Venture dealmaking in Greater China in the second quarter of 2023 was characterised by a sharp fall in deal value despite deal volumes holding up.
Startups headquartered in mainland China, Hong Kong, Taiwan, and Macau sealed a total of 635 deals in April-June 2023, up 2.8% from Q1 this year, show data from DealStreetAsia DATA VANTAGE‘s latest report Greater China Deal Review: Q2 2023.
The fundraising sum, however, fell sharply by 25.3% to under $11 billion, from almost $14.7 billion in Q1 2023—a sign of stagnant growth in a challenging fundraising market.
The uptick in deal count indicates that investors are still looking to make new bets, but the declining deal value shows they are diversifying their investments by writing smaller cheques.
“Looking at deals in China right now, very few US dollar funds are active in the market. The active investors are mainly state-owned RMB funds. There is much less capital in the market chasing deals, so companies are more reasonable on their valuations now,” said Jianming Zou, Head of Private Equity, VMS Group.
A silver lining, though, was that startup fundraising in Jan-June 2023 rose 8.8% YoY to $25.7 billion, mostly due to a strong first quarter. Deal count also rose 29.4% in H1 2023 to 1,253.
China’s economy grew 6.3% in Q2 2023, falling short of projections and indicating that the recovery is not happening at an anticipated pace due to headwinds from a complex geopolitical and international economic environment.
Beijing is still eyeing a full-year GDP growth target of about 5%, defying challenges including its real estate market slump, plunging exports, and a record-high unemployment rate among young people.
Megadeals rake in over half of Q2 funding
Investors are reviewing their exposure to China, given its geopolitical tensions with the US, leading to more caution around writing big cheques, especially ones worth $100 million and above, aka megadeals.
Twenty-three startups sealed a megadeal in Q2, versus 24 in Q1 and 26 in the earlier quarter. Due to an absence of billion-dollar investments, the 23 megadeals collected just over $5.5 billion, a drop of 42.3% from more than $9.5 billion in Q1.
YOFC Advanced Semiconductor Company (YASC), which develops third-generation semiconductor products using silicon carbide (SiC) and gallium nitride (GaN), raised $562.3 million in a Series A round—the biggest fundraiser in the June quarter. Following closely was ESWIN Computer Technology, another semiconductor firm, which sealed a $421-million Series D round.
Early funding stages continued to dominate the dealmaking scene. Startups at Series A and earlier stages completed 360 deals or 56.7% of the Q2 deal count. The nearly $3.4 billion in proceeds collectively raised by Series A and earlier stage deals accounted for 30.6% of Q2’s fundraising total.
The later the funding stage, the less active the dealmaking activity. Investors’ appetite for new shares in late-stage and pre-initial public offering (IPO) companies has yet to come back.
Market sentiment is bearish as money managers and analysts foresee another disappointing Q3. The CSI 300 Index, which tracks the largest onshore companies listed in Shanghai and Shenzhen, has inflicted losses in the third quarter in four of the past five years.
Ninety-five Chinese IPOs raised nearly $19.3b
Despite unsatisfactory post-IPO prices and earnings volatility, Chinese IPOs ended Q2 on an optimistic note with increases in both the number of new listings and total funds raised.
The $19.3 billion in total IPO funds raised in Q2 was a 37.5% increase from the previous quarter. The June quarter’s IPO count also grew 10.5% to 95 from 86 in the prior quarter, according to DealStreetAsia’s analysis of Dealogic data.
Two $1 billion-plus IPOs boosted market confidence. This included a $1.88-billion public listing by integrated circuit (IC) business Nexchip Semiconductor Corporation and a $1.81-billion IPO by chip foundry Semiconductor Manufacturing Electronics Corporation (SMEC).
The Greater China Review: Q2 2023 report has extensive data on:
- Quarterly and monthly startup fundraising trends
- Top deals of Q2 2023
- Most popular industries for venture investors
- Top IPOs by Greater China firms in Q2 2023
- Secondary listings and top pending Chinese IPOs
- Insights from prominent investors on the fundraising scene
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