Debt funding for S-E Asia startups ticks up as it gets tough to raise money via exits, equity

[SINGAPORE] Startups in South-east Asia have increasingly turned to debt funding, as macroeconomic conditions create a tough exit and equity-funding environment.

According to figures from Tracxn, a data platform, debt funding in the region has grown from US$487.8 million in 2023 to US$3.1 billion in 2024. This number almost doubled in 2025 to US$6.1 billion.

In contrast, equity funding fell from US$8.4 billion in 2023 to US$7.9 billion in 2024. In 2025, the number fell further to US$6.2 billion, slightly edging out debt funding for startups here in South-east Asia.

Neha Singh, co-founder and CEO of Tracxn, noted that this reflects a maturing market, where risks are being calibrated and capital-efficiency takes precedence.

“This pronounced reliance on debt indicates that growth-stage companies are actively leveraging venture debt and credit facilities to extend operating runway, fund asset-heavy or infrastructure expansion,” she said.

Singh added that it can also “bridge key valuation milestones without incurring steep equity dilution in a macroeconomic environment where equity cheque-writers remain highly selective”.

Investors are also favouring business models that are proven, signalling a reduced risk appetite, as seed funding fell. Seed-stage funding declined from US$810.9 million in 2023 to US$518.9 million in 2024 and to US$443.2 million in 2025.

This shift towards debt and debt-like instruments is a trend that is happening globally and within Asia, said Eric Tan, partner at law firm Hogan Lovells Cadwalader.

“A tougher exit environment and longer paths to business milestones have made additional runway increasingly valuable, while founders and existing investors are keen to avoid raising equity at a down-round,” he added.

At the same time debt offers more downside protection for investors who might be calibrating risks. These factors are behind the growing interest for this option among investors and founders, said Tan.

The lender base too is broadening, with credit offered by a range of entities, including specialised credit funds as well as international and regional banks with venture debt or innovation banking. Some of these include lenders such as HSBC that has an Innovation Banking unit and DBS which offers venture debt.

Some venture capital (VC) firms have started their own private-credit funds, such as Openspace Capital’s Onyx Growth Credit, which was targeting a fundraise of US$200 million. Granite Asia offers Libra Hybrid, a VC-affiliated private-credit fund that has raised more than US$500 million in its final close and counts Temasek, Khazanah Nasional and the Indonesia Investment Authority as investors.

“Venture capital-affiliated credit platforms are also becoming more prominent, offering debt or hybrid structures alongside traditional equity,” said Tan.

This trend is unlikely to fade, as debt funding establishes itself in the funding ecosystem. But the persistent high-interest-rate environment along with the likelihood of the US Federal Reserve raising rates may make government bonds more attractive to risk-averse investors.

Some of this impact can be seen as debt funding has pulled in US$3.4 billion as at Sep 16, 2026, according to data from Tracxn. While it might not reach the level of 2025, this funding pattern is likely to prevail as the regional ecosystem reaches a higher level of maturity, said Singh.

“The sustained elevation in debt volume may indicate a long-term strategic shift towards hybrid capital structures, rather than a temporary structural anomaly,” she added.

Tan noted that factors fuelling debt funding include founders and existing investors who are focused on protecting valuations and limiting dilution of their equity. Uncertain initial public offering and exit markets are increasing the need to hold on to capital for longer as well. Sectors such as artificial intelligence also need substantial funding.

“While potential interest-rate adjustments and dry-powder deployment mandates could eventually ease broader liquidity constraints, the underlying focus on capital preservation, defensive moat-building, and debt-equity optimisation is expected to remain the prevailing standard across South-east Asia’s tech ecosystem,” said Singh.