Private funding for Southeast Asia’s digital economy is showing signs of resilience but not enough to keep pace with the global private equity and venture capital rebound, according to the latest joint report from Google, Temasek Holdings, and Bain & Company.

In the 12 months through June 2025, private funding in the region’s internet economy climbed 15% year-on-year to $7.7 billion, the report said  well below the global growth rate of 25%. Despite this modest recovery, investment remains 70% lower than the record $27 billion reached in 2021, underscoring the challenges of reviving deal activity after two years of capital tightening.

While Southeast Asia remains one of the world’s fastest-growing digital markets, the funding slowdown signals that global investors are becoming more selective, focusing on late-stage, AI-driven, and infrastructure-heavy ventures rather than early-stage innovation.

Funding Shifts to Late-Stage and AI-Driven Ventures

The report shows that late-stage rounds now dominate the regional funding landscape, with their share rising to roughly 80% of total investment. In contrast, seed to Series B funding — the critical early-stage pipeline that nurtures new startups  has dropped from 30% to about 20% over the past year.

This tilt toward mature companies reflects a more cautious investor mindset, shaped by higher interest rates, slower exits, and valuation recalibrations across global venture capital markets.

“The flight to safety is clear,” said Michael Loo, Southeast Asia investment head at Bain & Company. “Investors want proven scalability and predictable returns  not early-stage experimentation in an uncertain macro environment.”

However, AI remains a standout exception. Artificial intelligence startups captured 32% of Southeast Asia’s total private funding in the first half of 2025, up from 30% in late 2024. More than 680 AI startups raised a combined $2.3 billion, with Singapore accounting for nearly three-quarters of those companies.

This surge mirrors global trends but also reflects the region’s distinct AI ecosystem, anchored by Singapore’s policy incentives, Malaysia’s low-cost infrastructure, and Thailand’s rising tech ambitions.

Data Centers: The Infrastructure Backbone of Southeast Asia’s Digital Expansion

The report also highlights a surge in data center investment, as tech giants and investors race to meet the compute demands of the AI boom. Once all current projects are completed, Southeast Asia’s data center capacity is projected to grow by 2.8 times, outpacing the broader Asia-Pacific average of 2.2 times.

Malaysia has emerged as the region’s biggest data infrastructure magnet, with 2,415 megawatts (MW) of new capacity under development  more than half of Southeast Asia’s total planned 4,620 MW.

“Malaysia’s strategic advantage lies in its low energy costs, ample land, and central location,” said Karen Wong, Asia-Pacific infrastructure lead at CBRE. “Combined with surging AI demand, it’s become a magnet for both Western and Chinese hyperscalers.”

Major global players are already committing billions to the region:

• Google and Amazon plan to invest $1 billion and $5 billion respectively in Thailand.

• Bytedance’s TikTok is setting up a $4 billion data-hosting hub in the same country.

• Microsoft, Tencent, Huawei, and Alibaba have announced new cloud and AI infrastructure investments across Malaysia.

These capital flows are transforming the region’s economic geography, positioning Southeast Asia as an AI-era data gateway connecting the U.S., China, and India.

Balancing Growth and Investor Confidence

Despite its size and dynamism  with nearly 700 million people and one of the world’s youngest online populations  Southeast Asia still faces structural bottlenecks that hinder its digital economy’s full potential.

Funding concentration in late-stage ventures could limit startup diversity, slowing innovation at the grassroots level. Moreover, uneven regulatory environments across ASEAN countries continue to complicate cross-border investments.

Still, analysts say the fundamentals remain strong. “The digital economy here is not shrinking  it’s recalibrating,” said Tan Mei Ling, senior economist at Temasek. “What we’re seeing is capital consolidating behind strategic priorities like AI, logistics, and data infrastructure, where the returns are clearer and the competitive moats deeper.”

Outlook: Strategic Consolidation Before the Next Growth Wave

Looking ahead, Southeast Asia’s digital ecosystem appears to be entering a consolidation phase, where technology maturity and infrastructure scale matter more than startup hype.

If global liquidity improves and regional governments continue supporting innovation-friendly policies, analysts expect a rebound in early-stage funding by late 2026, particularly in fintech, logistics, and sustainability tech.

For now, however, the story of Southeast Asia’s digital economy is one of selective optimism  a region brimming with long-term promise, but one where capital is flowing more carefully, more strategically, and increasingly toward AI-led transformation.