By Onwards Capital Team | June 20, 2025 | Approx. 4-5 min read
Beyond the "VC Winter": Signs of Recalibration
For many founders across Southeast Asia, the past year has felt like a deep "VC Winter," a period marked by significant contraction in funding. Indeed, Q1 2025 saw venture capital deal count drop by 43% and total capital raised by 46% compared to the same period last year. These figures paint a stark picture, undeniably reflecting a global shift away from the "growth at all costs" mentality towards a heightened focus on profitability and sustainable business models.
However, a closer look at the data reveals a critical nuance: Q1 2025 funding actually saw a notable 31% increase ($909M) compared to Q4 2024 ($695M). This isn't just a number; it's a powerful signal that while the overall market has certainly recalibrated, it might be finding its floor, transitioning from freefall to a more volatile but potentially recovering phase. For founders, this means the game has changed, but opportunities are very much still alive.
SEA VC Funding: Q4 2024 vs Q1 2025 (USD Millions)
The quarter-over-quarter rebound suggests the market is stabilizing, requiring founders to adapt their strategies to a more disciplined environment.
The "Why": Root Causes of the Investment Shift
This market recalibration isn't arbitrary. It's a confluence of factors: i) the funding slowdown in Southeast Asia mirrors a broader global trend where rising interest rates, inflationary pressures, and geopolitical uncertainty have made capital more cautious. The era of "easy money" that characterized 2020-2022, during which low interest rates incentivized investors to pursue riskier asset classes, including early-stage tech startups, is now firmly in the past. The increase in US interest rates, for instance, has made fixed-income assets more attractive, thereby reducing the flow of global liquidity to emerging markets like Southeast Asia. ii) an investor sentiment shift demanding clear paths to profitability, iii) a lingering "exit overhang" due to a soft IPO market making it harder for VCs to return capital, and iv) increased scrutiny on corporate governance following recent high-profile incidents.
These forces mean capital is now more discerning, flowing to businesses with robust fundamentals, transparency, and a clear vision for long-term viability. The "profitability premium" is real.
Where Opportunities Lie: Beyond AI and Fintech
While AI and Fintech continue to attract attention, our research reveals significant and resilient investment interest in foundational sectors addressing Southeast Asia's core economic needs. These are often less flashy but offer durable demand and predictable revenue streams.
Top Non-AI/Fintech Investment Sectors by Investor Interest (2025 Outlook)
Investors are increasingly prioritizing sectors that address fundamental societal and economic needs, offering stable, long-term returns.
- Cleantech/Greentech: Fueled by government initiatives and a strong ESG focus, this sector is seeing doubled deal volumes in some hubs.
- B2B Solutions (incl. Embedded Finance & Cybersecurity): Building the "invisible infrastructure" for digital transformation and financial inclusion for MSMEs.
- Healthcare/Healthtech: An "essential" sector addressing rapid urbanization and overburdened public health systems.
- Manufacturing & Real Estate: Attracting significant FDI, driven by global supply chain diversification trends like "China +1."
- Agritech: Despite current challenges, the critical need for food security makes this sector "ripe for investment" for patient capital.
The New Founder's Playbook: How to Raise Funding Now
This changed landscape demands a more sophisticated and disciplined approach from founders. It's no longer just about a great idea; it's about meticulous execution, financial rigor, and strategic alignment.
Key Success Factors for Early-Stage Startups:
- Build for Profitability from Day One: Design your business with robust unit economics and a tangible, shortened path to positive cash flow. Extend your runway through lean operations.
- Embrace Radical Transparency & Strong Governance: In a post-eFishery world, trust is paramount. Implement robust internal controls and proactive financial reporting. Be prepared for rigorous due diligence.
- Achieve Product-Market Fit & Reliable Monetization Swiftly: Investors are seeking consistent, measurable improvements and proven revenue generation. Show, don't just tell.
- Target Investors Strategically: Ditch the "spray and pray." Research VCs' specific investment theses and portfolios. Craft tailored pitches and build long-term relationships through consistent, transparent updates.
- Leverage Non-Dilutive Capital: Actively explore government grants (e.g., Singapore's Start-up SG), accelerator programs, and corporate partnerships to fund growth without giving up equity. Consider venture debt if you have strong cash flow.
- Cultivate an Intentional Narrative: Communicate your story with precision, building reputational capital and attracting the right partners and talent.
Exit Realities: M&A is Your Primary Horizon
For founders dreaming of an IPO, the reality in Southeast Asia is sobering. Public markets remain challenging and illiquid, with few successful tech IPOs and subdued performance from those that did list. The "exit overhang" is a real issue for VCs.
The overwhelming reality is that Mergers & Acquisitions (M&A) and secondary sales dominate the exit landscape. This means you should build your company with potential acquirers in mind – are you solving a strategic problem for a larger corporate? Do you have clear synergies with regional giants? This focus on strategic fit will be crucial for your eventual liquidity event.
Primary Exit Paths in Southeast Asia (Dominance)
M&A and secondary sales provide the most viable and common liquidity routes for investors and founders in the current market.
Furthermore, investor behavior has shifted at different funding stages. While seed valuations have become more conservative, the median Series A deal size has actually increased. This highlights a clear "flight to quality," where investors are willing to deploy significant capital for companies that have already demonstrated strong product-market fit and early traction, rather than making speculative early bets.
Median Deal Size Shift (Q1 2024 vs Q1 2025, USD Millions)
The increase in median Series A rounds reflects investors' preference for more mature, de-risked opportunities, even as seed valuations tighten.
Onwards: Resilience, Discipline, and Long-Term Value
The Southeast Asian VC landscape is maturing. While the "VC Winter" has been a challenging period, it's also a necessary rebalancing that's fostering greater discipline and resilience within the ecosystem. The region's underlying fundamentals, a youthful, tech-savvy population, a burgeoning middle class, and increasing digital adoption, remain incredibly strong.
For founders, this new era isn't about giving up; it's about building smarter. By focusing on profitability and business model monetization, embracing transparency, strategically targeting investors, and identifying opportunities in foundational sectors, you're not just surviving – you're building the next generation of sustainable, impactful businesses that will drive Southeast Asia's digital economy forward.