Singapore – A deepening funding drought across Southeast Asia is raising concerns that a growing number of startups may become “zombie firms” – companies sustained by minimal capital, unable to grow or innovate, and perpetually on the brink of collapse. Although the region remains a hotbed of entrepreneurial activity, the dramatic slowdown in investment is creating a challenging environment, particularly for early-stage ventures.
The downturn is a stark contrast to the boom years of 2021, when funding reached its peak. Last year, but, Southeast Asian startups raised just $5.4 billion, a figure representing only a quarter of the investment seen in 2021, according to data reported by Nikkei Asia. This significant decrease is forcing companies to make difficult decisions, including layoffs, scaling back operations, and, in some cases, shutting down entirely.
The situation is particularly acute in Indonesia, Southeast Asia’s largest economy. Recent economic headwinds, including a downgrade of its sovereign credit rating outlook to negative by Fitch Ratings, have contributed to a decline in investor sentiment. Startups that had previously relied on readily available capital are now facing increased scrutiny and a more competitive landscape for funding.
The Rise of “Zombie” Startups
The term “zombie startup” refers to companies that are technically still operating but lack the financial resources to achieve sustainable growth. These firms often rely on bridge loans or minimal revenue to cover basic expenses, effectively existing in a state of prolonged uncertainty. While not immediately failing, their limited capacity for innovation and expansion hinders their long-term prospects and can stifle overall economic development.
Experts warn that a proliferation of zombie startups could have several negative consequences. It can tie up capital that could be better allocated to more promising ventures, distort market dynamics, and ultimately lead to a less vibrant and competitive startup ecosystem. The image of Indonesian startups striving to modernize traditional distribution systems, as Reuters reported in July 2025, exemplifies the challenges faced by companies attempting to achieve profitability in a difficult market.
Indonesia’s AI Roadmap and Foreign Investment
Despite the broader funding slowdown, Indonesia is actively pursuing strategies to attract foreign investment, particularly in the technology sector. In July 2025, officials announced plans to finalize a national strategy on artificial intelligence, aiming to position the country as a regional hub for AI development and innovation. This roadmap is intended to create a more favorable environment for both domestic and international investors, signaling a commitment to fostering a thriving tech ecosystem.
The government’s focus on AI is a strategic move, recognizing the potential of this technology to drive economic growth and improve various sectors, from healthcare to agriculture. However, the success of this initiative will depend on the ability to secure sufficient funding and attract skilled talent, challenges that are exacerbated by the current investment climate.
The Role of Data Collection Startups
The need for robust data infrastructure is becoming increasingly apparent as businesses across Southeast Asia seek to leverage data-driven insights. Startups like Tictag, which recently raised $1.3 million in pre-Series A funding, are playing a crucial role in providing the data collection tools and services needed to support this trend. However, even these promising ventures are not immune to the challenges posed by the funding crunch.
The ability of data collection startups to thrive will be contingent on their ability to demonstrate clear value to potential clients and secure sustainable revenue streams. The current environment demands a focus on efficiency, innovation, and a clear path to profitability.
Looking Ahead
The Southeast Asian startup ecosystem faces a period of recalibration. The easy money of the past is no longer readily available, forcing companies to prioritize financial discipline and sustainable growth. The Indonesian government’s efforts to attract foreign investment through initiatives like the national AI roadmap are a positive step, but their success will depend on addressing the underlying concerns about economic stability and investor confidence.
The next key indicator to watch will be the release of first-quarter 2026 funding data, expected in April, which will provide a clearer picture of whether the investment slowdown is continuing or showing signs of stabilization. For now, the risk of a growing number of zombie startups remains a significant concern for the region’s economic future.
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