AI, GenAI, and Beyond: Navigating the Next Wave of Tech Investments in SEA

As we head into 2025, the global tech investment landscape reflects shifting priorities, with artificial intelligence (AI) and generative AI (GenAI) taking center stage. Southeast Asia (SEA), with its growing digital economy and youthful demographics, presents immense opportunities for startups and investors.

1. Global Tech Investment Landscape

According to the Capgemini Research Institute, nearly three-quarters (74%) of business leaders rank AI and GenAI among their top three investment priorities for 2025.?

Tiago Jorge Candeias, Senior Director of Operational Planning at Infineon Technologies, a German semiconductor manufacturer, says: “Currently, most new factories are fully automated, with systems handling all transactional events autonomously. This generates vast amounts of data and, consequently, we are making significant investments in data analytics and AI to optimize workflows, processes, and tasks.”.?

Cloud computing, data analytics, cybersecurity, and 5G/6G edge computing also attract significant investment as organizations focus on digital transformation.

While the US leads in tech investments, allocating 1.45% of annual revenue to technology, Europe and Asia-Pacific (APAC) are slightly behind at 1.32% and 1.29%, respectively. Key factors that help US maintain a competitive advantage include:?

• Market Scale and Capital Availability: The US benefits from a large consumer base and a high concentration of venture capital firms, institutional investors, and corporate backers that fuel rapid tech growth. The presence of major stock exchanges like NASDAQ and the NYSE also provides strong exit opportunities, reinforcing investor confidence.
• Vibrant Startup Ecosystem: Silicon Valley and other innovation hubs provide access to accelerators, incubators, and experienced talent, making it easier for startups to scale.
• Government and Policy Support: US government initiatives, such as tax incentives for R&D and startup-friendly policies, encourage sustained investment in emerging technologies.
• University-Industry Collaboration: Leading institutions like MIT, Stanford, and Berkeley drive commercialization through research partnerships, tech transfer programs, and spin-off companies.
• Strong M&A and Exit Strategies: The US market offers more opportunities for IPOs, SPACs, and acquisitions, making it attractive for investors seeking profitable exits.

Meanwhile, European markets struggle with regulatory fragmentation, limited commercialization of research, and a focus on mature rather than emerging technologies. These disparities highlight the necessity of a regional approach to tech investment. Particularly, startups should prioritize trending technologies, leverage local ecosystems, and adapt to funding cultures. While the US offers unparalleled scale and capital, Europe and APAC present niche opportunities in sustainability, compliance, and emerging markets. Agility in navigating these landscapes will be critical to securing investment and scaling globally.

2. Southeast Asia’s Tech Investment Potential for Startups

US and Europe dynamics offer valuable lessons for emerging markets like Southeast Asia (SEA). The region’s young digital consumer base, government-backed initiatives, and increasing investment in AI-driven startups indicate strong potential for tech-driven growth.

2.1. Investment Trends in SEA

Despite global funding challenges, SEA remains a key destination for tech investments. In the first half of 2023, SEA saw $3.1 billion invested across 513 deals, though investment volume was down 54% year-on-year. Investors have shifted focus to early-stage startups, with Series A and B valuations becoming more realistic.

The region’s digital financial services sector remains resilient, accounting for over 40% of tech investments, while AI-driven startups, particularly in generative AI, are gaining traction. In 2023, generative AI start-ups secured close to 20% of total venture capital investments, with funding increasing threefold and the number of deals almost doubling compared to 2022.

2.2. The Rise of GenAI in SEA

As reported by GenAI Fund, SEA’s GenAI startup ecosystem is evolving rapidly. Singapore leads with 44% of the region’s GenAI startups, followed by Vietnam (27%), Indonesia (13%), Thailand (7%), Malaysia (6%), and the Philippines (3%). These startups primarily focus on business-to-business (B2B) solutions in productivity, healthcare, and financial services.

Funding remains a challenge, with 50% of GenAI startups bootstrapped or angel-funded. However, SEA’s lower valuations compared to US counterparts, its second-mover advantage, and corporate investor interest present promising opportunities.

2.3. Challenges Facing GenAI Startups

Slow Enterprise Onboarding & Go-To-Market (GTM) Challenges

GenAI startups often struggle with long sales cycles when trying to onboard enterprise clients. Many large companies require extensive validation and procurement processes that can take several months. Additionally, some corporations have policies that mandate startups to have at least two years of operational history, effectively locking out newer AI ventures from bidding on projects.

