Southeast Asia’s start-ups have fired hundreds of workers, and this may be just the beginning
Hundreds of workers from start-ups in Southeast Asia have been fired in the last few months, proving that the fast-growing industry is not immune to the global economic slowdown.
At least six tech companies have let go of their staff, including Sea Limited, the 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. As interest rates rise and economic uncertainty looms, companies are now being 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 grow really at any cost,” said Jessica Huang Pouleur, a partner at venture capital firm Openspace. “What happened was people hired very rapidly. You have a problem, you just throw people at it.”
“I think we’ll likely see more of it to come over the course of the next few months,” Huang Pouleur said, referring to more layoffs in the tech space.
Shopee has laid off workers from its food delivery and payment arms, 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 elevated uncertainty in the broader economy, we believe that it is prudent to make certain difficult but important adjustments to enhance 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 as of end-2021 — did not say how many employees were affected. The company did not respond to CNBC’s request for comments.
Singapore-based digital wealth manager StashAway laid off 31 employees, or 14% of its headcount in end-May and June, according to a spokesperson.
Malaysian online shopping platform iPrice retrenched one-fifth of its workforce in June. The company said it had 250 employees before the layoff. Meanwhile, Indonesian education tech company Zenius let go of more than 200 employees, the company said in a statement.
Start-ups are being more cautious in scaling their team fast due to the unforeseeable future.Ethan AngCo-founder, Nodeflair
Singapore-based digital currency exchange Crypto.com also laid off 260, or 5% of its workforce, a spokesperson told CNBC. Jobs were cut across Asia-Pacific, Europe, Middle East and Africa region, 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 redundancies were “to maintain the company’s competitiveness in the e-commerce’s competitive market in Indonesia.” She did not say how many were laid off.
Dozens of workers were also reportedly laid off from other Indonesian start-ups including e-commerce enabler Lummo and digital payments provider LinkAja.
Job openings in Singapore’s tech sector have fallen slightly from last year. According to tech jobs portal Nodeflair, vacancies in the city state fell from about 9,200 between July and August 2021, to 8,850 in April and May 2022.
“Start-ups are being more cautious in scaling their team fast due to the unforeseeable future,” Nodeflair’s co-founder Ethan Ang told CNBC.
Higher interest rates
Rising interest rates are a particular concern to the tech industry.
“Increase in interest rate will increase the cost of doing business, and the cost of capital, and expectation of return [for investors],” said Jefrey Joe, the managing partner of venture capital firm Alpha JWC. A higher interest rate will lower companies’ profit margins, he added. “Do we expect more layoffs? I think it’s fair to say that yes.”
As borrowing costs rise and the economy faces uncertainty, “it would be odd not to see companies laying off,” said James Tan, managing partner of venture capital firm Quest Ventures. “Any start-up that does not do so will face a board that [questions] their underlying assumptions and ability to manage through a crisis.”
Startups will need to prolong the cash runway by 18 to 36 months compared to the usual 12 to 18 months before they try to raise funds again, Tan said.
As valuations have fallen from last year’s high, companies will want to avoid raising money with the possibility of being valued lower than their last fundraising round. They would rather try to cut costs, and ride out this downturn before fundraising again, he added.
No more easy money
If a storm is brewing, why are Southeast Asia-focused venture capital funds still able to raise large sums of money, and invest them?
Preqin data showed that these funds have raised $900 million so far this year, the same amount raised in the whole of 2021.
The “exuberant climate” for start-ups has recently turned, and the window for easy money is now closed, said Tan.
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 repeat start-up founders — those who worked with other tech companies previously.
Joe said the current downturn may be a good time for investors to pick out companies that are actually doing well and invest in them while their valuations are down.
If investors start to deploy in the bear market, “the outcome for that will be pretty good because we will exit in the next five to 10 years and … hopefully the market should already recover,” he said.
“There’s going to be an increasingly significant bifurcation between [good-]quality companies and [bad-]quality companies,” Huang Pouleur said. “With a lot of the weaker companies shedding a lot of good talent employees, it’s going to allow the bigger, stronger companies to also hire better.”
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