The tourists went home: who is actually left to fund Southeast Asia

Last week one of the firms that taught this region what seed capital even looks like quietly admitted that it will not raise another Southeast Asia fund. 500 Global showed up in KL, in Jakarta, in Bangkok more than a decade ago, when honestly almost nobody in the Valley could find these cities on a map, let alone wire money to them. They ran the accelerators. They wrote the small early checks that nobody else was writing at the time. For a lot of founders here, a 500 check was the first time a real Silicon Valley name said yes. DealStreetAsia reported on 31 August that they are not raising another dedicated Southeast Asia fund. Future bets here come out of the global pool. A smaller local team, mostly managing and winding down what they already own. To be fair, and I am going to try to be fair the whole way through this, Khailee Ng pushed back a few days later. Still committed to the region, still managing the existing funds, still looking at new mandates. I believe him. He is tied to this place far more than I am, because I was not born here. And both things can be true at once. You can be genuinely committed to a region and still decide you will not raise a dedicated fund for it. Hold that thought, because the gap between what people say and what they will actually write a check for is the entire point of this piece. And this is not a 500 story. That is just the way in. One. Two canaries, one coal mine Rewind and look at Y Combinator, the most famous accelerator on the planet. In 2021 and 2022 their batches swelled to something like 400 companies. Founders from everywhere, checks everywhere, the whole world invited. Then under Garry Tan they cut the batch back to roughly 100. They stepped back from late stage. And they pulled back from the rest of the world. The Winter 2023 batch was about 21% international. The batch right before it was 42%. Cut in half. Today something like 80% of the batch is an AI company, which surprises nobody. Now look at what those two decisions have in common. The biggest early stage machine in the United States, and one of the most important funds this region ever had, a decade apart, looked at the whole wide world and reached the same conclusion. Smaller. Closer to home. Pointed straight at AI. That is the tide going out. Two canaries in the same coal mine, singing the same note. This piece is about what the tide leaves behind here. Two. The boom is four companies wearing a trench coat Start with the number everybody is celebrating, because that number is part of the tell. Global venture capital just had a record six months. Around $510 billion in the first half of 2026. That is more than all of last year in half the time. If you only read that one headline, you would think we are living through the single greatest funding boom in the history of the industry. Put your skeptical hat on with me, because here is the number that actually matters. Artificial intelligence took roughly 77% of all global venture dollars in that half year. Two companies you already know, OpenAI and Anthropic, raised somewhere around $217 billion between them. Say that a different way so it lands. Two companies, essentially in California, took about 43% of all startup funding on planet Earth. The US on its own was about $412 billion, and 86% of that went to AI. Now the caveat, because I promised I would and because the whole brand of this show is that I do not read you a number without telling you what is wrong with it. These figures move depending on who is counting and what they choose to count. Different reports land on slightly different numbers, so treat them as directionally correct rather than precise. And the definition of an AI company right now is extremely generous. Anyone with an API wrapper and a login screen qualifies. Out here we are throwing data centres and chip companies into the same bucket, and it is a fair question whether hardware belongs in an AI funding total at all. Every version of the number tells the same story anyway. The money is concentrating into the US. Inside the US it is concentrating into AI. Inside AI it is concentrating into about four companies, mostly the two I just named. So when a fund manager gets on a stage and tells you venture is back, ask the simple question. Back where? Strip out those few mega rounds in San Francisco and the rest of the planet is not in a boom. Some markets are recovering. That is not the same thing. The oxygen got pulled into one room, and we are not in that room. Three. This time they have something better to do at home Here is the part that should sting, because it is a change from the old story. This is not the usual complaint where American money ignores us because it does not understand us. This time the US money has something better to do at home. So ask yourself honestly: why would capital that has that choice get on a 14-hour flight to underwrite a logistics startup in Kuala Lumpur, when it can walk three blocks from the office and put a check into a frontier lab that might be worth a trillion dollars? It would not. It is not. That is not a slight against Southeast Asia. That is gravity. The returns moved, so the money moved. Capital is not loyal and it never was. Even the money that does show up in our numbers is not always what it looks like. You will hear that Singapore now captures something like 78% of all Southeast Asian startup funding. Seventy-eight percent, one city. Be careful with that figure too, because a chunk of it is not activity, it is address. Companies born elsewhere domicile a holding company in Singapore for the tax and the safety, and the raise gets counted as Singapore. Strip out the holding company effect and the infrastructure deals, and the amount of genuine early stage, founder-led money landing across the rest of this region is thin. Thinner than the conference panels will tell you. Four. Nobody is funding the funds Which brings me to the question the rest of this is really about. If the tourists have gone home to chase AI, and the money that stayed is huddled in one city, who is actually left to fund the next founder in Manila, in Ho Chi Minh, in Kuala Lumpur, in Bangkok? So I went looking at who is raising money to invest in this region. Not investing. Raising. That is the leading indicator, and almost nobody talks about it, because a lot of it is non-public by regulation and quite a lot of it is non-public by design. A fund that cannot raise cannot write checks next year, no matter how confident it sounds or how good the