Digital regulations have become a structural cost for startups across Asia, with 74 per cent reporting that compliance obligations are driving up operating expenses, according to a new study by Oxford Economics commissioned by Digital Prosperity Asia.

Compliance Is Now a Structural Cost, Not a One-Time Expense

The study, based on a survey of 1,550 startup ecosystem stakeholders across Malaysia, India, and South Korea, found that 88 per cent of startups report operational constraints from digital regulatory compliance. Some 42 per cent allocate more than 15 per cent of their operating budget to compliance — rising to 56 per cent among first-year startups. Internal compliance-related talent accounts for the largest component of these costs at 43 per cent, followed by external legal and advisory services at 25 per cent.

“Among startups in their first year, only one in three reports an increase in customer trust attributable to regulation, compared to more than half of firms with over a decade of operations. Meanwhile, compliance costs and uncertainty are immediate and widespread,” said Henry Worthington, Managing Director, Economic Consulting at Oxford Economics. “This imbalance matters because it ultimately shapes how regulation influences innovation, investment, and the broader startup ecosystem.”

Innovation Pipelines Are Being Redirected Toward Compliance

Eighty-three per cent of startups report that digital regulations have impacted their innovation activities, with 66 per cent redirecting financial resources from research and development toward compliance. Product development delays are widespread, with 56 per cent reporting longer time-to-market — a figure that rises to 67 per cent among younger startups.

Digital policy interventions in Asia have multiplied eighteenfold since 2018, according to the Digital Policy Alert, creating a layered and fragmented compliance environment across jurisdictions that is disproportionately burdensome for startups without the legal and compliance infrastructure of larger enterprises.

Regulatory Environment Is Directly Shaping Access to Capital

The investment implications are quantified. Some 63 per cent of venture capitalists identify digital regulations as an important or primary driver of investment decisions. Under more restrictive regulatory scenarios, the share of startups expecting investment growth drops from 44 per cent to 26 per cent.

The economic modelling projects that more restrictive regulations in Malaysia could reduce venture capital funding by 26 per cent over 2026 to 2035, equivalent to approximately US$200 million per year less on average. A similar shift in India could lower VC investment by 25 per cent — approximately US$10 billion per year less on average. Conversely, a shift to more enabling regulations in South Korea would increase VC funding by 20 per cent, adding approximately US$1.6 billion per year on average.

“Policymakers now have a unique opportunity to design frameworks that empower startups while safeguarding trust,” said Koh Liang Wei from the DPA Secretariat.