Venture capital investment in Asia has nearly halved to $13.5 billion in the first quarter of 2023 across 1,773 deals from $25.5 billion in the fourth quarter last year, according to a report by KPMG.
This is the lowest in eight years as venture capital dealmaking has slowed down sharply amid economic headwinds. “After 2022, it is clear that the domestic venture fundraising cycle in the region has slid in a systemic fashion for several years now,” the audit giant said in its quarterly venture report.
“What remains to be seen is if this is a cycle more affected by a more diverse set of capital sources than traditional venture fundraising, or geopolitical tensions around international sources of capital commitments, or some other factor, that affected the past few years in particular.”
There has also been a sharp decline in deal sizes, particularly in late-stage deals, with the median deal size in Series D financing rounds dropping below $30 million as of March 31, 2023. Meanwhile, earlier-stage deals remained resilient in the same period, with Series A rounds accounting for the biggest deal share in the region. The number of down rounds was also the highest since 2015.
Exit activities nearly touched pre-pandemic levels in Q1 2023, with deal value staggering at $11.7 billion, down 66% from the previous quarter, KPMG said in its report. However, the region may see some renewed interest as a result of the new Chapter 18C listing rules in Hong Kong later in the year. China is also taking steps to bolster the appeal of its mainland stock exchanges for tech businesses, such as deeptech, EV, and biotech, the report noted.
“While VC investment in the region is not expected to bounce back remarkably over the next quarter, should the sense of positivity continue, VC activity could begin to see some recovery heading into the second half of the year,” the report noted.
Sharp decline in China
While China dominates Asia’s 10 biggest venture capital transactions in the first quarter of 2023, venture capital investment in the country suffered a significant setback as it grappled with a major COVID-19 wave following its autumn reopening. Though investment activities showed signs of recovery during the latter half of the quarter after the outbreak subsided, the total venture financing in Asia’s largest economy more than halved from the previous quarter, sinking from $15 billion in the previous quarter to $7.4 billion in 2023’s first quarter.
| Rank | Companies | Stage | Fundraising amount ($) | Sector | Headquarters |
|---|---|---|---|---|---|
| 1 | Zeekr | Series A | 750 million | Mobility tech | China |
| 2 | PhonePe | Late-stage VC | 445.6 million | Mobile | India |
| 3 | SolarSpace | Series B | 442 million | Cleantech | China |
| 4 | EcoCeres | Series B | 400 million | Cleantech | Hong Kong |
| 5 | United Aircraft | Series D | 290.3 million | Aerospace | China |
| 6 | VSPO | Series C | 265 million | E-sports | China |
| 7 | GuangNianZhiWai | Seed | 230 million | AI & ML | China |
| 8 | GenScript ProBio | Series C | 224 million | Life sciences | China |
| 9 | NoBroker | Series E | 218.2 million | Proptech | India |
| 10 | ZhengTaiXinNeng | Series B | 215.6 million | Cleantech | China |
Source: KPMG Q1’23 Venture Pulse Report– Asia
China saw a significant decline in late-stage funding, primarily due to venture capitalists casting doubts over high valuations during the period, while pre-seed and Series A funding stages remained relatively stable. Corporate venture capital arms in the country had retreated considerably as the focus shifted from growth and expansion to supporting core operations.
Indian landscape remains subdued
Venture capital investments in India remained quite soft in the first quarter of 2023 with increased investor scrutiny on potential deals. Unlike 2021 and early 2022, where dealmaking was largely driven by the fear of missing out (FOMO), venture capitalists are now more focused on startups’ performance and profitability.
Notable deals in India in Q1 2023 include fintech unicorn PhonePe, which raised a combined $450 million in its latest fundraising round; and lending platform KreditBee, which racked up $200 million in its Series D funding round.
Despite the downturn in venture capital funding, macroeconomic factors in India remain comparatively robust compared with other regions, giving the country a sanguine outlook for recovery in the later half of 2023.
Alternative energy, EV top charts
Despite the overall decline in venture capital investment in Asia, the alternative energy and electric vehicle sectors remained robust as China and Hong Kong led the charge with the largest deals in the landscape. Among the giant venture deals was Geely’s Chinese EV brand Zeekr, which raised a whopping $750 million in a Series A funding round in February; and China-based solar cell manufacturer SolarSpace, which secured a combined $442.5 million in its Series B and pre-IPO rounds in the same month.
“EV, alternative energy, Greentech — all of these areas are still doing very well right now. Investment in the space is quite big, and I think it’s just going to get bigger and bigger every day,” said Egidio Zarrella, partner for clients and innovation at KPMG China.
India also continued to attract strong interest in alternative energy during the first quarter of 2023 with a significant focus on the two-wheeler EV market from venture capital investors.
As India plays a major role in the global automotive manufacturing industry, KPMG believes that VC investors will continue to prioritise alternative energy investments in the region, and the Indian government’s support schemes, such as subsidies for EV adoption, will further reinforce the country’s commitment to the development of the EV space.