ASEAN tech investment shows stabilisation but funding gaps

A report from January Capital has revealed insights into the current state of Southeast Asia's technology investment landscape, indicating early signs of market stabilisation yet highlighting significant structural funding gaps.

The findings, outlined in the 2024 State of the ASEAN Technology Ecosystem Report, show an increase in capital deployment during the latter half of 2024, signifying a sequential rise compared to the first half. Despite a year-over-year decline of 18% in total invested capital and a 23% drop in deal counts, these figures reflect the smallest annual contractions since the peak of market funding in 2021, suggesting a possible turning point.

Ben Dunphy, Partner at January Capital, noted, "We're seeing stabilisation return to the market, but not where the region needs it most. The lack of dedicated seed funding and specialist AI capital is a structural issue. If left unaddressed, it could choke the pipeline of tomorrow's high-growth companies."

Despite global investment in artificial intelligence (AI), the report highlights that Southeast Asia's AI sector remains significantly undercapitalised. There has been a 50% year-over-year decline in software and AI deals since 2022, notwithstanding substantial investments from multinational corporations such as Microsoft, NVIDIA, and OpenAI in the wider Asia region.

"Local venture capital has yet to seize the opportunity. Without specialised AI capital and domain support, ASEAN risks being left behind in one of the most transformative technology shifts of our time," commented Hongfei Xia, Investor at January Capital.

The report further points to a significant lack in seed-stage funding, critical for energising a dynamic startup ecosystem. The year 2024 witnessed the most pronounced decline in both the number and size of seed deals, even as investments for later-stage startups showed signs of recovery.

The disparity is evident, with Series A investments now three times the size of seed-stage investments, and valuations fourfold higher. As Xia warns, "The lack of early-stage funding risks an exodus of high-quality founders to other jurisdictions. Dedicated, stage-specific capital is urgently needed to back these companies at the point where they need it most."

The report also identifies an emerging maturity in ASEAN's tech funding sector, with a rise in investor selectivity favouring high-quality operations and robust execution models.

"This recalibration is healthy, but we can't ignore the fault lines underneath," remarked Dunphy. He emphasised the need for comprehensive early-stage investment to ensure the growth and scaling of promising startups into future market leaders.

Dunphy added, "As Southeast Asia's digital economy continues to expand, the State of the Ecosystem report provides critical insights into the region's evolving venture landscape. Given the region's historically lower media and private market data penetration compared to North America and Europe, these insights are crucial for driving informed investment decisions and unlocking new opportunities."