SINGAPORE Trends and Developments Contributed by: David He, Benjamin Teo, Kinnari Sahita and Binh Vong, Gunderson Dettmer Singapore LLP
that these start-ups have shifted to primarily utilising two go-to-market strategies: (i) ready- made “off-the-shelf” vertical AI applications cus - tomised for sectors such as healthcare, finance, and human resources, and (ii) flexible, adaptive AI solutions that cater to customer needs, typi - cally delivered through enterprise-grade profes - sional implementation and customisation ser - vices. Regulatory due diligence is an essential yet costly process when evaluating any investment in an AI-focused start-up. These companies must navigate a variety of intellectual property and privacy laws, many of which are constantly evolving as courts issue rulings on ongoing law - suits. Start-ups that rely on proprietary datasets or customer data to train their models without implementing the necessary safeguards and policies risk facing challenges from regulators and third parties, which can lead to a rapid decline in value. Investors have increasingly demonstrated a preference for start-ups that not only demonstrate the ability to adapt to estab - lished regulations but also proactively develop a business model designed to accommodate upcoming regulations and pending court rulings. Lack of Exit Liquidity Continues to Plague the Region Concerns regarding the availability and viabil - ity of exits persisted throughout 2024. Some VCs have raised continuation funds to offer limited partners of existing funds some liquidity through the buyout of select portfolio positions. We have also seen VCs with diversified invest - ments across synergistic sectors actively pursue a strategy of consolidation, identifying candi - dates among their existing portfolio companies that could be combined to strengthen balance sheets and capture market share. This approach may be used to extend cash runway by reduc -
ing redundancies in overhead cost, present a more attractive package for potential acquirers, and better position a company to explore debt financing. Exit activity is anticipated to acceler - ate in 2025, as more funds approach the end of their cycles and general partners face pressure to accept portfolio markdowns in order to attract buyers. Public listings on more established international exchanges continue to remain out of reach for many start-ups in the region. The heavy empha - sis on financial performance, profitability and consistent top-line growth may mean that more start-ups in the coming years will achieve the fundamentals required to pursue a successful listing. However, regional exchanges continue to be viewed by investors as lacking the diversity of participants, global investor base and mar - ket cap to generate reliable trading liquidity for a viable exit. Buyouts by private equity sponsors and trade sales to strategic buyers remain the most popu - lar path to liquidity. While private equity buyout activity saw an uptick in 2024, most of these transactions involved established companies in traditional industries rather than venture-backed start-ups. Pitchbook tracked only three acqui - sitions of regional VC-backed start-ups valued at over USD50 million in the entirety of 2024, including PingSafe’s USD100 million acquisition by US-based cybersecurity company Sentine - lOne, Dekoruma’s USD71 million acquisition by Indonesia-based e-commerce company Blibli, and Skuad’s USD61 million acquisition by US- based fintech company Payoneer. Alternatives to Traditional Venture Capital Growth-stage start-ups are increasingly turning to venture debt and traditional debt as a valu- able source of capital due to the ongoing lack
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