Startup funding in the region has fallen to its lowest level in six years, forcing a return to profitability and operational discipline.

The era of cheap capital in Southeast Asia has come to a definitive end. In 2024, funding for technology startups in the region plummeted by 59 per cent to just $2.84 billion, down from $7 billion in 2023, according to the Tracxn Geo Annual Report: SEA Tech 2024. This represents a staggering 80 per cent decline from the $14.2 billion peak recorded in 2022. For founders, investors, and regulators, the data suggests that the region is not just in a temporary “funding winter” but is undergoing a structural reset.

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What happened is a total inversion of the previous decade’s playbook. Last year, the primary objective for any venture-backed firm was aggressive expansion, often at the expense of unit economics. Today, that has changed to a focus on EBITDA positivity and sustainable margins. This shift matters because it determines which companies will survive the next 24 months. Businesses that fail to adapt to this “new old” reality, where a startup must behave more like a traditional small-to-medium enterprise (SME) with positive cash flow, are being systematically squeezed out of the market.

Why the investment reset is deeper than the headlines suggest

While the drop in total funding is jarring, the underlying data reveals a more nuanced picture of regional resilience. The Google, Temasek, and Bain & Company e-Conomy SEA 2024 report notes that while funding is muted, the digital economy itself is actually growing. Gross Merchandise Value (GMV) across the region reached $263 billion in 2024, a 15 per cent increase year on year. More importantly, sector-wide profits jumped by 24 per cent to $11 billion in the same period.

This disconnect between falling investment and rising profits suggests that the region is maturing. The “unicorn frenzy” of 2017 to 2021 is now viewed by many analysts as a historical anomaly rather than the standard. According to Cento Ventures, Southeast Asia was the first emerging market to dip below its 2017 to 2020 funding baseline, and it has remained there for over two and a half years. While markets like India and Latin America have seen rebounds, Southeast Asia is lagging, suggesting a fundamental shift in how investors perceive the region’s capital efficiency.

The misconception about Gross Merchandise Value in Southeast Asia

Before we continue its important to understand that the numbers don’t often mean what we think they do.

One of the most frequent misunderstandings among overseas investors and local first-time founders is the over-reliance on Gross Merchandise Value (GMV) as a proxy for business health. In the context of Southeast Asian e-commerce and ride-hailing, GMV simply measures the total value of goods or services sold through a platform. However, in a market characterised by heavy discounting and voucher-led growth, a high GMV often masks a deeply negative net revenue.

A platform might process $100 million in transactions but spend $120 million on incentives to keep those users on the app. In the current climate, regulators and serious investors are looking past the “top-line” GMV and focusing on “take rates” and “net revenue.” A company with $10 million in GMV and a 15 per cent take rate is now considered more valuable than a company with $100 million in GMV and a 2 per cent take rate, as the former demonstrates a genuine willingness from customers to pay for the service provided.

What the data might be hiding from the casual observer

Headline investment figures often fail to capture the full story of how companies are currently being funded. There is a growing “invisible” layer of financing that does not appear in standard venture capital databases. Many founders are now turning to private debt and convertible notes to bridge funding gaps without having to trigger a “down round” that would slash their valuations.

This trend effectively obscures the true pace of the market correction. While median valuations for Series A rounds reportedly held steady or even increased by 19 per cent to $9.7 million in 2023, according to DealStreetAsia, these figures are heavily skewed. Only the strongest companies are successfully raising priced equity rounds. The rest are either closing quietly or taking on debt that could lead to significant liquidation preferences in the future. Furthermore, internal capital injections from tech giants like Alibaba into Lazada, which accounted for nearly a quarter of all equity funding in 2023, further distort the perceived health of the wider ecosystem.

5 drivers pushing the region back toward business fundamentals

The pivot away from speculative growth is being driven by a combination of macroeconomic pressure and local policy shifts.

First, the prolonged high-interest-rate environment has raised the hurdle rate for venture capital. Investors who previously chased 10x returns in five years are now satisfied with the safer yields found in traditional assets. Second, the “Super-App” thesis has largely been abandoned in favour of focused digital financial services. This is evident in the Philippines, where a unique mix of light-touch regulation and a large unbanked population has made fintech the most resilient sector, now accounting for 75 per cent of all capital deployed in some quarters.

Third, regional governments are shifting their support towards “DeepTech” rather than consumer internet. In Singapore, the government allocated S$440 million to its Startup SG Equity scheme specifically to foster innovation in advanced manufacturing and agrifood tech. Fourth, the lack of exit opportunities has forced a rethink. With only one unicorn minted in 2024 and IPO activity down by 50 per cent, founders can no longer rely on a public listing as a guaranteed exit strategy. Finally, there is the “conglomerate factor.” Traditional giants such as Ayala in the Philippines or Jardines in Hong Kong and Singapore are increasingly acting as the primary acquirers and investors, favouring startups that complement their existing, profitable brick-and-mortar operations.

Identifying the beneficiaries and the casualties of the current shift

The current market conditions are creating a stark divide between different types of stakeholders. The winners are undoubtedly the “profit-first” businesses and digital lenders. Companies that can leverage ecosystem data to provide credit, such as those within the GoTo or Grab ecosystems, are seeing rapid revenue growth. Local conglomerates also benefit, as they can now acquire innovative technology at much lower multiples than they could three years ago. For instance, the acquisition of PropertyGuru by EQT for $1.1 billion represents a consolidation move that would have been far more expensive during the peak.

Those getting squeezed are the high-burn consumer platforms and middle-tier venture funds. Series C and D rounds have been the hardest hit, with late-stage investment plunging 77 per cent in 2024. Founders in Jakarta and Ho Chi Minh City, who built businesses predicated on subsidised user acquisition, now find themselves with no clear path to follow-on funding. Additionally, regional venture capital firms that raised large funds at the height of the bubble are now struggling to justify their valuations to their own limited partners.