Southeast Asian start-ups lay off amid economic uncertainty

Hundreds of start-up workers in Southeast Asia have been laid off in recent months, proving that the fast-growing industry is not immune to the global economic downturn.

At least six tech companies have laid off staff, including Sea Limited, the owner of Singapore-based e-commerce site Shopee.

Tech investors say this is just the start of further job cuts in the region’s tech industry. As interest rates rise and economic uncertainty looms, businesses are now forced to focus on profitability instead of growing as quickly as possible.

“Last year a lot of what happened was a lot of cheap capital in the market flooded the market [which] allowed companies to really grow at any cost,” said Jessica Huang Pouleur, partner at venture capital firm Openspace. “What happened is that people were hired very quickly. You have a problem, you just throw people at it.”

“I think we’ll probably see more in the next few months,” Huang Pouleur said, referring to more tech layoffs.

Shopee has laid off workers from its food delivery and payment services, as well as teams from Argentina, Chile and Mexico, according to an email from chief executive Chris Feng, which was sent to employees affected by the job cuts.

“Given the elevated uncertainty in the broader economy, we believe it is prudent to make some difficult but important adjustments to improve our operational efficiency and focus our resources,” according to the email, which was seen by CNBC.

NYSE-listed Sea Limited – which had 67,300 employees at the end of 2021 – did not say how many employees were affected. The company did not respond to CNBC’s request for comment.

Singapore-based digital wealth manager StashAway laid off 31 employees, or 14% of its workforce at the end of May and June, according to a spokesperson.

Malaysian online shopping platform iPrice laid off a fifth of its workforce in June. The company said it had 250 employees before the layoff. Meanwhile, Indonesian educational technology company Zenius has laid off more than 200 employees, the company said in a statement.

Singapore-based digital currency exchange Crypto.com also laid off 260, or 5% of its workforce, a spokesperson told CNBC. Jobs have been cut in Asia Pacific, Europe, Middle East and Africa, and the Americas.

In separate statements to CNBC, the companies attributed the layoffs to the current uncertain economic conditions.

JD.ID, the Indonesian arm of Chinese e-commerce site JD.com, also cut jobs. Jenie Simon, chief executive officer, said the layoffs were aimed at “maintaining the company’s competitiveness in Indonesia’s competitive e-commerce market.” She did not say how many were fired.

Dozens of workers have also reportedly been laid off from other Indonesian start-ups, including e-commerce facilitator Lummo and digital payments provider LinkAja.

Job vacancies in Singapore’s tech sector are down slightly from a year ago. According to tech jobs portal Nodeflair, vacancies in the city-state increased from around 9,200 between July and August 2021 to 8,850 in April and May 2022.

“Startups are more cautious in scaling their team quickly due to the unpredictable future,” Ethan Ang, co-founder of Nodeflair, told CNBC.

Rising interest rates are of particular concern to the tech industry.

“The increase in the interest rate will increase the cost of doing business, the cost of capital and the expectation of return [for investors]”, said Jeffrey Joe, managing partner of venture capital firm Alpha JWC. A higher interest rate will reduce profit margins, he added. “Are we expecting more layoffs? I think it’s fair to say yes.

As borrowing costs rise and the economy faces uncertainty, “it would be strange not to see companies laying off,” said James Tan, managing partner at venture capital firm Quest Ventures. “Any start-up that doesn’t will face a board that [questions] their underlying assumptions and their ability to handle a crisis.”

Startups will need to extend the cash trail by 18 to 36 months from the usual 12 to 18 months before attempting to raise funds again, Tan said.

As valuations have fallen from last year’s peak, companies will want to avoid raising funds with the possibility of being valued lower than when they last raised funds. They prefer to try to cut costs and ride out this downturn before raising funds again, he added.

If a storm is brewing, why are Southeast Asian-focused venture capital funds still able to raise large sums of money and invest it?

Data from Preqin showed that these funds have raised $900 million so far this year, the same amount raised for all of 2021.

The “exuberant climate” for start-ups has recently turned around, and the easy money window is now closed, Tan said.

Southeast Asia is still a fundamentally good region to bet on, investors said, pointing to its growing middle-class population, high internet usage rate and growing number of start-up founders in repeat – those who previously worked with other technology companies.

Joe said the current downturn could be a good time for investors to select companies that are doing well and invest in them while their valuations are falling.

If investors start to roll out in the bear market, “the outcome will be pretty good because we’re going out in the next five to 10 years and … hopefully the market should already recover,” he said.

“There is going to be an increasingly important bifurcation between [good-]quality companies and [bad-]quality companies,” Huang Pouleur said. “With a lot of weaker companies shedding a lot of talented employees, this is going to allow bigger and stronger companies to hire better as well.”