INSIGHT · VENTURE CAPITAL · ASIA
INSIGHT N° 56 · 8 September 2026 · BY ANJANAA VISHWANATH
Asia’s venture capital map is being redrawn as Western and allied capital moves away from China-heavy exposure and toward India, Singapore, and select Southeast Asian markets.
When it came to venture capital in Asia, for years, the formula was simple: load up on China, give little value to India and Southeast Asia, and treat Japan and Korea as marginal players. Yet, in today’s times, this playbook just got shredded. The assumptions underlying the previous allocations no longer hold true, which has led to a newer rulebook, one that is quieter but paired with decisive allocations of capital towards markets. The new replacement offers regulatory clarity, geopolitical alignment and potent exit paths. The China-heavy thesis is over, and a new map has been made, but what more is there to it?
By 2024-26, limited partners systematically reduced China allocations, and capital has now shifted structurally towards ‘friendly’ jurisdictions that offer regulatory predictability, alignment with US/Western interests, and much-needed exit pathways. The question now is: what brought about this sudden change? The answer is simple: during this period, dollar fundraising for dedicated China funds never fully recovered in Western wallets, which is why Indian and select Southeast Asian markets now absorb larger shares of regional opportunities. This shift was not accidental; it was driven by a growing mismatch between China’s opportunities and the magnitudes of risks the Western capital was willing to absorb.
Why is capital de-risking China?
One of the foremost reasons for this shift was due to the intensified geopolitical and regulatory friction. There has been a sharp rise in the tightening of outbound investment rules and stricter controls on technology, data, and talent flows; additionally, there have been major crackdowns on ‘Singapore-washing’ structures, the corporate strategy where Chinese-founded firms move their legal headquarters or domicile to Singapore. This mainly occurs to circumvent Western investment bans and avoid strict domestic regulations.
Secondly, exit and liquidity pathways remain constrained. The majority of IPO windows continue to face delays and selective restrictions, while China-linked assets carry higher political risks, making them less attractive and harder to sell quickly. Adding to this pressure, US policy is an overwhelming factor that must be taken into consideration.
The US has imposed numerous ongoing restrictions and heightened security measures on advanced tech-related investments entering China. This has pushed Western limited partners and managers to seek cleaner, less contested alternatives. Now, Chinese VC and state-backed investors have returned strongly in 2026, through numerous AI deals; despite this, Western investors remain cautious about investing solely in China and are favouring markets that provide clearer routes and stronger geopolitical alignment.
Now that China is no longer the default, the question is no longer where in Asia, but where the capital is flowing on the map.
The new geography: Friendshoring and ally-shoring
One thing is evident: capital is being deliberately routed toward jurisdictions closer to the US and its partners on the geopolitical map; routes that can credibly support supply-chain diversification away from concentrated exposure to China are preferred. As a result, India and Southeast Asia, particularly flows anchored through Singapore, are emerging as the clearest beneficiaries of this reallocation. These preferences are absorbing both new fundraisers and have redirected dry powder. This pattern is also noticeable in private equity and buyouts; global firms are evidently relocating their Asia leadership to Mumbai. An increasing number of Asia-focused funds are now restructured explicitly as “ex-China” and are mostly focused towards India, Japan and Southeast Asia.
The question that remains now is if China is losing its centre stage, who is stepping into the spotlight?
Moving from opportunity to allocation: India
PitchBook’s mid-2026 data has placed India third globally, trailing the US and China; moreover, multiple Indian cities, especially Hyderabad and Bengaluru, have climbed the urban ranking. These statistics reflect deeper, stronger local capital formation, one that is of growing international interest. Numerous examples of capital commitments underscore this shift. Accel closed its India fund early with a $3.5 billion global raise. Similarly, Peak XV raised $1.3 billion across India and Southeast Asia vehicles, and Lightspeed explored a new $300-350 million India-focused vehicle.
These examples explicitly indicate that VC and growth investments have reached a whopping $16 billion in 2025, marking a second consecutive year of growth for the country. India is clearly proving to be desirable by providing all the necessary requirements, such as a healthier exit environment, which is predominantly driven by IPOs, strategic acquisitions, and reinforced LP confidence. But does this desirable environment focus only on one sector?
