Realities that will shape the South-east Asia VC playbook for years to come
While the funding winter persists, the region’s fundamentals and strategic advantages have never been more compelling
THE days are long, but the years are short.
As a parent to two young boys, this popular saying perfectly captures the paradox of time – individual days can be a grind to get through, while years fly by in a blink as children grow and life changes at a rapid-fire pace.
I feel the same about the venture capital (VC) scene. A few weeks ago, as I was in the thick of pushing through various work streams, my music streaming service promptly reminded me that another year has almost passed.
Reflecting on this midway point through this turbulent decade, reality has certainly outrun prediction in many ways. For our region, 2025 may well be a defining year that shapes our VC ecosystem for years to come. Here are a few reasons why.
South-east Asia’s AI moment
While the prior years’ tech headlines were dominated by the likes of OpenAI and their mega financing rounds, DeepSeek’s launch at the start of 2025 caused shockwaves across the tech world as it completely upended assumptions about what it takes to build frontier artificial intelligence (AI).
Why does this matter to South-east Asia VCs?
The episode signalled that the fundamental rules of the AI game are still evolving, and that bleeding edge disruptions are not exclusive to the West. More than that, South-east Asia is strategically positioned to lean into its geopolitical neutrality and become a critical player in the global AI contest.
Firstly, global cloud and chip players are pouring capital expenditure into data centres and AI infrastructure in South-east Asia. Examples include Google’s billion‑dollar data centre in Thailand; Microsoft’s multibillion‑dollar plans in Malaysia; Nvidia‑linked AI centres in Vietnam; and broader cloud expansions across the region – turning our region into a critical compute and data node in global AI supply chains.
Beyond infrastructure, with a large yet fragmented demographic, South-east Asia can be a perfect arena to test and scale AI solutions. Also, the region’s youthful and digital-native population provide a growing pipeline of home-grown AI talent, some of whom may choose to become founders themselves to build AI-native businesses.
We are possibly standing at a generational inflection point – South-east Asia’s unique convergence of data, demographics and digital leapfrogging has created a compelling AI investment thesis.
For regional VCs, the moment carries not only immense promise, but also profound responsibility to separate AI theatre from genuine, durable innovation.
Rewiring of global supply chains
Beyond the AI phenomenon, it also became apparent in 2025 that the global supply chain is being rewired.
The intensifying geopolitical rivalries, coupled with the post-pandemic drive for supply chain resilience and redundancy, has led to fundamental reorganisation of how the world produces and moves goods.
This is a powerful structural tailwind, and can potentially transform the region from a passive beneficiary of globalisation to an active architect of a new, multipolar world order.
Firstly, as manufacturers shift production to Vietnam, Indonesia, Thailand, the Philippines, Malaysia and Singapore, there will be a surge in pain points around industrial digitisation, quality control, trade finance and cross‑border logistics. This will, in turn, open room for more software-as-a-service (SaaS), infrastructure and marketplace innovators to scale within the region.
Also, this momentum will catalyse a wave of region-born, globally-scaled ventures engineered for this new reality.
Companies such as Quantified Energy, a Vertex portfolio company, illustrate this trend. This repositioning may matter more in three years than most realise today. Companies building global businesses from South-east Asia now will have first mover advantages that are hard to replicate.
The evolving consumer
Despite it all, consumer Internet has and will always be South-east Asia’s forever bet. The region’s demographics, rising connectivity and consumption habits make this more than a thesis – it is our ecosystem’s most enduring reality.
Yet, the consumption patterns are evolving and becoming more polarised. One of the most striking shifts post-Covid has been the death of digital first as a virtue in itself.
For any consumer brand to stand out, having a strong omnichannel strategy has become table stakes. Digital-first brands must invest in developing both their online playbooks and also build competencies to harness the power of offline presence.
Companies such as RPG Commerce in Malaysia and Coolmate in Vietnam exemplify this trend. Beyond a well-executed digital go-to-market approach, they are building real-world operational capabilities, physical distribution networks and offline customer touch points.
Furthermore, they are applying their digital-first mindset to bring about a new level of disruption and efficiencies previously not expected in real world operations. They have true potential to build another dimension to create long-lasting barriers to entry.
In addition, economic pressures and macro uncertainties have led to a polarisation of consumption patterns.
On the one hand, consumers demand affordability and better value for money, especially for essential goods.
On the other hand, spending on “better for me” health, wellness and personal care products remain resilient. This is particularly evident among the young urban individuals who value products that allow authentic self-expression and align with their personal core values.
This provides a clear opportunity for emerging regional consumer brands that offer affordable products that are catered to local needs to shine.
Reality check: Funding winter continues
Meanwhile, the market’s excitement over the promise of AI and new world order has failed to ignite comparable momentum in South-east Asia’s VC funding activity.
Driven by global macroeconomic uncertainty and heightened governance scrutiny, startup funding activity remained subdued.
Particularly, early-stage deal activity – which hit a low in 2024– has not bottomed out, and instead continued to slide in 2025.
One can no longer assume that a startup can raise another round of financing in the typical 18 to 24-month time frame. Flat and down rounds seem to have become normalised to a point of being accepted as a standard part of the venture tool kit.
This funding winter has been punishing. The distress is real, but so is the opportunity.
Scarcity of capital and resources eliminate optionality, and create a market that rewards the most rigorous resource allocation towards validated, value-accreting activities.
VCs will allocate capital to startups with strong business unit economics, defensible moat and clear pathways to profitability. The charismatic founder who dominated fundraising just a few years ago will give way to the low-key builder. As one founder told me: “I do not do shows anymore.”
At the same time, the once stratospheric valuations have – perhaps with the exception of AI – largely rationalised. This repricing has reset expectations across most sectors in our region, establishing deal terms that support sustainable growth rather than speculative overreach.
Having said that, even in a rational market, competition for the best companies remains fierce.
Founders increasingly look beyond the highest bidder and seek the most valuable partner – investors who bring strategic insight, a relevant network and steadfast support for the long journey. For VCs, we recognise that – funding winter or not -– the best deals must still be earned.
Think in years, act in days
South-east Asia’s startup ecosystem is at a crossroads. While the funding winter persists, our region’s fundamentals and long strategic advantages have never been more compelling.
As ecosystem stakeholders, we are facing a window of opportunity to – by thinking in years and acting in days – build and support enduring, high impact businesses.
Building in this challenging environment demands daily resilience, discipline and grit. Before we know it, the decisions we make today – the companies we back, the founders we support, the bets we place on South-east Asia’s potential – will have compounded into the defining stories of our region’s next chapter.
Here’s to the breakthroughs, exits and milestones that will write the next chapter of South-east Asia’s venture story in 2026.
The writer is partner at Vertex Ventures South-east Asia and India
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