The geographical centre of gravity for Southeast Asian venture capital is shifting away from the city-state as emerging hubs leverage lower costs and aggressive industrial policy.
In April 2024, the Malaysian government launched the KL20 Action Paper at a high-profile summit in Kuala Lumpur, setting an ambitious target to propel the city into the top 20 global startup ecosystems by 2030. This move marks a significant escalation in the regional competition for tech dominance. For a decade, Singapore has enjoyed an almost total monopoly on venture capital and regional headquarters. However, a combination of soaring operational costs in the city-state and a 52 per cent year-on-year decline in Southeast Asian startup funding has forced investors and founders to look elsewhere.
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What has changed over the last 24 months is the transition from a single-hub model to a multi-polar ecosystem. While Singapore remains the financial clearing house, the actual engine of growth, engineering talent, and market testing is moving to Ho Chi Minh City and Kuala Lumpur. For operators in the region, this matters because the “Singapore-first” playbook is becoming prohibitively expensive. Capital is no longer chasing growth at any cost, but rather efficient growth in markets where a dollar of venture capital lasts three times as long as it does in the Lion City.
Why the funding winter has forced a geographic rethink
The downturn in global venture markets has acted as a catalyst for this shift. According to the e-Conomy SEA 2023 report by Google, Temasek, and Bain & Company, Southeast Asia’s digital economy reached 218 billion US dollars in gross merchandise value (GMV) in 2023, growing at 11 per cent year on year. Despite this growth, total funding in the region hit a multi-year low. Data from DealStreetAsia shows that private equity and venture capital funding in Southeast Asia fell to 7.96 billion US dollars in 2023, down from roughly 16.59 billion US dollars in 2022.
This scarcity of capital has made the high salaries and office rents of Singapore a strategic liability for early-stage companies. Founders are realising that while they may still register their holding company in Singapore for legal reasons, their entire operational team must be located in a more cost-effective hub to survive the current “funding winter”. This has created a vacuum that Vietnam and Malaysia are aggressively trying to fill with new incentives and infrastructure.
Vietnam remains the primary contender for manufacturing and tech synergy
Vietnam has consistently outperformed its peers in terms of digital economy growth. The country’s digital GMV is projected to grow at a compound annual rate of 19 per cent between 2023 and 2025. This growth is anchored in a unique synergy between its burgeoning tech talent and its status as the primary beneficiary of the “China plus one” manufacturing strategy.
The Vietnamese government has formalised its support through the National Innovation Centre (NIC), which offers tax incentives and streamlined visa processes for tech workers. In the last 18 months, the focus has shifted from simple e-commerce to deep-tech and semiconductors. This is not just aspirational; major global players are already embedding themselves in the local ecosystem. For example, Nvidia has expressed intent to establish a base in Vietnam to develop its semiconductor industry, a move that would provide a massive tailwind for local AI startups.
The driver here is the sheer volume of engineering talent. Vietnam produces approximately 50,000 tech graduates annually, and their salary expectations remain a fraction of those in Singapore or Jakarta. This makes Ho Chi Minh City the most attractive destination for B2B software-as-a-service (SaaS) companies that require large development teams but have limited initial revenue.
How Malaysia is using policy to leapfrog its regional neighbours
While Vietnam offers raw growth and talent, Malaysia is attempting to win through sophisticated policy and sovereign wealth intervention. The KL20 Action Paper is perhaps the most comprehensive attempt by a Southeast Asian government to challenge Singapore’s hegemony in recent years.
The Malaysian government has introduced the “Golden Pass” for global unicorn-level startups and a “Unicorn Scheme” aimed at attracting high-growth companies to relocate their HQs to Kuala Lumpur. More importantly, they have backed these policies with significant capital. The government has consolidated its venture investment arms and launched a “fund of funds” with an initial allocation of 1 billion ringgit to be managed by Khazanah Nasional and KWAP.
For an investor, Malaysia offers a “Goldilocks” environment. It has better infrastructure and legal clarity than Vietnam, but significantly lower costs than Singapore. The country’s established semiconductor ecosystem in Penang also provides a unique advantage for hardware and IoT startups that other regional hubs lack.
