The dearth of growth- to late-stage megadeals continued to suppress fundraising in Greater China in the third quarter, despite the volume of PE-VC deals reaching a record high.
The total value of venture investments in startups headquartered in mainland China, Hong Kong, Macau, and Taiwan stood at $15.1 billion in July-September 2022, down 34.7% from the same period last year, show data from DealStreetAsia DATA VANTAGE’s latest report Greater China Deal Review: Q3 2022.
The deal count of 690 in the quarter, meanwhile, was a 25% increase from Q3 2021’s 551 deals.
Deal value and deal volume moved in opposite directions as investors flocked to early-stage deals but signed smaller cheques.
Funding value and volume in Greater China in Q3
Risk-averse investors shied away from making big bets in near-IPO companies, against the backdrop of continued exit uncertainty and a bear market at home and abroad.
Though far below last year’s levels, both deal count and deal value in Q3 were at their highest so far in 2022.
There were 400 transactions at Series A and earlier funding stages accounting for 58% of the deal count in Q3. This pattern is expected to continue in Q4 as well, as top investors from Hillhouse Capital Partners to Sequoia Capital China are stepping up dealmaking efforts in the early stages.
“Currently, China is facing a challenging exit and fundraising environment, which has led investors as well as GPs to think outside the box to solve for liquidity,” wrote Karen Tse, Investment Principal, Coller Capital in the report.
The first nine months of 2022 saw Greater China startups complete 1,658 deals, raising over $38.7 billion in total funding. That compares with the $64.2 billion raised across 1,440 deals in the same period last year.
At the current investment pace, 2022 is likely to end as a year of heightened dealmaking activity yet lower fundraising.
Megadeals become scarce
In another sign that investors are writing smaller cheques, megadeals were scarce in Q3 2022, compared with a year ago. Megadeals are ones where the deal size is at least $100 million.
In Q3, the no. of megadeals (36) was down 47.8% from 69 in Q3 2021. The megadeals of Q3 collectively raised $8.9 billion, down 41% from the year-ago quarter.
Though nowhere near 2021 levels, the megadeal count was up 56.5% from the previous quarter. The near-$9 billion raised from the megadeals in Q3 was also a near-five-fold increase sequentially. “The spike in megadeals, compared with Q2, may indicate some degree of market recovery,” the report noted.
The third quarter recorded only one billion-dollar deal: Sunwoda Electric Vehicle Battery, an electric vehicle (EV) battery solutions provider, raised over $1.2 billion across two tranches of its Series A round in August.
In terms of sectors, semiconductors, biotech, and software were the darlings of investors. The semiconductors sector, in particular, hit a deal count of 96 — the highest since DealStreetAsia started tracking in Q4 2019.
Beijing is expected to step up its plan of prioritising domestic chip development amid the ongoing tech war with the US, which has banned exports to the Chinese semiconductor industry. That could potentially bring more investment opportunities to China-focused investors, especially those with chip expertise as well as government and industry connections.
IPO pipeline disrupted
Adverse factors at home and abroad continued to hinder IPO hopefuls in Greater China from carrying out their public listings.
The period between Q1 and Q3 2022 witnessed 325 Greater China companies go public across stock exchanges in the US, mainland China, Hong Kong, and Taiwan — down 33.9% from the same period last year. In total, they raised about $63.6 billion, a decrease of 26% YoY, according to the report.
Investors who had built their wealth from China’s dot-com and consumer internet booms over the past two decades found themselves in a pool of dead water.
There is uncertainty about generating exits due to China’s prolonged tech crackdown, the zero-COVID policy, geopolitical tensions, high inflation, and a potential recession in 2023.
The Greater China Review: Q3 2022 report has extensive data on:
- Quarterly and monthly startup fundraising trends
- Top deals of Q3 2022
- Most popular industries for venture investors
- Quarterly IPOs by Greater China firms
- Secondary listings in Hong Kong
- SPAC listings in Hong Kong against the US SPAC trend
- Insights from prominent investors on the fundraising scene
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