This interview originally appeared in the DealStreetAsia DATA VANTAGE report Mapping SEA & Indonesia’s 2024 Journey released during the Indonesia PE-VC Summit 2025.
The role of debt financing in Southeast Asia’s tech ecosystem is becoming increasingly prominent as startups seek alternative funding options amid a prolonged funding slowdown, with venture debt emerging as a critical tool for founders to navigate the evolving landscape, says Paul Ong, Partner at InnoVen Capital.
“In 2023, we observed a significant rise in demand for venture debt, with 46% of founders considering this option, double the 23% in 2022, and we observed a continued increase in 2024,” Ong said in an interview for the DealStreetAsia DATA VANTAGE report Mapping SEA & Indonesia’s 2024 Journey.
This surge reflects a broader shift, where valuation mismatches and investor caution have driven startups toward debt financing as a lower-cost alternative to equity capital, he added.
Aligning with Ong’s insights, the report highlights a record 54 debt financing deals secured by Southeast Asian startups in 2024, the highest annual volume in at least six years. The total deal value reached $1.85 billion, representing a 150% year-on-year increase. While working capital loans from banks saw an uptick, the sharp rise in venture debt underscores its growing appeal as founders sought non-dilutive capital amid a challenging equity fundraising environment.
Ong noted that debt financing is playing a key role in capital optimization and growth, particularly as the region’s tech sector matures. “Looking ahead to 2025, we believe raising debt capital will continue to become a mainstay for companies as the technology ecosystem in Southeast Asia continues to mature,” he added.
However, Ong cautioned that challenges remain. He noted that the tightening macroeconomic environment and geopolitical uncertainties could affect both the availability and terms of private debt. At the same time, competition among venture debt providers is intensifying, with startups placing greater emphasis on selecting financial partners that align with their long-term strategic goals.
The following are excerpts from the interview with Ong:
Q: While our insights into the venture debt market are limited, it’s clear that tech startups have increasingly turned to loans to finance their operations over the past two years. Could you provide your perspective on the dynamics of the regional venture debt market and share your outlook for 2025? What trends or challenges do you foresee shaping the sector moving forward?
A: The venture debt market in the region has experienced notable growth, reflecting a shift in how tech startups are navigating the evolving funding landscape. In 2023, we observed a significant rise in demand for venture debt, with 46% of founders considering this option—double the 23% in 2022, and we observed a continued increase in 2024.
“There remains a mismatch in valuation and growth expectations between founders and investors.”
This uptick highlights a broader trend: amidst the ongoing funding winter, there remains a persistent mismatch in valuation and growth expectations between founders and investors. This gap has driven many startups to explore alternative financing sources with lower costs of capital compared to equity financing, such as venture debt. At the same time, we have witnessed some credit dislocation in the market, with more traditional lenders becoming increasingly risk-averse, which has created greater opportunities for alternative financiers and private credit providers (including Innoven Capital) in the market.
“In a matured tech ecosystem, debt plays a vital role in fueling growth.”
In a matured tech ecosystem, debt plays a vital role in fueling growth, optimising capital structures, and enhancing returns on equity. Looking ahead to 2025, we believe raising debt capital will continue to become a mainstay for companies as the technology ecosystem in Southeast Asia continues to mature, whilst the trend of founders building sustainable businesses continues to persist.
The key challenges shaping the sector include the tightening macroeconomic environment and geopolitical uncertainty, which may influence both the availability and terms of private debt providers. Additionally, as competition intensifies among venture debt providers, startups will likely place greater emphasis on selecting partners who align with their long-term strategic goals. For the sector to thrive, fostering transparency and adaptability will be crucial to addressing the evolving needs of founders and their businesses.
Southeast Asia’s venture ecosystem is diverse, with varying levels of maturity across markets. Are there specific countries or sectors in the region where Innoven Capital sees the most promising opportunities for venture debt in 2025?
Southeast Asia’s venture ecosystem offers a diverse and dynamic landscape, with certain markets and sectors standing out as particularly promising for venture debt in 2025. At Innoven Capital, we are closely monitoring opportunities in areas where digital adoption, innovation, and sustainability converge.
Countries like Indonesia, Vietnam, and the Philippines, where digital transformation is rapidly accelerating, present significant potential. In these markets, technologies that address fundamental societal needs—such as healthcare and education—are gaining traction. Innovative companies offering scalable solutions to close societal gaps are well-positioned to attract funding, especially as they align with both consumer demand and government initiatives.
Fintech solutions that promote financial inclusion remain another key focus area.
“Countries like Indonesia, Vietnam, and the Philippines present significant potential [for venture debt].”
In markets with large underserved populations, such as Indonesia and the Philippines, companies providing innovative services in payments, lending, and insurance are driving meaningful change. Venture debt can play a pivotal role in supporting these businesses as they scale to meet growing demand.
Artificial intelligence and deep tech are also reshaping Southeast Asia’s innovation landscape. Countries like Singapore and Malaysia, with their advanced infrastructure and access to talent, are fertile ground for AI-powered solutions and deep tech innovations. Similarly, sustainable technologies, such as renewable energy, green buildings, and eco-friendly products, are attracting significant interest across the region, fueled by a collective commitment to combating climate change.
Innoven has partnered with high-growth startups across various stages. What characteristics or metrics do you prioritise when assessing a startup’s suitability for venture debt, particularly in the Southeast Asian market?
The key considerations for assessing a company’s suitability for venture debt in Southeast Asia may vary depending on the maturity of the company, however, several key characteristics are prioritised across all companies.
Strong and consistent revenues, healthy gross margins, stable cash flow, and comfortable existing leverage are essential financial performance indicators. Additionally, a scalable market opportunity, competitive advantage, unique intellectual property, and an experienced management team are crucial. The company’s product or technology should demonstrate a clear fit with the target market. Finally, local market knowledge, adaptability to regional challenges, and regional growth potential are vital considerations in Southeast Asia’s diverse and rapidly evolving market landscape.
With a growing number of startups in Southeast Asia turning to debt financing, what unique trends or patterns have emerged in the region that differentiate it from other emerging markets such as India and China?
India and China are large local markets with single regulatory frameworks and more mature capital markets and stock exchanges. Comparatively, as a collection of several countries, the Southeast Asia market is fragmented by market size, regulation, and even investors, and with less developed capital markets infrastructure.
Compared to India and China, we have seen more Southeast Asian companies adopt the desire for regionalisation and globalisation a lot earlier in their roadmaps to scale. Having less developed capital markets may also force Southeast Asian companies to stay private longer, or build themselves with the aim for a trade sale rather than to go public.
These trends have led companies in the region to be even more focused on profitability and unit economics, as well as a greater focus on managing their cash flow and optimising the financing of their businesses.
In light of the recent bankruptcies and high-profile mismanagement, fraud, and misappropriation among major tech companies in Southeast Asia—many of which are backed by leading global VCs—how does your firm mitigate such risks in the region? What safeguards or due diligence processes have you implemented to protect your investments and maximise returns in this challenging environment?
The risk of financial mismanagement is not specific or greater in Southeast Asia than in other markets around the world, and we have consistently assessed this risk as a lender from the time we started the business.
“The risk of financial mismanagement is not specific to Southeast Asia.”
While specific safeguards and due diligence vary from each company we assess, as a lender we mitigate our risks via carefully crafted loan and security structures that allow us to generate repayments and de-risk our investments much faster than equity capital.
