“Nothing in life is as important as you think it is, while you are thinking about it.” 

– Daniel Kahneman about the focusing illusion.

Southeast Asia’s startup ecosystem has experienced sluggish growth over the past three years, characterized by reduced investments, fewer startups, smaller funding rounds, and increased scrutiny regarding factors such as Total Addressable Market (TAM) and unit economics. This intense focus on the challenges facing the region has overshadowed the sectors and companies that are thriving despite these difficulties.

So, what’s ahead for 2025?

The theme of the year: A steady march towards the mean

2025 will see a steady recalibration towards longer-term trends. The year will belong to the outperformers — companies that have reset their models according to real market needs, delivering strong operational and financial metrics. These successful models will make it to the news headlines and revive constructive discussions in the region.

Our outlook: 

We estimate Southeast Asia’s Digital to reach ~USD 105-120 Bn in revenue on USD 300-340 Bn GMV (ex-financials) in 2025. Qualitatively, we see positive narratives revitalizing the ecosystem, energizing startups and investors alike.

Key Drivers of the Ecosystem 

1. Government Regulations: Hoping supportive measures lift local players

Tech penetration continues to grow, but keeping pace with policy shifts will be critical to gauging competitiveness across sectors. Singapore and Malaysia lead the pack in fostering innovation-friendly regulations, while others have catching up to do. We expect Indonesia to deliver predictable and favorable reforms for the new economy companies and their users.

2. Consumption: Are consumers warming up?

Consumption is the driver of Southeast Asian economic growth. Despite inflation eroding purchasing power in recent years, the outlook is brightening. Moderating inflation and improving consumer confidence are expected to revive demand across the region. 

3. Cross-Border Co-opetition. What will be the “net” impact?

Geopolitical forces could be further redirecting investments, talent, and technology from China to Southeast Asia, benefiting domestic economies in certain quarters. However, this also heightens competition for local players, requiring sharper strategies to win. 

Sectors to Watch (not exhaustive)

Artificial Intelligence (AI)

Localized AI applications in verticals such as Retail, Logistics, BFSI, Education, Healthcare, Manufacturing, and Agriculture etc. will accelerate. Few sectors will remain untouched by AI. Investments by global tech companies should help in building local talent, capabilities as well as vertical AI players. Singapore, Malaysia, and Vietnam offer a useful template for others to emulate.

Classifieds 

Streamlined Classifieds models will drive both top-line and bottom-line growth across various categories. Further, we expect these players to launch select new revenue streams to drive user convenience, stickiness, use and spend.

D2C and Vertical Brands

1H will see established D2C players strengthening their positions and exploring cross-border opportunities in fashion, beauty, F&B. M&A between established consumer companies and sizeable D2Cs might also gain traction. We expect 2H 2025 to see new market entrants.

Logistics (E-commerce centric)

3PL (3^rd Party Logistics) incumbents will benefit from market consolidation, while in-house logistics by major players will continue to squeeze the long-tail 3PL players. 

Electric Vehicles (EVs)

A bifurcated evolution:

– 4-wheelers backed by foreign partnerships. 

– 2-wheelers and infrastructure led by local players. 

2W electric vehicle startups will face a crucial Product-Market-Fit (PMF) test, with successful companies launching and scaling throughout the year. However, government support, the rollout of EV infrastructure, and factors specific to each player—such as price, performance, and range per charge—will determine the eventual winners.

FinTech

In 2025, the most dynamic sector will be late-stage FinTech, where established players in payments, lending, and insurance are consolidating their market share and will be raising capital from both public and private markets.

We expect significant growth in cross-border payments, blockchain-based transactions, embedded finance, and collaborations between FinTech companies and traditional financial institutions. Companies operating in these segments stand to benefit.

Quick Commerce

While live and conversational commerce continue to grow, we see Quick Commerce emerging as a left-field event and taking off in metro and tier-1 locations. This will feed into the growing traction for impulse-based online purchasers.

Travel & Stay

Online travel and stay operators will benefit as: 1) the sector sees further online or digitization penetration, 2) “experience” over product ownership gains further traction, and 3) players selectively diversify into adjacent opportunities like event bookings and travel financing.

Investment and Deal Activity

This is where we expect mean reversion to be most pronounced. We expect late-stage companies to head for IPOs and consolidate smaller players to strengthen their market position. Select high-growth, but mid-sized companies will also go public as per our discussions. We are expecting VC Capital raise to improve meaningfully from 2H 2025 onwards.

IPO activity in Southeast Asia (SEA) has been muted in the recent years…

We restart our primary insights led updates from this week. Stay tuned.

Redseer SEA’s most read reports from 2024

1. Regulations are crucial for investment, innovation, and productivity. Southeast Asian countries are at different levels of evolution. However, many are taking a liberal approach to AI, which can foster innovation. Southeast Asia <> Regulations
2. Online Travel Agent (OTA) market is dominated by the top two players, and it is moving towards increasing profitability by offering value-added services. Profitable-with-moats
3. Quick commerce has significant growth potential in Indonesia. Players can succeed by expanding product categories beyond groceries, targeting premium customers, and integrating QC into broader platforms. Indonesia-QC-Can-it-crack-the-code?