Technology · June 23, 2022

Startups in Southeast Asia are laying off employees amid economic uncertainty

Southeast Asia’s tech companies are laying off employees as they adjust to a tougher fundraising environment.

Guilliermo Perales Gonzalez | E + | Getty Images

Hundreds of workers at start-ups in Southeast Asia have been laid off in recent months, This proves that the fast-growing industry is not immune to the global economic slowdown.

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

Tech investors say this is just the beginning of more job cuts in the region’s tech industry. With interest rates rising and economic uncertainty looming, companies are now being forced to focus on profitability rather than growing as fast as possible.

“A lot happened last year that a lot of cheap capital in the market flooded the market [which] enabled companies to truly grow at any cost,” said Jessica Huang Pouleur, partner at venture capital firm Openspace. You have a problem, you just throw people at it.”

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

job losses

According to an email sent by Chief Executive Chris Feng to employees affected by the downsizing, Shopee has laid off employees in grocery delivery and payments, as well as teams from Argentina, Chile and Mexico.

“Given the heightened uncertainty in the broader economy, we believe it is prudent to make certain difficult but important adjustments to improve our operational efficiencies and focus our resources,” read the email seen by CNBC .

NYSE-listed Sea Limited, which employed 67,300 people 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, in late May and June, according to a spokesman.

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

Startups are more cautious in rapidly scaling their team due to the unpredictable future.

Ethan Ang

Co-founder, Nodeflair

Singapore-based digital currency exchange Crypto.com also laid off 260, or 5% of its workforce, a spokesman told CNBC. Jobs were 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, has also cut jobs. Jenie Simon, director of general management, said the layoffs are to “maintain the company’s competitiveness in the crowded e-commerce market in Indonesia.” She did not say how many were fired.

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Dozens of employees at other Indonesian startups have also been reportedly laid off, including e-commerce enabler Lummo and digital payments provider LinkAja.

Job vacancies in Singapore’s technology sector have declined slightly compared to last year. Vacancies in the city-state fell from around 9,200 between July and August 2021 to 8,850 in April and May 2022, according to tech job portal Nodeflair.

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

Higher interest rates

Rising interest rates are a particular concern for the tech industry.

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

As borrowing costs rise and the economy faces uncertainty, “it would be odd if companies didn’t lay off,” said James Tan, managing partner of venture capital firm Quest Ventures. “Any start-up that doesn’t do this will face a board of directors [questions] their underlying assumptions and their ability to manage a crisis.

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

With valuations down from last year’s high, companies should avoid raising money on the possibility of being valued lower than they were in their last round of funding. They would rather try to cut costs and weather this downturn before fundraising again, he added.

No easy money anymore

When a storm hits, why are Southeast Asia focused venture capital funds still able to raise and invest large sums of money?

Preqin data showed these funds have raised $900 million so far this year, the same amount raised throughout 2021.

The “hilarious climate” for startups has recently turned, and the window for quick bucks is now closed, Tan said.

Southeast Asia remains a fundamentally good region to bet on, investors said, citing its growing middle-class population, high internet usage rate and growing number of repeat start-up founders – those who had previously partnered with other tech companies.

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

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

“There will be an increasingly significant bifurcation between them [good-]quality company [bad-]Quality companies,” Huang Pouleur said. “As many of the weaker companies are laying off a lot of good talent, it will allow the larger, stronger companies to hire better too. “