Is South-east Asia’s Startup Ecosystem Stalling or Simply Maturing?

“WHY are there so few exits in South-east Asia?”

This is a fair and increasingly common question from limited partners in venture capital (VC). With disappointing initial public offerings (IPOs), struggling unicorns and a funding slowdown since 2022, it is natural to ponder whether the rewards for investing in South-east Asia still justify the risk.

It is also, if you look carefully at the data, the wrong question.

The right question is not whether South-east Asia is producing enough exits. It is whether investors conditioned by the extraordinary aberration of 2021 — a year in which the region attracted over US$25 billion in venture capital — have recalibrated their expectations to match the fundamentally different, and arguably healthier, market that has emerged. As someone who has tracked LP sentiment through three regional cycles, the answer is: not yet, but the evidence is unmistakable for those willing to look past the headline numbers.

South-east Asia’s startup ecosystem is not stalling. It is maturing — into something more disciplined, more profitable, and more durable than the froth-driven growth phase that preceded it. The exit drought narrative is, at best, an incomplete reading of partial data. At worst, it risks becoming a self-fulfilling prophecy that deters exactly the patient capital the region now needs.

The 2021 Illusion: Why Expectations Were Always Going to Disappoint

A Distorted Baseline

Understanding what is happening in South-east Asia today requires being honest about what happened in 2021. That year was not a baseline — it was an anomaly. Zero-interest-rate environments, post-Covid stimulus liquidity, and a global surge in digital adoption combined to push venture funding across South-east Asia to levels that no sober analyst believed were sustainable. Grab went public via SPAC at a valuation north of US$39 billion. Gojek and Tokopedia merged under the GoTo banner with a combined implied valuation of roughly US$18 billion. Sea Limited, the region’s most successful tech crossover, briefly touched a US$200 billion market capitalisation before losing more than 80% of its value by 2023.

For LPs who entered funds during that window, every subsequent year has felt like a correction. They are right — but they are measuring against a mirage.

The Numbers in Context

According to the Southeast Asia Startup Funding Report: Full Year 2025 by DealStreetAsia and Kickstart Ventures, the region’s startups raised US$5.37 billion across 461 equity deals in 2025 — roughly one-quarter of the 2021 peak, but a figure that needs to be read in context. The H2 rebound was sharp and meaningful: funding value climbed from US$1.86 billion in H1 to US$3.51 billion in H2, reflecting genuine late-stage conviction rather than broad-based euphoria.

Crucially, the e-Conomy SEA 2025 report by Google, Temasek, and Bain & Company tells a parallel — and more encouraging — story about the underlying economy. The digital economy is on track to surpass US$300 billion in gross merchandise value (GMV) in 2025, a 7.4-fold increase from US$40 billion a decade ago. Revenues are forecast to hit US$135 billion, representing an 11.2-fold increase since the programme began. Food delivery platforms are now profitable or approaching profitability. The digital economy, in other words, is not shrinking — it is becoming more efficient, more monetised, and more investable.

The divergence between the venture funding headline and the digital economy reality is not a sign of stagnation. It is a sign of maturation.

What the Exit Data Actually Shows

Diversification, Not Drought

The “exit drought” framing assumes that IPOs are the only legitimate exit mechanism — a bias imported from the US market that does not travel well to South-east Asia. In 2025, that assumption was quietly dismantled.

According to DealStreetAsia’s Southeast Asia Private Equity Readout 2025, liquidity events increased meaningfully last year, driven by PE-backed IPOs reaching their highest volume since before the pandemic, alongside a significant expansion in secondary transactions. Nine PE-backed IPO listings raised approximately US$1.39 billion in aggregate — the most in five years. More importantly, 35 secondary exits were completed during 2025, the highest annual count since 2020. The exit market is not closed. It has simply changed shape.

The distinction matters. Secondary buyouts and strategic M&A are structurally superior exit mechanisms for many South-east Asian companies, whose domestic public markets lack the liquidity depth of the Nasdaq or even the Hong Kong Stock Exchange. EQT’s US$1.1 billion acquisition of PropertyGuru — Southeast Asia’s leading property technology platform — which closed in December 2024, exemplifies this logic perfectly. PropertyGuru’s delisting from the NYSE, supported by TPG and KKR, was not a failure. It was a disciplined reset: freeing the company from short-term public market pressures to pursue long-term regional expansion under a sophisticated PE sponsor with deep marketplace expertise.