What the headline investment data often hides
It is easy to look at the massive funding gap between Singapore and the rest of the region and conclude that nothing has changed. However, the data can be misleading. In 2023, Singapore accounted for the lion’s share of deal value, but a significant portion of that capital was immediately deployed into operations in Indonesia, Vietnam, or the Philippines.
The “Singapore Flip” is a well-known structure where a company is legally headquartered in Singapore but has zero operational footprint there. Current data often credits Singapore with the investment, even if every employee and every customer is in Hanoi. Furthermore, the 2023 funding drop was more pronounced in Singapore than in Malaysia or Vietnam. While Singapore saw a precipitous fall in mega-rounds (deals over 100 million US dollars), seed and Series A activity in Kuala Lumpur and Ho Chi Minh City remained relatively resilient. This suggests that the “base” of the pyramid is expanding outside the traditional centre.
One limitation of these statistics is the lag in reporting for private deals. Many bridge rounds and internal extensions that occurred in 2023 have not been publicly disclosed, meaning the actual “burn rate” of the region might be higher than the funding data suggests.
The location of a head office often hides the real engine of growth
Founders and investors often confuse a “jurisdictional hub” with an “operational hub”. Singapore is likely to remain the jurisdictional hub of Southeast Asia for the foreseeable future due to its reliable courts, tax treaties, and the Accounting and Corporate Regulatory Authority (ACRA) framework. However, being a jurisdictional hub does not make it a startup hub in the functional sense.
A functional hub requires a dense concentration of talent, a high volume of local customers, and low barriers to experimentation. If a founder spends 40 per cent of their seed round on Singaporean rent and two senior engineers, they are at a competitive disadvantage against a peer in Kuala Lumpur who can hire a team of ten for the same price. The market is currently undergoing a “decoupling” where the money stays in Singapore, but the work moves to the next hub.
Who stands to gain from this multi-polar ecosystem
The biggest winners in this shift are the regional venture capital firms that have maintained a local presence in multiple cities. Firms like Gobi Partners or Vertex Ventures, which have long-standing offices in Kuala Lumpur and Ho Chi Minh City, are better positioned to spot early-stage talent before they move to the “Singapore stage”.
Secondly, B2B infrastructure companies will thrive. As more startups decentralise, there is a growing demand for cross-border payroll, compliance, and cloud services that work across different Southeast Asian jurisdictions. A local example is Aspire, which provides financial operating systems for businesses across the region. As companies move their operations to Malaysia or Vietnam, they need these unified platforms to manage their disparate teams.
Finally, the mid-tier talent pool in Vietnam and Malaysia will see significant wage growth. As more well-funded startups move their engineering and product teams to these markets, the competition for senior developers will intensify, narrowing the talent gap with Singapore.
The groups that might find the transition most difficult
The group most “squeezed” by this shift is the mid-level Singaporean tech worker. As companies move their middle-office and engineering roles to Ho Chi Minh City or Kuala Lumpur, the demand for “generalist” roles in Singapore is softening. We have already seen this with the layoffs at major firms like Lazada and various Sea Limited subsidiaries over the last 18 months.
High-burn B2C unicorns in Indonesia are also under pressure. The Indonesian market remains the largest prize, but the era of buying market share is over. Companies like GoTo are having to radically restructure to prove they can be profitable, often at the cost of the aggressive expansion that once made Jakarta the primary challenger to Singapore’s dominance.
Lastly, early-stage founders who are “stuck” in Singapore without a regional strategy will struggle. Investors are increasingly asking, “Where is your back office?” as part of their due diligence. If the answer is Singapore, the valuation often takes a hit to account for the higher burn rate.
What to look for in the next eighteen months
The next 12 to 24 months will reveal whether Malaysia’s policy-heavy approach or Vietnam’s talent-led growth is more sustainable. Watch the Monetary Authority of Singapore (MAS) for any potential policy responses. If the capital flight of operational teams becomes a threat to Singapore’s “hub” status, we may see new incentives for startups to keep their core teams in the city-state.
However, the trend appears structural. The digital economy in Southeast Asia is no longer a “potential” market; it is a 218 billion US dollar reality that has outgrown a single city. The winners will be the founders who can navigate this fragmented geography, using Singapore for its law and the rest of the region for its lifeblood. The next “hub” is not one city, but a corridor of talent and capital stretching from Kuala Lumpur to Ho Chi Minh City.