind, regardless of the challenges that arise,” Christopher Madiam, co-founder and president of Sociolla’s brand owner Social Bella, said in a statement to Rest of World. 

Anticipating the U.S. rate rise, “Southeast Asia is now seeing fewer companies trying to raise more than $200 million for a half-a-billion valuation,” Agusta said. He believed that startups with less than 24 months’ cash runway could find themselves in a bit of a “dangerous” situation. “I would say it’s better to raise an internal round from existing investors,” Agusta added.

There’s less pessimism for early stage investors, who could still pounce on shrinking valuations— particularly in Indonesia. “We are still very much in deploying mode. … In the early market, people will get more rational, [and] we’ll be able to get reasonable valuations,” Alpha JWC Ventures co-founder and general partner Jefrey Joe told Rest of World. Their portfolio counts fêted local tech companies Ajaib, Kopi Kenangan, and Kredivo. “The outlook going forward is still the same: We will still have a big increase in the digital economy and in internet penetration.”