Xun Zeng is Partner in Charge–Beijing; and Kepei Miao is an Associate at law firm Cooley.
Global investors are facing a challenging investment environment—one shaped by macroeconomic uncertainty, evolving policy landscapes and shifting liquidity preferences across asset classes. In turn, venture capital in Asia is evolving rapidly in response to these shifting global dynamics.
This is one of the most prolonged and globally synchronised periods of uncertainty the industry has experienced, especially in the last decade.
Venture Capital (VC) funding in Asia plummeted to $65.8 billion in 2024, marking a 10-year low and reflecting a sharp decline from previous years.
Once seen by global LPs as a distinct and strategic allocation, Asian VC is now entering a phase of reassessment. This raises the question: where does Asia’s venture capital industry stand today in terms of market dynamics and institutional capital allocation?
We address this question as we explore three emerging dynamics that are reshaping Asia’s venture capital landscape.
Current investor focus and liquidity environment
Increased volatility across Asian markets, driven by a drop in startup valuations and slower private equity activity, has led many to revisit traditional venture capital strategies in recent years.
We are witnessing a subtle but notable shift in how institutional investors approach Asia’s venture capital markets from a focus on long holding periods and unicorn outcomes towards greater emphasis on exit potential, liquidity pathways, downside protection, and visibility on outcomes.
Investors today are more focused on exits and distributions than ever before—even traditionally patient capital, such as some US university endowments, is not exempt from this shift.
Investors today are more focused on exits and distributions than ever before.
On the other hand, liquidity remains a central challenge. While IPO windows are cautiously reopening in Asian markets such as Hong Kong, Japan, and India, Southeast Asia may not offer the same depth. Fewer companies are IPO-ready or targeting US listings in Southeast Asia.
As a result, the private sector remains the primary exit route, particularly through mergers & acquisitions (M&As) and secondary transactions.
Influence of government policies
VC strategies are never executed in a silo. For VC investors, government involvement and the strength of policy support in a given market play a significant role. This has become an area of growing focus, as general partners (GPs) pay closer attention to how regulatory environments and public initiatives may influence capital formation and long-term company building.
Governments across Asia can expedite growth by establishing thoughtful frameworks for data sharing, digital infrastructure, and cross-border commerce. For example, ASEAN-wide coordination on AI, cybersecurity and data localisation could reduce compliance costs and enable regional scaling.
Governments across Asia can expedite growth by establishing thoughtful frameworks for data sharing, digital infra, and cross-border commerce.
Governments can also potentially facilitate exits through supportive IPO policies, capital gains tax regimes, and encouragement of local institutional investors. Public-private partnerships are essential to unlocking blended capital in infrastructure-heavy verticals such as climate and mobility.
While Southeast Asian countries have different starting points, regional collaboration, particularly on digital economy rules, could provide the foundation for a new generation of investable companies.
Light touch comparisons with other markets are also instructive. For instance, India has seen substantial progress thanks to public investment in digital rails (e.g. UPI) and regulatory reforms. Meanwhile, in China, many companies remain resilient and profitable despite cycles of regulation, though Southeast Asia’s decentralised model may offer more stable investor access in the long term.
VC strategy adapting to regional realities
Given all the variables, VC managers are adjusting their strategies across Asia to reflect differing local market conditions.
Among China-focused VC managers, several GPs are shifting their focus toward supporting portfolio companies in expanding overseas. Others, however, remain confident in the depth and breadth of the domestic market and have chosen to maintain their current strategies and continue to double down on China. Meanwhile, some GPs no longer see equity as the dominant investment approach and are beginning to explore alternative paths such as credit or Web3 strategies.
In Southeast Asia, the relatively small market sizes, fragmented economies, and fewer homegrown success stories have made it more challenging to apply traditional venture models at scale. GPs are increasingly moving toward more diversified portfolio construction as well as shorter-term and outcome-driven strategies.
Given the limited IPO exits, investors have shifted their focus back to fundamentals and unit economics.
Given the limited IPO exits, investors have shifted their focus back to fundamentals and unit economics. Instead of relying on a single breakout winner, many funds are now aiming for multiple solid outcomes; often targeting a smaller number of companies that can deliver meaningful, if not outsized, returns.
There is also a noticeable shift toward backing early-stage businesses that are already generating cash, reflecting a departure from the previous “growth at all costs” mindset. At the same time, hybrid capital structures that combine equity and credit are increasingly being used to support mid-sized, often family-owned businesses seeking digital or AI transformation without equity dilution.
Promising outlook despite evolving evaluation framework for Asia VCs
It is undeniable that the Asia VC ecosystem is adapting to a new era. Both GPs and LPs are course-correcting to remain relevant and successful as they navigate the changing environment.
GPs are recalibrating expectations, embracing new portfolio models, and actively exploring shorter-duration exits through secondary transactions, M&As, and targeted IPOs. Simultaneously, GPs are leveraging government incentives and policies across different markets, while new areas of technological development and opportunity continue to emerge.
For LPs, the question is whether this is the time to look past headline uncertainties and assess which managers are truly positioned to navigate the region’s structural evolution and deliver outsized returns on the back of it.
It remains to be seen how the ecosystem will recalibrate in the face of persistent uncertainty and structural evolution.
