Startups across Southeast Asia see the lowest levels of funding in years, but the real question is whether the money is simply going somewhere else. 


The headline numbers say it all. According to data released by private market research platform Tracxn Technologies on Tuesday, investment in fintech across Southeast Asia fell 65 percent in 2023 to $2 billion, its lowest level in five years.

Nothing about last year looked great. There were no new unicorns. The number of funding rounds fell. There were fewer acquisitions. Seed-stage investments cratered by more than two-thirds, as did early-stage, while the late-stage decline was just under that.

Very Different

The rationale provided for the decline also doesn’t entirely jibe. A global economic crisis was mentioned in the context of geopolitical tension, rising inflation, and heightened interest rates, all of which ostensibly reduced demand for goods and services.

That may be true in certain parts of the world but the whole reason we have the current level of rates is that at least one of the world’s larger economies, speak the US, is experiencing the exact opposite—relatively high growth and peaking, even moderating, inflation.

Don’t Say AI

However, that might not be why everything is falling so sharply. The big unmentionable, even bugbear here, is artificial intelligence.

It is a sector that by most accounts is not experiencing a lack of investment, according to the digital publication «Crunchbase News». According to them, investment in artificial intelligence startups «was big», with seeming «nine-figure» rounds being thrown out by investors every week, including eight deals of at least a half billion dollars or more, from OpenAI on down. In total, generative AI and other AI-related startups raised nearly $50 billion in 2023. 

Larger Shifts

Yes, this is far away in the US, and the Nasdaq and US equity markets have gotten all sprightly and bubbly because of it, but investor money is also not infinite, at least not yet, and this may indicate a larger change taking place.

Let’s take a glance at the areas where funding did grow in Southeast Asia, as that may provide some clues as to what is going on. The alternative lending segment was up 11 percent and insurance IT more than doubled while the payments segment saw an 87 percent drop. 

Which Theory Wins

The first two could potentially benefit from AI use cases, particularly generative ones, while it is less clear they would be of all that much help in the basic payments space. 

But we will have to see how things bear out in the future to see what thesis wins – the global economic crisis one or AI-takes-all.

Caught by Surprise

Just two years ago, the situation in Southeast Asia looked entirely different. That was when a record level of $8.6 billion was raised, or 77 percent more than in 2023. Outside of tech, artificial intelligence percolated in the background as something that few understood. Many of us were caught by surprise by the strength and depth, even force, of what happened in the AI space last year. Some of us are even employing it regularly now.

Fintechs would do well to make sure they don’t make the same mistake. If funding has shifted and they don’t get on board, many will be in danger of becoming legacy tech in much the same fashion as a plodding bank’s IT department.