Trade wars force rewrite of Southeast Asia’s VC playbook
Southeast Asia’s venture capital scene is at a reset point. Amid trade tariffs, slowing globalization, and changing exit pathways, the region must find a new playbook.
Southeast Asia’s venture capital scene is at a reset point. Amid trade tariffs, slowing globalization, and changing exit pathways, the region must find a new playbook — one that moves beyond unicorn dreams and toward sustainable wins.
At Entropia Capital, which also operates in the US and Europe, we’ve seen this shift firsthand: fewer IPO ambitions, more capital-efficient startups, and leaner funds deploying smarter capital. The era of blitzscaling on cheap money is over, and that’s a welcome evolution.
The Silicon Valley mindset, which depends on a culture of experimentation and risk-taking to drive innovation, sparked much of Southeast Asia’s early tech momentum. While strong ties to the Bay Area still matter, the region no longer needs to emulate Silicon Valley to thrive. Instead, it needs a venture model tailored to its unique markets.
Building consistently and pragmatically
Tariff tensions are once again rippling through global markets. US President Donald Trump’s sweeping tariffs are affecting everything from ecommerce rollup firms that sell primarily to the US to private equity firms now struggling to achieve exits.
In Southeast Asia, the impact is particularly acute. In our discussions with founders and operators across Southeast Asia, a common reality is emerging. Whether it’s supply chains, logistics costs, or shrinking runways, the sentiment is consistent: Macroeconomic pressures are mounting.
This convergence of inflationary input costs, tariff-driven trade friction, and tightened capital flows is hitting the region’s innovation ecosystem at a pivotal time. Many startups are reaching critical growth stages and seeking sustainable, capital-efficient models to navigate forward.
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Additionally, Southeast Asia’s VC scene faces a hard reckoning after the boom of the past decade. While the region raised US$34.1 billion in capital in 2021 it saw relatively few exits. Many startups have raised ambitious rounds with the hope of listing or attracting global buyers, only to discover that Southeast Asia still lacks the liquidity depth and IPO culture of markets like the US.
Compared to US$38.92 billion in the US, only US$2.66 billion in IPOs were recorded in 2024 between the main exchanges in Singapore, Thailand, Malaysia and Indonesia. In truth, most investors and founders were aware of these structural limitations. Still, there was a widely shared belief that a dramatic shift could occur, driven by a maturing ecosystem and regulatory reforms. While Singapore’s SGX is modernizing, local public markets remain small and cautious. As such, the hoped-for transformation has yet to materialize.
One founder we advised recently declined a series C round, recognizing that earlier valuations had set unrealistic expectations. The dangers of inflated valuations during and after Covid have been discussed for over two years, but their consequences are now visible.
A better kind of regional startup?
Tech in Asia data shows there are 38 firms in Southeast Asia worth at least US$1 billion, but according to Tracxn, the region has more than 120,000 startups. The reality is, most Southeast Asian startups won’t become unicorns. But I believe the region is more suited to grow a different kind of company: the so-called zebras. The term was coined in 2017 by social entrepreneurs Jennifer Brandel and Mara Zepeda. As capital-efficient ventures that prioritize sustainable growth, zebras can create real value within five to seven years through steady growth, profitability, and lasting relevance. In Southeast Asia, these include materials science firm Nanolumi, automation startup Eureka Robotics, and fintech player Funding Societies.
These are not moonshots — they’re meaningful and gaining momentum. Funds like Tin Men Capital and Iterative have championed this approach for years. Today’s most thoughtful founders aren’t just raising funds; they’re choosing capital partners aligned with their realities and long-term goals. This shift is reshaping the region’s startup mindset.
The next wave of founders will focus on early value, cash generation, and sustainable growth. They may not make headlines every month, but they’re essential to Southeast Asia’s future. Rather than chase Silicon Valley’s power-law model, where a small number of investments account for the vast majority of a VC’s returns, many financiers are now calling for Southeast Asia to embrace a more grounded strategy: frequent, smaller exits through strategic M&A.
