This interview originally appeared in the DealStreetAsia DATA VANTAGE report SE Asia VC Funds: H2 2024 Review.
Southeast Asia’s tech ecosystem is navigating one of its most challenging periods as it grapples with macroeconomic headwinds, rising geopolitical risks, and a protracted venture funding downturn. Compounding these pressures are mounting concerns over corporate governance, as high-profile cases expose weaknesses in financial controls and accountability among startup founders.
The convergence of these factors is testing investor confidence in the region and driving a recalibration of capital deployment strategies across all emerging markets.
From the vantage point of a pan-Asian venture capital firm, MindWorks Capital founding partner David Chang recognises that the recent global financial market downturn has weighed on venture capital as an asset class, with Southeast Asia being no exception.
However, while the region’s long-term growth trajectory remains compelling, he notes that persistent challenges such as market fragmentation and limited exit opportunities have prompted some LPs to reallocate capital towards alternative emerging markets like India.
Chang observes that the power law dynamic, where a few standout companies generate the majority of returns, has been less evident in Southeast Asia in recent cycles. He attributes this to a constrained total addressable market, limited proven exit avenues, and the complexities of scaling across fragmented markets, leading some LPs to redirect capital towards regions with more predictable high-return opportunities.
That said, Southeast Asia remains in the early stages of digital transformation, driven by rising urbanisation, increasing consumer spending, and greater enterprise adoption of technology. Chang believes that as more companies demonstrate scalable and profitable business models, LP confidence will strengthen, leading to a recovery in capital flows.
Asked about the alleged fraud case facing Southeast Asia’s largest venture-backed aquaculture firm eFishery, Chang warned that while fraud exists in every market, eFishery’s case is particularly damaging due to the scale of funding it secured, potentially undermining investor confidence in the region.
Beyond these regional dynamics, global and pan-Asian funds face a distinct set of challenges. They must navigate the US’s China-containment policy, which has prompted global VC firms such as Sequoia Capital and GGV Capital to rebrand their Asia-focused subsidiaries to mitigate potential fallout, such as investment bans or restrictions. As a Hong Kong-based firm, MindWorks has entirely avoided accepting US capital for its latest flagship fund, which closed at $220 million last year, Chang said.
Excerpts from the interview with Chang:
MindWorks closed Fund IV at $220 million, nearly double the size of Fund Ill ($120 million). What specific elements of your portfolio performance or market positioning helped convince LPs to commit at this scale despite a tough macro environment?
MindWorks’s differentiated pan-Asia strategy has enabled us to capitalise on the region’s unique strengths. We leverage China’s deep supply chain, technological expertise, and proven business models while harnessing the dynamism and scalability of Southeast Asia and beyond. This approach has positioned us well to navigate market complexities and generate value across diverse ecosystems.
Our track record of building successful regional (e.g. lnteluck, Glints, Yup) and global (e.g. Lalamove, XTransfer) businesses has translated into strong investment performance, delivering returns for our LPs on both a multiple and DPI basis. In a challenging fundraising environment, LPs recognised our ability to generate exits and create value despite market headwinds, reinforcing their confidence in our strategy and leading to the successful close of Fund IV.
Notably, US investors did not participate in Fund IV. Was this a strategic decision, or a reflection of the current geopolitical and economic climate? How does this impact your global investment outlook?
Given current geopolitical headwinds, we decided not to accept US capital for Fund IV. That said, we remain optimistic about the long-term potential of Asia’s innovation ecosystem and hope that geopolitical dynamics will evolve to allow for broader participation in the future.
From an investment perspective, this has no bearing on our ability to back globally competitive companies. Many of our portfolio companies are scaling beyond their home markets, even in the US, leveraging Asia’s world-class supply chains, cost advantages, and deep talent pools. Our commitment remains unchanged—to identify and support the most promising founders building enduring businesses.
With growing capital allocation towards India and other emerging markets, has Southeast Asia lost ground in LP priorities?
Southeast Asia’s growth trajectory has historically been compelling, but challenges such as market fragmentation, regulatory complexity, and the lack of large-scale exits have led some LPs to reallocate capital towards alternative emerging markets like India.
