Vertex 2023 Review: Emerging bright from a gloomy VC winter

2023 brought gloom to the global VC industry with shifts in macro-economic and geopolitical factors. At Vertex, we endeavored to tackle these challenges. I am proud to say that we emerged bright with new milestones for our partners and the wider community. In 2024, industry challenges likely persist. Nonetheless, we aim to achieve more.

External Environment in 2023

Globally, high interest rates in major economies prevailed, tightening the supply of easy money. Geopolitical tensions between US and China, as well as in Ukraine and Israel, further coughed up uncertainties.

As a result, dealmaking cooled down for private market venture players, such as VC, CVC, and PE firms.  Globally, total funding for deals from these firms, as well as their total deal count, are expected to drop in 2023 from their 2021 peak (see Figure A). That said, bright spots remain in Asia and Europe, with median deal sizes rising, in contrast to other regions (see Figure B).

Personal Reflections on 2023

Reflection 1: The external environment was a stress-test for VC organization structures

In response to US-China tensions, global VC giants such as Sequoia Capital and GGV in 2023 announced plans to split into separate, regionally-led operations.

Fortunately, our global network of funds, including those in US and China, are already managed separately and independently. This allows us to take such geopolitical tensions in stride.  Nonetheless, such events are a timely reminder for us to always assess the opportunities and risks arising from our external environment – and if necessary, evolve.

Reflection 2: Firing up innovations amid markets’ cool down

In the preceding 3 Covid years, we cultivated 18 unicorns. In 2023, we added 4 more unicorns:

NuVolta, which develops innovative power integrated Circuits (via Vertex Ventures China)

Bucketplace, a home furnishing e-commerce platform (via Vertex Growth Fund)

ElevateBio, which provides gene and cell therapies (via Vertex Ventures Healthcare)

Human, a fraud detection platform (via Vertex Venture US and Vertex Growth Fund).

Our achievement is no mean feat. After all, globally, the industry expects a record-low number of unicorn births in 2023^[1]. This shows that even as markets cool down, innovation persists like a flame that we should continuously add fuel to.

Reflection 3: Reinforcing LP Relationships

Our longstanding relationships with LPs matter. We strive to deliver both financial and strategic returns to them. We also hope that they continue believing in us, even in tough times.

As our industry endures a tough year for fundraising, I am grateful that our LPs did just that. Thanks to them, we successfully completed a first close of USD$900m for our Vertex Master Fund III. Also, we raised USD$541m via our oversubscribed Vertex Ventures SEA & India Fund V. Part of this will support start-ups led by female founders. Our women-led USD$200m Vertex Ventures Healthcare Fund III also launched this year.

Reflection 4: Boosting the wider innovation ecosystem

As a key player in our different markets, we strive to provide value to our wider community too. I am proud to provide examples here.

In October 2023, our SPAC, Vertex Technology Acquisition Corporation, announced a proposed business combination with one of our portfolio companies, 17LIVE, which operates a tech-driven live streaming platform. On 8 December 2023, 17LIVE went public as the first ever SPAC to list on the Singapore Exchange (SGX).

Through this, we aim to support SGX and the Monetary Authority of Singapore in their bid to reinvigorate technology listings in Singapore.

Additionally, our funds’ partners continue to share their insights in widely-read media outlets. The start-ups we support also continue clinching awards for their innovations and wide impact. These achievements are summarized monthly in our public newsletter called Vantage (see Dec 2023 issue here).

Reflection 5: Empowering our Partners and ourselves

We believe our start-ups can deliver global impact. As such, our internal partnerships team and fund managers collaborate to connect the start-ups to potential overseas partners. This year, we enhanced our proprietary AI-enabled platform to strengthen such internal collaborative capabilities.

Today, we have over USD 6 billion AUM globally. Our nearly 80 investment professionals across 14 offices globally work closely with our support staff. Our LPs, start-ups, and other partners also worked with us to navigate a challenging 2023. A huge thank you to all.

Photo from our annual global meeting, held in September 2023 in Tokyo, Japan

My 2024 Outlook

In 2024, interesting challenges will likely still cloud the industry’s horizon.

The overall macro-economic and geopolitical uncertainties may not quickly subside, even with early positive signals recently emerging from several major economies. As such, IPO markets may take time to revitalize, challenging start-ups seeking exits. High interest rates globally and slowing businesses for some listed tech giants may also weigh down on start-up valuations. Fundraising, and fund deployment, will likely not reach 2021 levels.

However, given the irrational market exuberance in 2021, I see 2024’s potential challenges as signs not of a market “downsize”, but “rightsize”. In this spirit, we should do things right:

This also means doubling down on promising areas. For example, we aim to increase our presence in Japan. Our belief in Japan stems from: Recent efforts by the Japanese government to stimulate its start-up ecosystem; our synergies with both current and potential Japan partners and investors; and ongoing gaps in the domestic VC industry that we can plug.

Additionally, in 2023, promising sectors included cleantech and automotive. In Q3, 7 of the 10 firms that received most venture financing came from these sectors ^[2]. In 2024, we will continue monitoring such sectors and more, and investing appropriately.

While 2023 brought gloom to the industry, our results show our resilience. In 2024, amid expected market “rightsizing”, we aim to deliver the right outcomes. In doing so, we hope to continue shining bright.

^[1] CB Insights data
^[2] KPMG and Pitchbook data/analysis

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