In early February, Yin Sang, a prominent Chinese entrepreneur, sent an email to all 600 employees at his karaoke-booking startup: His firm was running out of money after failing to raise funds and wouldn’t be able to pay staff salaries.

“Our cash flow is almost zero,” the 23-year-old chief executive of Yiqi Chang wrote in the email, reviewed by The Wall Street Journal. “Our company is in a crisis.”

A year ago, Mr. Yin’s Shanghai-based startup was valued at more than $100 million and, in 2014, he made Forbes China’s list of the 30 most successful Chinese entrepreneurs under the age of 30.

The reversal of Mr. Yin’s fortunes underscores a new reality for many startup founders across Asia: Venture capitalists are hitting the brakes on funding. In recent years, investors flocked to Asia–home to the world’s biggest number of mobile users–as its startup scene boomed. Now they are spooked by weakness in the global economy, volatility in China’s stock market and slumping investments in Silicon Valley amid talk of a tech bubble.

The result for founders is growing investor scrutiny, protracted fundraising discussions, and downward pressure on startup valuations, entrepreneurs and venture capitalists say. Some startups are folding altogether, while others are laying off workers, cutting costs and moving away from business models that burned through cash to attract users.

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Yin Sang’s startup is being affected as VC funding declines. PHOTO: WILL WANG

Venture-capital investments typically are risky, and success for startups, even during good times, isn’t guaranteed. The latest pullback is accelerating a global shakeout.

The slowdown is most prominent in China and India. Venture-capital investments in China’s technology startups fell 28% to $1.8 billion in the first quarter from $2.5 billion a year earlier, according to Hong Kong-based AVCJ Research. In India, venture capital investors in the first quarter of 2015 pumped $891 million into tech startups. That number was off 17% at $736 million for the first quarter of this year. And in South Korea, venture capital investments fell 37% to $45.8 million in the first quarter from $72.2 million a year earlier.

This year, investors will more carefully distinguish worthy potential unicorns–or startups valued at $1 billion or more–from others that lack sustainable business models, said Tom Tsao, managing partner at Shanghai-based venture-capital firm Gobi Partners. “Only the toughest, most resourceful founders will make it through,” Mr. Tsao said.

For Pei Qiao, co-founder of Weichaishi, a Shanghai-based startup that runs an online crowdsourcing platform for corporate clients, the tougher environment has meant cutting even small expenses. Snacks and beverages for employees are out, along with expensive branding campaigns.

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After raising $3 million in September 2014, Weichaishi treated all of its employees to a trip to Thailand, where they stayed at a five-star hotel and rode elephants, Mr. Pei said.

But now the startup just holds a monthly birthday party for employees, providing a small cake. “We are becoming more practical and looking for tangible results,” Mr. Pei said.

In India, Oravel Stays Pvt.’s Oyo Rooms, an online aggregator of mom-and-pop hotels, declined funding from new investors to avoid a drawn-out discussion over the company’s valuation, said people with knowledge of the matter. To avoid running out of cash before the end of the year, the startup is cutting costs and no longer loses money on each hotel room it books, the people said.

Oyo Rooms, once thought to be well on its way to a billion-dollar startup, is now tapping existing investors such as Japan’s SoftBank Group Corp. and U.S. venture-capital firm Sequoia Capital, and will receive less than $100 million at or slightly above its current valuation of $400 million, one of the people said. “We are seeing definite interest from investors, but compared to earlier the valuations are saner,” said Oyo Rooms founder Ritesh Agarwal.

Singapore-based online grocery-delivery service RedMart Ltd. also has faced funding challenges in recent months, according to people familiar with the matter, forcing it to put on hold plans to expand overseas.

Chief Executive Roger Egan declined to say whether RedMart has struggled to raise money, noting it is still in the middle of its fundraising.

In Indonesia, fashion e-commerce startups Paraplou Group and PinkEmma have closed, with the former blaming the closure on a tight fundraising environment. PinkEmma didn’t respond to requests for comment.