website looks. Here is what you find, and it should stop you. In the first half of 2026, I could not find a single dedicated Southeast Asia fund that reached a final close. Not one. Only one Southeast Asia focused venture fund closed at all in that window. And as of August, no Southeast Asia headquartered venture manager had reported a final close for the year. My data set may well be incomplete. Some of the paid sources I do not subscribe to will show something I cannot see. But the word on the street matches the numbers I can get to. It is tight. Let me translate that out of finance language. The machine that raises the money, that then funds the founders, has basically stopped for the year. Think about how a fund actually works. A general partner goes to family offices, pension funds, high net worth individuals, sometimes corporates, and at the larger end the sovereigns. That is the raise, and it takes a year, two, sometimes three. Then they spend the following years deploying it into startups. So if nobody is closing a fund in 2026, that is not a bad year. That is a hole in the checks founders will feel for the next several years. Regional deal value is already down, and the tank that is supposed to refill it is running close to empty. Keep that one in your pocket for the next time somebody at an event talks glowingly about this region’s bright future. Bright futures are funded in advance, and right now almost nobody is funding the funds. And before you tell me this is just the small tourist players washing out and good riddance, look at the biggest name of all. Peak XV, formerly part of Sequoia, generally well regarded, announced $1.3 billion in February. Genuinely good news. But it is an India fund and an Asia Pacific fund. Not a Southeast Asia fund. The biggest name that ever carried this brand in this part of the world raised money and pointed almost none of it specifically here. India gets its own dedicated vehicles. Asia Pacific, the big blurry bucket, gets one too. Southeast Asia as its own thing, with its own fund and its own partners? Apparently not. That is what I mean by the herd thinning. It is not always a dramatic exit and a farewell blog post. Sometimes it is just a fund quietly taking the words Southeast Asia off the label and hoping nobody notices. I noticed. And I am guilty of a version of it myself. We added Japan, and to make that work we swapped Southeast Asia for APAC. Five. The three letters that decide who keeps their job So why did the money that was so in love with this region a few years ago go quiet? I am not going to let us off the hook here, because a big part of this we did to ourselves. The answer is DPI. Distributions to paid-in capital. In plain English: of the money the investors gave the fund, how much did the fund actually give back? Not on paper. Not in a markup. In the bank account, in real dollars, returned to their own investors. The honest answer in Southeast Asia is not much, and not lately. Exit value fell about 32% last year, to something like $4 billion for the entire region. Almost every good exit this region ever produced is still clustered back in 2021 and 2022. Since then it has not been slow. It has been quiet. Put yourself in the shoes of a limited partner. You are a pension fund, a family office, a sovereign wealth fund. You put money into Southeast Asia venture in 2019. In 2021 you were told with a straight face and a beautiful deck that this was the next China. It is 2026. Where are your distributions? For a lot of them the answer is still trapped inside companies that cannot go public because the local markets are too shallow, and cannot find a buyer because the strategic acquirers are not there. Or companies still burning cash, right-sizing, growing slower than the deck promised. The money is technically alive. It is just not coming home. Do that to an investor once and they call it bad luck. Do it across a whole region, across multiple vintages, and they remember. When they sit down to decide where the next allocation goes, they do not come back to the market that locked up their money for ten years and sent them a newsletter about potential. They go where the exits actually happen. Which is exactly what is happening. Capital is rotating into what people now call developed Asia. Japan is leading it, and a lot of money is going there. Korea and Australia are picking up attention. Why? Clearer exits, better governance, stock markets that function and let an investor get the money out. There is real nuance to the Japan story that deserves its own episode, but the direction of travel is not in doubt. So follow the whole picture. US money went home to chase AI. Chinese cross-border money got fenced off by geopolitics. And the LPs still committed to Asia are drifting north and east, toward liquidity, toward the places that pay them back. Now, it would be very easy to stand at this microphone and sound like a victim. We are not victims. This region sold a growth story for a decade and did not build the plumbing to get the money back out. Shallow public markets. Thin strategic buyers. Growth at all costs, which worked right up until the music stopped. Founders and funds that optimised for the next round instead of the eventual exit, because the next up round felt great and the exit felt far away. The tourists did not only leave because AI got shiny. They left because we did not pay them back. That is a much harder sentence to say out loud than blaming San Francisco. It is also the true one, and if we cannot say it we will never fix it. Six. The three doors the survivors walked through Here is the part I hope is genuinely useful if you are building or investing here right now. The funds that stayed did not calmly keep doing early stage Southeast Asia the way they used to. Almost none of them did. They each walked through one of three doors, and you need to know which door your investor walked through, because it tells you whether they will ever fund a company like yours again. Door one. They moved up the stage curve. Late stage is quietly reviving, because late stage is where the perceived safety is. More numbers, more traction, an established business that is unlikely to go to zero next quarter. It resembles stock picking. The flip side of that safety is brutal for an early founder: if the money moves up, you now have to prove more, earlier, for a smaller check, at a lower valuation than the person who raised two years before you. The bar went up and the check went down at the same time. The clearest example is not a tourist. Monk’s Hill, Singapore