^{Source: Bloomberg}

A Changing Tide in Venture Capital

Venture capital in Southeast Asia is undergoing a quiet but powerful transformation. Once laser-focused on high-risk, high-reward tech startups with unicorn dreams, many investors are now pivoting toward traditional businesses with proven revenue models. From logistics hubs to restaurant chains, VCs are moving into spaces they once avoided — and the numbers behind this shift tell a compelling story.

A Massive Drop in Tech Startup Funding

The decline in venture funding is stark. According to Tracxn, VC investments in Southeast Asia’s tech startups plummeted by 79% between 2022 and 2024, falling from approximately $10.1 billion to just $2.2 billion. This isn't just a market correction — it's a redirection of strategy.

Offline businesses, while also affected, saw a relatively lower decline of 61%, with investments dropping from $1.3 billion to about $527.7 million during the same period. That’s a signal: investors are still deploying capital, but with more caution and preference for stability.

Safety Over Scale: Why Risk Appetite Is Shrinking

“You’re seeing a lot more investments by traditional VC funds into what I call brick-and-mortar businesses,” said Jeremy Tan, co-founder and partner at Tin Men Capital, in a recent interview with CNBC.

This sentiment is echoed by Aaron Tan, CEO of used car marketplace Carro, who added, “There’s a huge flight to safety. Many investors now prefer businesses with clear paths to profitability over those chasing scale without revenue.”

VCs, traditionally known for betting on 100x returns, are now settling for 3x to 4x returns—a range more typical of private equity. “Right now, venture funds are becoming PE funds,” Aaron Tan remarked. The appetite for explosive growth is giving way to sustainability and returns that are more grounded in reality.

Why VCs Are Turning to Offline Businesses

It’s not just fear—it’s strategy. Many startups in Southeast Asia are struggling to achieve profitability. Meanwhile, many VCs raised large funds during the pandemic boom, and are now under pressure to show returns to their limited partners (LPs). With IPO exits drying up and tech valuations still inflated, offline businesses offer a more stable route.

“These are businesses that might not be scalable in the traditional tech sense,” said Jeremy Tan, “but they have real assets, local licenses, customer loyalty, and less exposure to big tech competitors.”

Examples of VC-backed offline plays now include regional logistics companies, F&B chains, agri-tech-enabled farms, and convenience store franchises — businesses with tangible assets and consistent cash flows.

The Bigger Picture: Southeast Asia’s Economic Challenges

Macroeconomic headwinds are compounding investor hesitation. Countries like Indonesia, Thailand, and even Singapore have seen slower-than-expected GDP growth. According to the Asian Development Bank, Southeast Asia’s growth slowed to 4.2% in 2023, down from 5.7% in 2022.

On top of that, IPO exits have been nearly nonexistent. Several tech companies that did go public in the past few years have underperformed, discouraging new listings. “Funds pinned their hopes on IPOs,” Jeremy Tan said. “But in this market? Nobody wants to go public anymore.”

LP Fatigue: The Silent Crisis in Fundraising

Limited partners — the lifeblood of VC funds — are pulling back. “They’re asking, ‘Where’s the money?’” said Carro’s Tan. Many LPs are skeptical of pouring more capital into funds that haven’t produced viable exits in years. With valuations still high and the road to profitability unclear, LPs are staying on the sidelines.

Building “Atoms and Bits”: The Hybrid Business Model of the Future

There’s still hope. VC firms like Insignia Ventures Partners believe that businesses with both physical infrastructure ("atoms") and digital efficiency ("bits") are the future.

“If you are a pure digital play, you’ll struggle to compete with global giants,” said Yinglan Tan, managing partner at Insignia. “But if you combine physical presence with digital layers — say, AI in logistics or tech-enabled F&B — you build real moats.”

AI and automation are increasingly being used to modernize traditional industries, from optimizing restaurant supply chains to enabling smart warehouses.

The Path Forward: Co-Creation, Not Just Capital

The traditional venture model — write checks, wait for a unicorn — may be fading. Today’s investors are stepping into the trenches.

“I argue that the era of just finding and passively investing is gone. You need to co-create,” said Yinglan Tan.

VCs are beginning to offer more operational support, product strategy, and local expertise — especially in a region as fragmented as Southeast Asia, where language, regulation, and culture vary dramatically across borders.

Final Thoughts

The Southeast Asian startup ecosystem is still alive — but it’s evolving. Venture capital is no longer chasing mythical unicorns at all costs. Instead, investors are seeking down-to-earth businesses, real-world impact, and sustainable returns. The race is no longer just for speed — it’s about stability, profitability, and building durable companies that can weather any storm.

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