Even when deals are secured, delayed payment terms (often stretching 60–90 days) put financial strain on startups that rely on steady cash flow to sustain operations.

Uncertainty Around Product-Market Fit (PMF)

Given the fast evolution of AI technologies, many GenAI startups find it challenging to achieve a sustainable PMF. Rapid improvements in foundation models (such as OpenAI’s GPT or Anthropic’s Claude) mean that startups must continuously adapt their offerings to stay relevant.

Startups that build solutions on top of these models without adding significant value run the risk of being made obsolete by the very platforms they rely on.

Cash Flow & Funding Constraints

Funding remains one of the biggest hurdles for?SEA's GenAI startups.

• 49% of GenAI startups in the region are bootstrapped or angel-funded.
• Only 16% of startups are currently profitable.
• Series B and later-stage funding rounds are drying up, making it difficult for growth-stage startups to scale.

Without access to adequate capital, many startups are forced to offer consulting services alongside their AI products to generate immediate cash flow, which can slow down product development.

Competition with Big Tech & SaaS Giants

Big Tech firms, such as AWS, Google, and Microsoft, are investing heavily in AI, integrating GenAI capabilities into their cloud services. Many startups rely on these foundation models for their core offerings, which makes them vulnerable to pricing changes and direct competition from the companies they depend on.

Additionally, established SaaS (Software-as-a-Service) giants are incorporating AI features into their existing platforms, making it harder for new startups to differentiate their products.

Shortage of AI & Deep Tech Talent

While countries like Vietnam and Singapore have strong AI talent pools, many startups struggle to hire skilled engineers and AI researchers. Salaries for AI specialists are also rising, making it difficult for early-stage startups to compete for top talent.

Cultural & Regulatory Barriers?

Expanding across SEA is complex due to language differences, cultural nuances, and varying regulatory frameworks for AI adoption. Startups must navigate local compliance requirements, which can slow their ability to scale across multiple markets.

2.4. Opportunities for GenAI Startups

Growing Demand for AI Solutions in Enterprises & SMEs

The enterprise AI market is expanding, with 92% of GenAI startups in the region focusing on B2B solutions. Key industries adopting AI-driven solutions include:

• Financial services (automated workflows, fraud detection)
• Healthcare & wellness (AI-powered diagnostics, patient management)
• Marketing & content creation (AI-driven ad generation, personalized customer experiences)

As AI adoption accelerates, startups that offer specialized, high-value solutions have a strong opportunity to capture market share.

Strategic Partnerships with Big Tech

While Big Tech firms can be competitors, they also serve as valuable partners.

• AWS, Google, and Microsoft offer cloud credits and startup accelerator programs to help GenAI startups scale.
• Cloud marketplaces allow startups to sell their AI solutions without building large sales teams.

By leveraging these partnerships, startups can gain credibility and access enterprise customers more easily.

Government Support & AI Investment Initiatives

Governments in SEA countries are increasingly investing in AI and providing incentives for startups.

• Singapore has launched AI funding programs and accelerator initiatives.
• Malaysia is positioning itself as a regional AI infrastructure hub.
• Vietnam is emerging as a leader in GenAI development due to its strong technical talent pool.

These initiatives provide financial and regulatory support for startups looking to scale.

Mergers & Acquisitions (M&A) as an Exit Strategy

With IPO markets slow, corporate investors are becoming a key funding source for AI startups. More enterprises are looking to acquire AI startups to integrate advanced AI capabilities into their businesses.

Startups that develop niche, industry-specific AI solutions are particularly attractive acquisition targets.

Second-Mover Advantage in AI

SEA's startups can learn from the AI adoption challenges faced by the US and China. By focusing on localized solutions tailored to Southeast Asian markets, startups can develop differentiated products that address unique regional needs.

For example, AI companies in Vietnam and Indonesia are focusing on fine-tuned AI models that cater specifically to local languages and business environments.

Shift Towards Open-Source & Proprietary AI Models

To reduce dependency on major AI providers, many startups are fine-tuning open-source models like Meta’s Llama and Hugging Face’s frameworks. This allows them to:

• Build proprietary AI capabilities.
• Develop solutions tailored to specific markets.
• Avoid high licensing fees associated with closed AI models

Despite facing challenges in funding, talent acquisition, and enterprise adoption, GenAI startup ecosystem holds strong growth potential.

Startups that develop specialized AI solutions, leverage strategic partnerships, and align with government-backed AI initiatives are well-positioned for success. With AI adoption accelerating across industries, GenAI startups have the opportunity to become major players in the global AI landscape.