Singapore-based AI startup Manus’s acquisition by Meta at a reported US$2 billion valuation at the end of 2025 represents another data point: the global strategic M&A market for high-quality South-east Asian technology assets is open, and it is increasingly willing to pay premium prices for the right companies.

The Public Market Reopening

The IPO market is also reopening — selectively, and on more demanding terms. The standout event of 2025 was UltraGreen.ai’s debut on the Singapore Exchange (SGX): the largest non-REIT IPO in Singapore since 2017, raising over US$400 million following a US$188 million pre-IPO funding round. The surgical imaging company’s 12% jump on its first trading day signalled that public market appetite exists for defensible, technology-differentiated businesses with clear revenue visibility. Health technology emerged as the leading IPO sector by value, with Singapore’s Mirxes joining UltraGreen.ai for a combined listing haul of approximately US$581 million — the best headline from Singapore’s public markets in years.

Across the region, 15 tech IPOs were completed in 2025, with the Indonesia Stock Exchange remaining the most consistently accessible market by volume. There is a robust pipeline of over 150 IPO candidates across Indonesia, Malaysia, and Singapore heading into 2026, as noted in the e-Conomy SEA 2025 report.

The narrative of a shut-down IPO window is simply inaccurate. The window has narrowed and raised its bar — which is exactly what it should do after a period of speculative excess.

Sector Rotation: Where the Smart Capital Is Going

The Fintech Correction and AI Surge

South-east Asia’s startup ecosystem in 2025 looked very different from 2021 at the sector level. Fintech, which dominated the last cycle, recorded one of its weakest annual outcomes in six years despite leading by deal count (111 transactions, US$1.3 billion). The pullback reflects a structural correction: the easy money in digital payments and lending has been captured by Grab Financial, Sea’s SeaMoney, and regional neobanks, leaving less room for newcomers without differentiated technology or data moats.

The capital is flowing toward artificial intelligence and deep technology. AI startups in the region saw funding grow by over 200% in recent periods, according to sector data. Data centre infrastructure — the unglamorous but essential backbone of AI deployment — attracted the single largest deal of 2025: a US$1.3 billion fundraise by Singapore-based Princeton Digital Group. The e-Conomy SEA 2025 report notes that SEA consumers’ interest in general AI and multimodal AI runs at three times and 1.7 times the global average respectively — a demand signal that investors are beginning to price seriously.

The Profitability Imperative

Perhaps the most structurally significant shift in 2025 was the normalisation of profitability as a precondition for serious funding, not an afterthought. This is not a temporary market constraint. It is a permanent recalibration.

“Startups need to show that they can make money and that the business model can scale,” said Maisy Ng, managing partner at Singapore-based Delight Capital. The sentiment is nearly universal across the LP community now. Joan Yao, General Partner at Kickstart Ventures, put it more precisely in the firm’s full-year report: “Capital is returning selectively, increasingly to later-stage, higher-conviction opportunities, as the market continues to shift from growth at all costs toward business fundamentals — governance, unit economics, and credible paths to profitability.”

This shift has a clear precedent in every mature ecosystem. The US market went through the same transition between 2000 and 2005. India went through it between 2016 and 2020. South-east Asia is going through it now. The companies that emerge from this crucible will be structurally stronger than the cash-burning unicorns of the previous cycle.

The Singapore Concentration Question

Strength and Vulnerability

One data point from the 2025 full-year report has generated significant debate: Singapore captured over 60% of South-east Asia’s total deal count, and Tracxn data suggests the city-state accounted for as much as 91–92% of all regional capital at certain points in the year. For LPs accustomed to investing in “South-east Asia” as a diversified regional story, this concentration raises legitimate questions.

There are two ways to read it. The pessimistic reading is that capital has retreated to the safest, most familiar jurisdiction — effectively abandoning Indonesia, Vietnam, the Philippines, and Thailand to their own devices. The governance scandals of 2024-25, including the eFishery accounting fraud that implicated investors including Temasek, SoftBank, and Sequoia, and the collapse of Investree amid rising non-performing loans, provide some support for this view.

