Is South-east Asia’s startup ecosystem stalling or simply maturing?

“WHY are there so few exits in South-east Asia?”

This is a fair and increasingly common question from limited partners in venture capital (VC).

With disappointing initial public offerings (IPOs), struggling unicorns and a funding slowdown since 2022, it is natural to ponder whether the rewards for investing in South-east Asia still justify the risk.

As early-stage investors in the region, we borrow a line from Mark Twain: “Reports of my death are greatly exaggerated.”

We do not dismiss such concerns about South-east Asia’s startup scene, but the reality is more nuanced. We believe it can produce strong exits, but expectations 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?

Feast versus famine

South-east Asia’s fundamentals were compelling: Young, growing populations, rising incomes and rapid tech adoption. These drew founders and investors alike.

Then the Covid-19 pandemic happened. Instead of slowing the scene down, things accelerated: Consumers spent more online than ever, stimulus flowed, and cheap capital (interest rates at 0.08 per cent) fuelled the surge.

Deal count rose some 60 per cent to 1,824 in 2021 from 1,141 the year before; value jumped about 70 per cent to US$16.9 billion from US$9.9 billion.

The year 2021 was the peak of a period dubbed “The Feast”, with 23 new unicorns minted, more than in the prior seven years combined.

By mid-2022, interest rates climbed. By 2024, deal count and value fell by about 50 per cent and 55 per cent, respectively. This marked the start of “The Famine”. Geopolitical conflicts and tariffs added volatility.

What this means for exits

During The Feast, investors backed three broad types of companies.

• Weak companies that should not have been funded: Notably, this is inherent to venture; risk-taking inevitably produces write-offs and zombies, regardless of the cycle.
• Good companies that raised too much at inflated valuations: Examples such as Grab and GoTo show that strong consumer usage does not guarantee strong investor returns. Private and public investors value companies differently. Many unicorns are still growing into their valuations. Founders and investors hesitate to exit these companies at a loss, especially if they still have sufficient capital or supportive backers. These companies do not lack potential; in many cases, they simply need time.
• Good companies that were not overfed and remained promising: Such firms built capital-efficient, resilient models solving meaningful problems. Yet, they were often overlooked for a few reasons: They had unfamiliar models without clear comparables; they operated in less-favoured markets such as the Philippines and Vietnam; and they faced scepticism about their global competitiveness, especially if they were in enterprise, deep tech or sustainability. These companies did more with less. They are likely to define the region’s next wave of exits – but they also need time.

Do the promising startups deserve more time?

We believe yes, mainly for two reasons.

Anything of significant, long-term value is difficult. Short-term gains are easier to achieve; meaningful, long-term outcomes are not. Building strong companies requires sustained effort and discipline.

South-east Asia’s startup ecosystem is about eight years younger than India’s. The latter, which had a head start, is now seeing strong exits.

One way we can tell that a startup ecosystem has achieved a level of critical mass is when local venture capitalists raise funds of over US$100 million, and global venture capitalists set up local offices. Our research shows India achieved this between 2006 and 2008; South-east Asia reached this point around 2014 to 2016.

Both regions had early standout exits. Examples include Flipkart in India, and Sea and Razer in South-east Asia.

India is now in its third wave. In 2024, it became a leading IPO market, with companies listing based on real earnings, cost discipline and clear models – not hype. Even consumer names had solid unit economics.

This signals maturity: Companies go public because they are ready, not because capital is abundant. We expect South-east Asia to follow a similar trajectory.

What S-E Asia’s next wave of exits may look like

Future exits may not mirror the oversized expectations of 2021. Instead, we may see a mix of:

• mid-sized exits (US$250 million to US$500 million) – offering still strong outcomes, particularly for early investors;
• strategic acquisitions – driven by fundamentals, intellectual property, stellar customers or outstanding talent;
• private equity buyouts – for profitable, cash-generating companies with defensible moats;
• measured IPOs – grounded in more predictable growth and economics that meet the bar of public equity investors; and
• home runs (US$1 billion or more) – we continue to be hopeful that the region will have its fair share of these.

A combination of these outcomes should help rebuild confidence in the region.

At Wavemaker Partners, we say: Opportunity is equal to actual value minus perceived value. During The Feast, perceived value far exceeded reality.

Today, perception has undergone a reset, and actual value continues to grow quietly. This gap is where venture returns are made.

The Feast made investing seem easy: Follow capital, copy models, join large rounds. Many believed more funding meant inevitable success.

The Famine is proving otherwise. Real opportunity now lies with thoughtful investors – those who think independently, act with conviction, and are right enough of the time.

South-east Asia is not facing an exit drought. The next generation of companies is already building towards meaningful outcomes.

Rather than a retreat, this is likely the quiet before the harvest.

The writer is co-founder and managing partner at Wavemaker Partners