Japanese and Korean firms have led the way. For example, NTT Dataacquired Malaysia’s GHL Systems, Tripla bought Singapore’s BookandLink, and Persol Asia Pacific snapped up Workmate. Osaka, Seoul, and Tokyo are increasingly important hubs for M&A activity — destinations better aligned with Southeast Asia’s stage of development than the Nasdaq.
Bloomberg data shows the value of M&A activity involving South Korean firms rose 60% year on year in 2024 to US$29 billion, while Japan M&A volumes increased around 20% in the first half of 2024 compared to the year prior. Still, acquisition motivations remain narrow. Most deals still focus on expanding customer bases and market presence, rather than acquiring advanced technology or specialized talent. I hope this will evolve, positioning M&A as a key driver of regional consolidation, capability-building, and ecosystem growth.
Rethinking fund size and strategy
The latest US tariff regime is a reminder of Southeast Asia’s exposure to global macro risk. It seems clear that the region must accelerate its journey toward greater self-reliance. Collaboration among ASEAN economies — i.e., harmonizing trade, technology standards, and capital flows — will be critical to minimizing external shocks. Initiatives like the ASEAN Economic Community offer a starting point, but the region could learn from Europe’s more ambitious efforts, such as the Capital Markets Union, to build frameworks that allow capital and innovation to flow freely across borders.
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The Capital Markets Union shows the value of coordinating financial regulations to lower barriers for cross-border investment and boost market confidence. ASEAN could also benefit from stronger regional oversight to synchronize these efforts, as seen with the European Securities and Markets Authority.
Meanwhile, VC models must also evolve. Emerging managers deploying vehicles worth US$30 million to US$60 million are better positioned to generate attractive returns than larger funds chasing unicorns.
A call for self-reliance
Governments are critical in shaping Southeast Asia’s innovation landscape. Singapore offers a blueprint with initiatives like startup venture debt, SGX reforms, and programs like the Global Innovation Alliance. More can be done, however, especially in backing emerging VC managers, incentivizing M&A, and supporting realistic US$50 million to US$200 million startup outcomes. Policymakers must also recognize that ecosystems take time to mature. Building regional capital stacks, boosting R&D, and retaining local and international talent require patient, consistent effort.
Yet a deeper cultural challenge remains. Despite progress, being a founder in a Southeast Asian market like Singapore still lacks the prestige found in the US, Europe, or China. Singapore’s structured education system and comfortable corporate safety net reduce the appetite for entrepreneurial risk. A 2024 JobStreet survey found that 72% of Singaporeans stay in outgrown roles for over a year, reflecting cultural hesitation to embrace the uncertainty and ambition that startup life demands.
Too often, investors overlook local ventures in favor of US startups, missing the talent and insights within their own ecosystem. Until this mindset shifts, Southeast Asia risks underleveraging its greatest asset: entrepreneurs. Capital avoids friction, and without a more cohesive, founder-friendly environment, the region may lose its best innovations.
If Southeast Asia can adopt a VC model aligned with its economic fabric, it could unlock a decade of inclusive growth. By connecting capital with reality, empowering pragmatic builders, and fostering regional collaboration, we can move from promise to performance.
Originally published at https://www.techinasia.com on May 28, 2025.
This suggests that geopolitical diligence should now begin almost as early as technical and commercial diligence. A company’s choice of investors, manufacturing partners or incorporation jurisdiction may later determine which markets it can enter. Many founders still treat these as reversible administrative decisions. In strategic technologies, they may be among the earliest and most consequential product decisions.
Geopolitical fragmentation changes venture strategy well before it appears in headline valuations. Supply chains, export controls, ownership restrictions and national-security priorities increasingly determine which technologies can scale, where they can be manufactured and who can finance them. For Southeast Asian ventures, “regionalization” cannot simply mean selling in several neighbouring markets. It requires deliberate choices about jurisdiction, production, IP and capital partners. The emerging playbook may be less about frictionless globalization than about designing companies that remain viable across several partially incompatible systems.