It is quite clear that numerous sector magnets prevail in India. AI, which is India’s large consumer base, has attracted top players like OpenAI and Anthropic. Apart from AI, advanced manufacturing, deep tech, and supply-chain diversification collectively make India a manufacturing hub for global markets. Tied to the prevalent Western thesis, VCs from the West view India as a large domestic market, with improving regulatory, macro stability, and currency dynamics that are favourable for dollar-based funds, along with an explicit positioning that makes it a credible alternative to China. Amidst this India focus, it is important to note that Southeast Asia is also making a comeback of its own; how does this fit into the bigger picture?
The Southeast Asian comeback
Southeast Asian venture funding has made a meaningful recovery from a low period during 2022-24, when activity fell by nearly 80%, and is now tracking an annual range of $10-13 billion. In this recovery, Singapore remains a dominant aspect. The country captures the overwhelming majority of regional AI and growth capital. Singapore also functions as the primary legal, talent and LP gateway for the broader India-SEA corridor.
Despite the turnaround, it is evident that this momentum is concentrated. Singapore’s homegrown AI companies have raised around $9.3 billion by mid-2026; however, much of this funding is going into a smaller number of established companies through large late-stage deals, such as DayOne, rather than being spread across many early-stage startups. This shows that investors are becoming more selective and are concentrating their monetary flows towards companies they have greater confidence in.
It is also crucial to note that Singapore is not the only success story in Southeast Asia. Indonesia and Vietnam also continue to matter for consumer, fintech and manufacturing-adjacent opportunities. Despite an impeccable comeback, Southeast Asia remains smaller than India and is still recovering with greater discipline and selectivity. The question now is, if Singapore is the gateway, where is the capital flowing through it?
The Singapore-India corridor
From late 2024-25, it was noticeable that family offices and limited partners began systematically reallocating towards the Singapore-India axis. This corridor is now treated as the primary growth engine rather than a secondary alternative to China. Capital flows, talent movement, and fund strategies now view these two markets as interlinked; they balance scale, with Singapore serving as the legal banking and LP gateway and India supplying scale, founder density, and domestic demand. The strategy now is the use of vehicles and teams to capture the dimensions of both countries.
Japanese, Korean and other allied investors are also showing greater interest in Indian startups. Stronger IPO activity and better exit opportunities in India are making it more attractive, especially compared with its Southeast Asian counterparts, which have slower exit environments. Despite Indian preference, the clear result is a self-reinforcing corridor, with capital, talent, and deal flow circulating widely between Singapore and India. This corridor is elevating both markets and cementing their role as the new centre of gravity for Western allies and Asian exposure.
But this corridor is more than a capital trend; it is the product of deeper forces that are reshaping where Asia’s next wave of growth will come from.
What’s driving the new capital map?
Corporate supply-chain diversification and the China+1 strategies are being developed to generate sustained follow-on venture opportunities in India and selected Southeast Asian markets. This turned geopolitical necessity into durable deal flow. The AI wave has also coincided with this emerging India preference; larger domestic user bases for global models are combining with the growing cohort of local AI startups, and together they are creating immediate demand.
Additionally, limited partners continue to favour markets with a clearer rule of law and more predictable exit pathways. They also seek options that reduce geopolitical friction with Western capital; together, these factors reinforced the much-needed preference for India- and Singapore-anchored strategies. So is this new capital map built to last, or are there potential cracks beneath the surface?
Potential risks and many questions: What comes next?
In such situations, concentrated risks persist. Southeast Asian funding is concentrated towards Singapore, leaving a gap with the rest of the region. Moreover, valuation discipline has tightened, leading investors in both India and SEA to prioritise unit economics and the path to monetisation over the prior ‘growth-at-all-cost’ mindset. Yet a complexity that exists is China’s domestic rebound, especially in AI and other priority sectors. It has the potential to create competitive pressure or new dynamics in outbound capital, which could complicate the friendshoring narrative. Another potential disruptor is that public and private markets do not always move in the same direction. While private investors continue to increase their investments in India, some fund managers remain cautious about Indian stocks and public markets.
Despite its pros and cons, Western and allied capital continues to re-route toward India and the Singapore corridor. The question that will soon be answered is which founders, funds, and ecosystems will prove to be most adaptable to this shift, and which will still be defending yesterday’s strategy?
— PR —