Vertex Ventures Southeast Asia and India’s Puiyan Leung on start-up survival

*This article is adapted from * AVCJ

Macro pressures on start-ups demand diligence scrutiny, operational support. ASEAN consumer story continues but enterprise models gain VC mindshare. Chinese entrepreneurs moving to Singapore raises regional deal flow quality.

Puiyan Leung is a Singapore-based partner at Vertex Ventures Southeast Asia & India, part of a global network of funds under Temasek Holdings-owned Vertex Holdings. The firm claims USD 1.5bn in assets under management, having closed its fifth fund at USD 541m in 2023.

Q1: Global perceptions of Southeast Asia have been mixed lately. What are you observing? 

A: The region is still exhibiting very good growth. We are standing probably at a very critical inflection point. There are a lot of structural tailwinds. There’s a lot of uncertainty about what’s happening around the world, and there is heightened governance scrutiny. As a VC, right now, beyond demanding growth from a company, we are getting more hardnosed about strong economics from the beginning, defensible moats, clear pathways to profitability. When it comes to allocators, there’s still a good level of conviction in our region’s macro and structural story, but they are also seeking more proof points – track record, local expertise, ability to return capital. That all applies even more so now, but it plays to our strengths as a firm.

Q2: Is this a shift from a growth narrative to a business fundamentals narrative? 

A: We focus on Series A, so growth is still a fundamental part of the equation. We look for opportunities that can potentially return a whole fund. That hasn’t gone away. But I think the market is evaluating deals more holistically. Growth matters, but it has to be built on fundamentals that compound. It’s not just about if you can get aggressive growth. Is it sustainable growth? Will your margin profile improve over time? Do you have a strong team? Do you have a very sound go-to-market strategy? Do you have a very clear path to profitability? 

Q3: Has the current market changed your appetite for consumer versus enterprise models? 

A: Private consumption will always be our forever bet, so to speak. That’s because our region’s demographic is young and we have rising connectivity, rising incomes. The momentum we see in some emerging local brands is very encouraging. They resonate with the gen-Zs. That said, there appears to be increasing momentum around enterprise models as well. That’s driven by AI [artificial intelligence] and global supply chains being rewired. Sectors that were not traditionally well known in our region are having a momen in the sun – things like semiconductors. There has been a lot of effort by regional authorities to catalyse the ecosystem for a long time now, and we are definitely seeing more activity in those sectors. Both consumer and enterprise have strong tailwinds. Our appetite hasn't shifted from one to the other - we're seeing quality deal flow in both. 

Q4: Do you assess consumer and enterprise companies differently now? 

A: In consumer, there’s been a clear shift toward omnichannel strategies rather than digital for the sake of it. During COVID, the assumption was that all e-commerce activity could be conducted digitally from now on, and digital-first brands will flourish just because they’re digital-first. That’s not necessarily the right assumption anymore. Many digital-first brands are building offline strategies for reasons like brand awareness or customer feedback. We dive into cohorts to understand retention and slice it by market, channels, and product lines. It’s the same for enterprise, but the sales cycles are longer. We talk to existing customers and potential customers that could be the target audience and ask them if the company’s offering is a good-to-have or a must-have and whether they’re willing to pay for it. 

Q5: How is energy disruption impacting Southeast Asia? 

A: The macroeconomic pressure on the region is real. We’re seeing it play out across our portfolio. Many companies were able to diversify supply chains before this, but most founders are expecting the cost of goods to increase over time. Logistics will get more expensive. Raw material costs and input costs will be impacted. Some companies have exposure to the Middle East in pipelines or expansion plans, and they’re feeling it acutely. For founders, it means the margin for error becomes narrower every day. They must be laser-focused on where they can execute and grow sustainably. The bright spot, if any, is that supply chains are finally diversifying. We’re seeing manufacturing capacity enhanced across the region, across sectors. Every market brings something different to the table, and each is starting to shine in its own way. Examples are Vietnam for R&D and advanced manufacturing, Malaysia for semiconductors, and Indonesia for scale. Meanwhile, energy transition will accelerate. The business case for cleaner, renewable energy and resilient energy infrastructure is getting stronger, not weaker. 

Q6: How are you advising companies that are experiencing problems? 

A: Let’s take a consumer business, for example. They may face increasing costs, so their gross margin reduces. But between the cost and net profit, there are many layers. The logical thing to do is come up with a plan to ensure that, overall, by the time it comes to EBITDA and net profit, we’re still okay. We look at it from both a profit-and-loss and balance sheet perspective. How can you optimize working capital? Do you need any facilities to help you? How can you play around with your channel mix such that by the time it flows down to CM1 and CM2, then maybe CM3, CM4, and EBITDA, the impact is controlled. It’s hard to generalize – we have to meet the problem where it is. 

Q7: Does the energy shock exacerbate regional challenges around generating liquidity? 

A: Yes, but there is increasingly a sense of confidence that we can incubate and support companies that are global from day one. We are not an ecosystem that only produces homegrown champions to address local markets. The quality of the founders has improved significantly. The ecosystem is more resilient, the ease of doing business is increasing, and our physical infrastructure is improving. That’s encouraging more innovation that can address global needs. At the end of the day, it’s all about track record, but structurally, the environment here is different from before. So, we should see different types of champions built from here. We're also seeing new liquidity pathways emerge. Supply chain rewiring is bringing more strategic buyers into the region. M&A activity is diversifying beyond the traditional regional players. On the IPO front, markets are showing signs of revival – Southeast Asia IPO proceeds are up. The exit environment is challenging, but it's not frozen. It requires more creativity and patience than it did three years ago.

Q8: What have you seen in terms of Chinese founders building global businesses in Southeast Asia? 

A: In Singapore and Southeast Asia, our proposition has always been pretty attractive, and I’m glad we’re finally getting the right kind of attention. We have geopolitical neutrality, broadly speaking. We have a young population that can be consumers and a talent pool. We have developing competencies in different sectors like semiconductor manufacturing. We are glad more founders agree with this observation. They want to access the market here and they want a different type of investment perspective. Founders who have spent time in very large and challenging, high-intensity markets like China, they come with sharper intuition about what it takes to win. I think it’s good energy. It’s raising the bar on the deal flow quality. It’s structurally positive. 

By Justin Niessner, Associate Editor at Asian Venture Capital Journal

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