The optimistic reading — and the more accurate one in the medium term — is that Singapore is functioning as a concentration point for South-east Asian capital precisely because it has developed the institutional infrastructure, regulatory quality, and talent density that global LPs require. As the Financial Revolutionist noted in January 2026, “Singapore remains the dominant hub, but secondary centres such as Jakarta, Ho Chi Minh City, and Manila are quietly gaining momentum and merit closer attention from global capital.”

The region is not shrinking into a city-state. It is building a hub-and-spoke model: Singapore as the capital formation and holding structure centre, with operating businesses increasingly spread across the ASEAN archipelago. This is how mature ecosystems work. Look at how London functions relative to Edinburgh and Dublin in Europe, or how San Francisco functions relative to Austin and New York.

The New Unicorn Class

South-east Asia minted four new unicorns in 2025 — sharply up from one in 2024 and two in 2023. The additions — Malaysian group Ashita, Singapore-based payments firm Thunes, digital asset bank Sygnum, and UltraGreen.ai — represent a meaningfully different profile from the consumer app unicorns of the previous decade. They are financial infrastructure players, medical technology companies, and AI-native businesses with global addressable markets. The region now counts 58 unicorn-status companies, according to Tracxn, representing a compounding base of potential future exit value.

The quality of the 2025 unicorn cohort matters as much as the quantity. These are not growth-at-all-costs consumer apps burning through cash in pursuit of GMV. They are businesses with institutional-grade governance, global revenue visibility, and real paths to liquidity.

The Honest Counter-Arguments

The Zombie Problem Is Real

This analysis would be incomplete without acknowledging the structural challenges that are genuine. The persistence of “zombie” companies — businesses that raised at peak valuations and are now limping along without fresh capital or a credible exit path — is a real drag on LP confidence and fund-level DPI metrics. Edgar Hardless, CEO of Singtel Innov8, said in early 2026 that high valuations from prior years have made it harder for startups to find local acquirers, and that he expects caution to persist into the first half of 2026.

The reluctance of South-east Asian VC funds to execute down rounds — unlike their more battle-hardened counterparts in the US or India — is a structural problem identified by Takahiro Suzuki, General Partner at Genesia Ventures. Without down rounds, over-valued companies cannot attract new institutional capital, creating a log-jam that benefits neither founders nor LPs.

The eFishery and Investree scandals have also created a governance premium that is likely permanent. LPs are now conducting materially more rigorous due diligence on financial controls and board composition than they were in 2020-2021. This raises costs and extends timelines, but it is the correct market response to documented failures.

The Global Comparison Gap

A comparative look at global venture markets is sobering. According to Crunchbase, global startup funding rose approximately 30% in 2025 — while South-east Asia’s recovery lagged. India, now the world’s fourth-largest VC market by deal volume, continues to attract significantly more capital per capita than South-east Asia, with deeper domestic institutional investor participation and a more liquid IPO market. The US AI boom, driven by companies like OpenAI, Anthropic, and a new cohort of AI infrastructure players, has made US venture returns hard to compete with on a risk-adjusted basis for many global LPs.

The region must do more to develop domestic institutional LP participation, deepen secondary market infrastructure, and create more genuine cross-ASEAN capital flows. These are decade-long projects, not quarter-by-quarter fixes.

The 2025 vs. 2024 Scorecard

Metric	2024	2025	Change
Total VC Funding	~US$5.0B	US$5.37B	+7%
Total Equity Deals	~649	461	-29%
New Unicorns	1	4	+300%
PE-Backed IPOs	~4	9	+125%
Secondary Exits	~25	35	+40%
Digital Economy GMV	US$263B	>US$300B	+15%
Digital Economy Revenue	US$89B	US$135B	+52%
Singapore % of Deal Count	~55%	>60%	Increasing
Climate Tech % of Deals	13.0%	15.4%	+2.4pp
AI/Health Tech Late-Stage Share	~35%	~45–50%	Expanding

Sources: DealStreetAsia/Kickstart Ventures Full Year 2025 Report; e-Conomy SEA 2025 (Google, Temasek, Bain & Company); Tracxn SEA Tech 2025; DealStreetAsia PE Readout 2025.