One key consideration is that the power law dynamic—where a small number of outsized winners drive the majority of returns—has been less pronounced in Southeast Asia compared to other regions in recent cycles. This is due to factors such as limited TAM, fewer proven exit mechanisms, and the difficulty of scaling across fragmented markets. As a result, some LPs have shifted focus to markets where they see a clearer path to high-multiple outcomes.
That said, Southeast Asia remains in the early stages of digital transformation, with rising urbanisation, increasing consumer spending, and growing enterprise adoption of technology. As more successful companies emerge and demonstrate scalable, profitable models, we believe LP confidence will strengthen, and capital flows will return.
How do you see the alleged fraud at eFishery and other governance issues in Southeast Asia impacting your risk assessment and approach to governance for startups in the region? Separately, do you anticipate increased caution from LPs when allocating capital to the region as a result?
Instances of fraud are an unfortunate reality in any investment ecosystem—in Southeast Asia, India, or even the US with cases like FTX. However, in the case of eFishery, the substantial funding it received means that the impact may be more pronounced, potentially eroding investor confidence in the region. Large-scale governance failures like this reinforce the importance of robust due-diligence and strong corporate governance practices.
At MindWorks, we have always prioritised governance, implementing comprehensive due diligence processes and working closely with our portfolio companies to ensure financial controls, independent audits, and transparent reporting. While LPs may take a more cautious approach, we believe this shift will ultimately lead to stronger regulatory frameworks and more sustainable capital deployment, benefitting the ecosystem in the long run.
How has the prevalence of down rounds in the region affected LP confidence? Are they expressing concerns about prolonged exit timelines or capital recycling challenges?
The recent market downturn has impacted venture capital as an overall asset class, and Southeast Asia is no exception. With fewer funding opportunities, valuations have reset, and exit timelines may be extended, leading some LPs to raise concerns about capital recycling and fund life extensions.
However, these valuation corrections are a necessary recalibration, allowing companies to grow more sustainably and ensuring that capital is deployed efficiently. As the market stabilises, we expect disciplined capital allocation and strategic M&A activity to create liquidity opportunities over time.
Some of your portfolio companies have gone through down rounds. What trends are you seeing in secondary market transactions? Are early investors looking for liquidity via secondaries, or are they holding out for better valuations?
This varies depending on the investor profile and fund life. Early-stage investors, particularly those from seed or pre-Series A rounds, are more likely to seek liquidity through secondary sales, especially as funds approach their later stages.
However, down rounds also present strategic opportunities, allowing companies to reset their valuations, optimise cap tables, and position themselves for sustainable long-term growth. Whether an investor holds or exits through the secondary market is ultimately a bespoke assessment of risk tolerance, fund cycle, and the company’s projected upside.
In October, you mentioned that only 30% of Fund IV had been deployed. How has that figure changed since then? You also indicated a cautious approach for 2025, what specific macroeconomic or regional factors will influence your decision to ramp up deployment?
Fund IV will be approximately 50% deployed by the end of 2025. We continue to take a disciplined approach to capital allocation, ensuring that we invest in high-quality businesses with strong fundamentals and clear paths to value creation.
Key factors influencing our deployment strategy include the evolving US policy landscape, particularly under a potential new administration, and the commercialisation pathways for Al. These macroeconomic shifts will play a role in determining market sentiment, capital flows, and investment opportunities across key sectors.
With consumer spending in Southeast Asia slowing due to high interest rates and the rising US dollar, how are you adjusting investment activities in the consumer sector? What strategies do you take to support your consumer-focused portfolio in maintaining growth and sustainability in 2025?
While consumerism is not a key part of our strategy, we take a long-term, fundamentals-driven approach. Macroeconomic pressures such as high interest rates and currency fluctuations create short-term headwinds, but they also present opportunities for disciplined founders to build more resilient businesses.
Our portfolio companies are leveraging Al, automation, and data-driven decision-making to enhance operational efficiency, optimise customer acquisition costs, and strengthen unit economics. We remain focused on backing companies that can navigate near-term volatility while positioning themselves for sustained long-term growth.
