Southeast Asian economies survived the pandemic and post-pandemic pitfalls in solid shape. Indonesia, Philippines and Vietnam still rank among the world’s fastest growing large nations. The region’s financial center, Singapore, has expanded as global capital flees competing Hong Kong.

So why is Southeast Asia’s startup engine stalling?  

Venture capital and private equity (VC/PE) flows in most regions have slowed as central banks raised interest rates to combat inflation. In Southeast Asia the flow has turned into a drought. VC/PE and infrastructure investment in the 10-nation region has plunged by two-thirds from a 2021 peak, according to the Global Private Capital Association (GPCA). That compares to investments in India dropping by half.  

The biggest reason is that Southeast Asia is in fact a notional construct made up of 10 very different actual nations at very different levels of development, says Prantik Mazumdar, head of Singapore-based entrepreneurs’ association TiE. In the irrationally exuberant 2020–2021 period, investors bought into the idea that e-commerce startups like Grab or Tokopedia could easily span a regional market of 650 million people. Not anymore.  

“It’s become clear that this is 10 countries with 10 languages.” Mazumdar says. “The only way for companies there to scale up is to venture into the US or Europe, and that will take another five to ten years.” 

Local institutional capital is scarce across the region, leaving young growth companies vulnerable to the shifting moods of far-off global deep pockets. “Most of the money coming in was from investors without a local presence,” says Carlos Ramos de la Vega, director of venture capital at GPCA. “They may have pulled back to focus on core positions in the US or elsewhere.” 

Those global moods have also shifted away from e-commerce, where Southeast Asia’s large consumer base was enticing, to artificial intelligence and green technologies, where the region is less competitive with established technology centers, De la Vega says.  

Southeast Asia lacks a vibrant stock market for startup investors to exit via a public offering, Mazumdar adds. “Singapore is pretty dead as a public stock market,” he says.  

India compares well on all these parameters. It offers a huge domestic market, which Prime Minister Narendra Modi’s reforms have made more cohesive; a rising class of native oligarchs keen to fund industries of the future; world-class, English-speaking brain trusts in Bangaluru and elsewhere; and a lively bourse with more than 5,000 public companies and a growing domestic investor base. “I’m very bullish on India,” Mazumdar says. “You have a lot of great exits coming out there.” 

Not all the Southeast Asia news is bad. As venture capitalists pull back from the region, the giants of global tech are moving in to build data centers, anticipating an AI wave. In early May, Amazon Web Services pledged to pour $9 billion into Singapore alone for this purpose.  

A few regional startups are still generating enthusiasm with ahead-of-the-curve ideas, De la Vega adds. Silicon Box, a Singapore-based microchip packaging innovator, raised $200 million in January to reach unicorn status with a $1 billion valuation. Atlan, which built India’s “national data platform” before migrating to Singapore, pulled in $105 million in May.  

Southeast Asia is not exactly swimming naked now that the tide of ultra-cheap capital has gone out. But its shortcomings as an innovation nexus and investment destination are more visible.