The 2026–2028 Outlook: What Sophisticated LPs Should Expect

Three Scenarios

Base Case (60% probability): Funding stabilises at US$6–8 billion annually by 2027, driven by AI infrastructure, digital financial services, and health technology. Exit activity continues to diversify, with secondary buyouts and strategic M&A running at 30–40 transactions per year. Singapore’s SGX and the IDX gradually absorb the 150+ IPO pipeline candidates, generating more consistent public market liquidity than the 2022-2025 drought. LP returns for 2019-2022 vintage funds remain disappointing; 2024-2026 vintage funds outperform on compressed entry valuations.

Bull Case (25% probability): A significant US-China tech decoupling accelerates the re-routing of global technology supply chains through ASEAN, driving a wave of corporate VC from US and Japanese technology companies. Singapore cements its position as Asia’s neutral technology hub, attracting AI talent and infrastructure investment at scale. The Manus/Meta acquisition becomes the template for a series of high-value strategic M&A transactions involving global technology companies acquiring South-east Asian AI and health tech companies. Funding surpasses US$10 billion by 2028.

Bear Case (15% probability): Zombie company failures and additional governance scandals generate a severe LP confidence crisis, triggering fund closures and a further contraction in early-stage capital. Singapore’s concentration increases to the point where secondary markets effectively cease to function, and the broader ASEAN ecosystem fails to develop meaningful capital depth outside the city-state. Indonesia’s regulatory environment deteriorates, removing the region’s largest consumer market from the investable universe for institutional capital.

The Structural Tailwinds Are Intact

Against these scenarios, the structural tailwinds that originally justified South-east Asia’s venture premium have not disappeared. ASEAN is the world’s fifth-largest economy, with a population of over 680 million, a median age well below 35, and a smartphone penetration rate that continues to climb. The e-Conomy SEA 2025 report documents that 75% of digital economy users say AI-powered tools have made their tasks materially easier — a consumer adoption rate that would be the envy of any Western market. The US-China technology tension, far from being a headwind, creates genuine opportunity for ASEAN as a geopolitically neutral manufacturing, data, and R&D location.

Fock Wai Hoong, Head of Southeast Asia at Temasek, captured the nuance well: “Funding levels in Southeast Asia’s digital economy have stabilised as investors are continuing to emphasise a focus on quality growth and efficient capital allocation over absolute capital deployment.” That is not a retreat. That is a re-rating.

What LPs Should Do Now

For sophisticated limited partners reassessing South-east Asia exposure heading into 2026, the evidence suggests a differentiated rather than binary approach. The 2024-2026 vintage entry point, with valuations compressed to 2017-2018 levels in many categories, represents one of the most attractive risk-reward windows the region has offered since the pre-2019 period. But the selection criteria must be fundamentally different: governance quality, path to profitability, and exit mechanism diversity should now rank alongside addressable market size in any LP diligence framework.

The LPs who will generate outperformance from this vintage are not those who are asking “why are there so few exits?” They are asking: “Which GP has the portfolio construction and LP relationship sophistication to create exits through secondary markets and strategic M&A — not just IPO pipelines?” That is a better question. And South-east Asia, finally, has credible answers.

Conclusion: The Ecosystem Is Not Stalling. It Is Being Tested.

Maturation is rarely comfortable to watch. It involves write-downs, pivots, failures, and the slow, painful repricing of assets that were overpromised. South-east Asia’s startup ecosystem is going through exactly that process — and doing so while the underlying digital economy continues to compound at 15% annually, while AI adoption accelerates at rates above the global average, and while a new cohort of governance-conscious, profitability-focused companies builds the credibility that the next wave of institutional capital will require.

The exit drought narrative is overstated. The maturation narrative is real. Investors who confuse the two will miss what may be one of the decade’s most interesting vintage windows in emerging market technology.

The question for 2026 is not whether South-east Asia’s startup ecosystem is stalling. It is whether the LPs who ask that question are willing to do the work to understand what they are actually looking at.