Southeast Asia’s startup slump is a reset, not a crisis

Limited partners in Southeast Asia’s VC sector are asking the same question: “Why are there so few exits in the region?”

With disappointing IPOs and struggling unicorns, as well as funding slowing down since 2022, it is natural to wonder if the rewards for investing in Southeast Asia justify the risk.

Image credit: Arsal Ysfin

For early-stage investors in the region, a line from Mark Twain comes to mind: “The reports of my death are greatly exaggerated.”

To be sure, there are valid concerns about Southeast Asia’s startup scene, but the reality is more nuanced. The region can produce strong exits, but expectations in the past were arguably set too high, too soon.

Valuations surged, round sizes grew, funds got larger – and exit expectations followed. So how did we get here, and where are we going next?

From famine to feast

With young and growing populations, rising incomes, and rapid tech adoption, Southeast Asia’s fundamentals were compelling for investors and founders alike.

Then the Covid-19 pandemic happened and threw gasoline on the fire. Consumers spent more time and money online than ever, stimulus flowed, and cheap capital fueled the surge.

Deal count rose 60% to 1,824 in 2021 from 1,141 the year before, while value jumped about 70% to US$16.9 billion from US$9.9 billion, according to Pitchbook data.

See also: Pivot, partner, or get acquired – navigating SEA’s funding crunch

2021 was the peak of a period I call “The Feast.” There were 23 new unicorns minted that year, more than in the prior seven years combined.

By mid-2022, interest rates had climbed, and by 2024, deal count and value collapsed by about 50% and 55%, respectively.

These marked the start of a period I call “The Famine.” The geopolitical conflicts and tariffs of the last few years have only added volatility.

What used to “work”

At the peak of The Feast, investors backed three types of firms.

Give it time

What comes next