based, a firm that spent more than a decade preaching the gospel of early stage, restructured this year. They closed the Jakarta office, ending more than ten years on the ground there, pulled the team back to Singapore, and moved toward growth. Sit with that, because it is this entire argument compressed into one firm. A respected local name, not a fly-in fly-out fund, did two things at once. They moved up and away from the early stage founder, and they retreated geographically to the safe city. When the people who spent ten years telling you early stage was the future decide the future is actually growth, that is not California losing interest in us. That is the herd thinning from the inside, right here at home. Door two. They went physical. If the money is not going into your app, it is going into concrete and steel and cooling systems and power. Data centres in Johor. EV fleets, ports, warehouses, chips. This is the real story hiding behind a lot of the big headline numbers pouring into Southeast Asia. It is not venture capital backing a founder with an idea. It is infrastructure money backing assets with twenty-year contracts. It absolutely counts in the regional funding total, and it does almost nothing for a software founder here trying to raise a seed round. Two completely different kinds of money dressed up as one number. Door three, and this is the big one from where I sit. They started deploying the government’s money against the government’s map. Sovereign and state capital, spending on industrial policy. Malaysia is putting real money behind a sovereign AI cloud, and the Prime Minister has just topped up small business lending. Indonesia has Danantara. Singapore has Temasek and its subsidiaries, including the recent Vertex commitment we covered. Khazanah has its own orbit. This is capital that answers to a ministry and a five-year plan, not to a founder with a strange idea and a prototype. Some of it does go downstream into funds, but those funds are usually there to apply a specific policy, and they do not stray far outside those bounds. I am not knocking state capital. In a drought, the state stepping in is genuinely a good thing and I would much rather have it than not. But be honest about what it is and what it is not. Government money is good at survival. It is good at working capital, at infrastructure, at keeping small businesses alive through a hard year. It was never designed to be patient, slightly crazy, high-risk equity backing a founder building something that does not yet exist. It is not good at the off-the-cuff, the outside-the-box, the grey area. The moment we start pretending state lending and venture capital are the same thing, we get a region full of subsidised companies that survive forever and scale never. So put it on the slide in bold. A microfinance top-up is not a seed round. A sovereign infrastructure fund is not an early stage investor. Let us stop blurring those lines. Seven. Rented money was never going to stay Let me pull this together, because I do not want it to sound like a eulogy. The tide of global capital went out because AI at home offered a better return than a flight to Southeast Asia ever could. The LPs who backed this region did not get paid back, so many rotated to Japan, Korea, Australia, or straight back to the US and Europe. The funds that stayed climbed up to growth, or moved into concrete, or picked up the government’s checkbook. And the early stage founder, the person this whole show exists for, is left standing on the beach wondering where everybody went. Here is the reframe I want you to carry out of this. The money that just left was renting. It was never building. You cannot build a durable home for founders on rented money. We spent a decade optimising this entire region for capital that was never truly committed to it, capital that was always going to leave the second something shinier appeared back home. Hot money. Something shinier appeared, and it left. That is not a tragedy. That is information. Painful, useful information about who was ever really here for us. The trap now is to sit on that beach and wait for the hot money to come back. To keep copy-pasting the Silicon Valley playbook, running the same growth-at-all-costs script, hoping the tourists return with their checkbooks. They are not coming back on your timeline. And even if they do, they will leave again the next time California has a better idea. If your entire plan depends on other people’s money staying interested in you, you do not have a plan. You have a hope. The opportunity, and I mean this as someone still writing checks here on purpose, is that a smaller, more patient, more locally owned base of capital might actually be healthier than the tourist money that just walked out the door. Money that is here because it believes in this place, not because the place was briefly fashionable at a conference. Founders who build for real revenue and a real exit from day one, because there is no other option, because there is no giant growth round coming from San Francisco to bail out a business that does not work. That is a harder region to raise money in. I will not pretend otherwise. It is a far better region to build a real company in. This is exactly why I keep saying what I say about the Philippines and the markets everybody overlooks. When the easy money leaves, the advantage shifts to the people who never had easy money in the first place. The founders who learned to grow on their own cash flow in a market that was never fashionable. Those are the ones still standing when the tide is out. That is not a consolation prize. In this environment, that is an edge. So back to where we started. 500 stepping back. YC going home. Monk’s Hill moving up to growth. Peak XV taking our name off the fund. When the tourists leave, the question is not who is sad to see them go. The question is who is still standing here, willing to write the first check into a founder that nobody in San Francisco will ever get on a plane to meet. That is the whole game now, and honestly it is the game I would rather be playing. Because the people who stay, and the founders they back through this, are going to own what gets built here next. Not rent it. Own it. If this made you think differently about who is really funding this region, do two things. Send it to one founder who needs to hear it, and send it to one investor who needs to be challenged by it. This piece accompanies this week’s episode of SEA of Startups. Real. Raw. Relatable. 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