China accounts for 8 out of the 10 largest venture capital deals in Asia during Q3 2022, finds KPMG’s Venture Pulse

Energy sector gains as consumer-focused companies lose lustre amid high inflation

Energy sector gains as consumer-focused companies lose lustre amid high inflation

4 Nov 2022, Chinese Hong Kong (“Hong Kong”) –Venture capital investment in Asia dropped for the third straight quarter, while venture capital investment in China rose slightly in Q3 2022, according to the latest KPMG’s Venture Pulse Q3 2022 report.

According to KPMG’s global analysis of venture funding, Asia saw higher IPO activity during the third quarter, compared to other regions, experiencing the greatest IPO activity during these three months, with numerous new listings on both the Chinese Mainland exchanges and the Hong Kong Stock Exchange (HKSE). The HKSE saw its largest IPO of the year to date when China Tourism Group Duty Free raised USD 2.1 billion in August.

Irene Chu

Irene Chu, Partner & Head of New Economy and Life Sciences, Hong Kong (SAR), KPMG China, says:

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In this quarter, we continue to see the knock-on effect of capital market volatility and challenging IPO market on venture capital activities. However, a combination of record dry powder and lower valuation mean that investments are still being made, especially in companies that can demonstrate business model and operational resiliency.

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In the third quarter of 2022, venture capital-backed companies in the Asia region raised USD 21.7 billion across 2,352 deals, dropping for the third straight quarter. Investors prioritised companies generating cash flows and high priority industries, while pulling back from higher risk companies and those with unproven business models. Companies in high priority sectors, such as energy and hard tech (e.g. semiconductors) in China and edtech in India, also attracted significant attention.

Fundraising activity across most of Asia was sluggish this year. Only India bucked this trend, with fundraising already more than double the previous record annual high at the end of the third quarter. Overall, Asia is expected to remain soft in the fourth quarter, given the global macroeconomic uncertainties.

Nonetheless, corporates pull back in line with broader market in investments. The top 10 deals in Asia were secured among China and Indonesia, with China clinching 8 top deals. Electric vehicle battery maker Sunwoda EVB, based in Shenzhen, China, raised USD 1.2 billion, the largest deal during the third quarter in Asia and the third largest globally.

Despite slow fundraising activity in Chinese Mainland and Chinese Hong Kong, there were positive developments in the third quarter. After falling to a low level not seen since the first quarter in 2017, venture capital investment in China rose slightly in the third quarter this year.

Irene Chu

Zoe Shi, Partner, KPMG China, says:

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In China, we are seeing venture capital investment focusing primarily on two different dimensions. First, we are seeing a significant amount of funding going to companies targeting government policy areas, including energy and low carbon economy. Second, we are seeing investment in companies where technologies and business models cannot be easily replicated, including various forms of hard tech.

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Venture capital investors in China remain focused on high priority sectors, primarily those identified as strategic growth priorities by China’s central government, including ESG, electric vehicles and hard-tech. The niche focus of these priority sectors compared to the previously hot consumer space has likely contributed to the slowdown in deals volume and funding in China over the last eighteen months. On the ESG front, venture capital investors focused primarily on technology companies that enabled alternative energy and low carbon solutions, including companies focused on battery technologies, solar panel development and electric vehicle manufacturing.

During the quarter, Qiming Venture Partners announced the closing of two funds totaling USD 3.2 billion. These funds are expected to support early and growth stage companies in the healthcare and textile & clothing spaces. Meanwhile, lithium battery company Hubei Rongtong High-Tech Advanced Material raised USD 744 million, intelligent electric vehicle platform company Avatar Technology raised USD 377 million, and solar power research and manufacturing company GokinSolar raised USD 369 million.

Hong Kong’s IPO pipeline remained solid, although some companies might need to reassess their financials considering the shifting global market conditions. Recently, the Exchange published a consultation paper on creating a listing channel for Specialist Technology Companies, with proposed rules that would ease profit requirements for these companies. The city could see increasing interest and investment from venture capital investors, now that pandemic-related quarantine requirements have been lifted, making business travel much easier.

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