In response to the 2022 public market shocks, 2023 was the year the rules were rewritten for what makes a great startup investment or fundraising story (count the number of “Don’t be a unicorn, be a [insert more mundane animal here]” on LinkedIn).

The private funding markets for startups in 2023 saw longer cycles, greater uncertainty beyond term sheet offers, and higher investor expectations on financial and corporate maturity.

What then does 2024 hold for startups and their investors in Southeast Asia?

2024 will be the year of the squeeze.

This squeeze is a result of the world converging on Southeast Asian markets and the macroeconomic externalities impacting the ability of startups to earn and raise money. We see this squeeze coming in a few forms:

1. The Monetization Squeeze: Budgets and wallets are expected to only get tighter in the coming year, putting pressure especially on two-sided platforms operating with thin margins. This will force both startups and investors to revisit TAM assumptions — and perhaps even strongly held beliefs (like Indonesia is big enough) may be broken for certain business models.

It will also incentivize startups, especially in Southeast Asia to think more globally (perhaps finding synergies in emerging market regions like LatAm or MENA?)

2. The Competition Squeeze: In a SWITCH press briefing for VCs in Singapore, Yinglan spoke about the next wave of Chinese tech entrepreneurship coming to Southeast Asia, posing greater operational (and thus cost) competition sharpened by the Chinese work ethic, especially in ecommerce (Shein and TikTok are progenitors) and D2C brands.

3. The Dry Powder Squeeze: Even with capital yet to be deployed by regional funds, these are likely to converge into a few early-stage outliers, growth-stage category leaders in so-called “king-making” rounds, and repeat founders as investors flock to intuitively “safer” destinations. This means higher barriers to entry in funding markets than ever before.

4. The Growth Capital Squeeze: In a phenomenon mirroring pre-2018 Southeast Asia funding markets, there is an emerging growth stage capital gap. So even as early-stage investments diversify and the public markets warm up for Southeast Asia tech (as we write here), there will still be a growing chasm to cross.

5. The Asset Allocation Squeeze: Again mirroring the months following the ’08 recession (see this eerily familiar-sounding piece by Bill Gurley from 2009), high interest rates (at least higher than the last 5 years) may shift allocation from alternative, illiquid classes (like VC) towards more liquid assets, and contribute to a narrower pool of private capital sources for startups.

6. The Regulation Squeeze: From TikTok Shop in Indonesia to Binance in the US, no company, no matter the size or reputation, can be truly spared from compliance. At the same time, this poses even greater competitive advantages for cross-border / multi-market platforms that have already built this muscle of meeting compliance requirements across markets, especially in fintech.

7. The Board Squeeze: In uncertain environments, management at the highest levels needs to be more assured than ever as boards adjust expectations. We can expect more C-level shifts as priorities for companies change as a result.

In 2013, Cowboy Ventures’ Aileen Lee coined the term “unicorn” as part of a larger effort to learn what it will take to drive outlier returns (the top 0.07% of software and internet companies in the prior decade). The market has since gamified this “anomaly” on top of increasing demand, but fundamentally, unicorn creation is rare — much less unicorns that endure into generational companies.

Such is the nature of venture capital; it was never meant to be a “everyone can be a winner” industry.

So as the year of the squeeze is upon us, perhaps contrary to popular opinion, now more than ever before the truly rare, enduring unicorns will emerge in Southeast Asia from these onslaught of external pressures.

And the hype may return — and hey, that’s life. So go build a unicorn, but the path will demand justification for this rarity.