China VC investment picks up in the second half of Q1 2023, KPMG analysis finds

Chinese Mainland and Chinese Hong Kong account for largest deals in alternative energy and EVs across Asia

Chinese Mainland and Chinese Hong Kong account for largest deals in alternative energy...

Venture financing in Asia saw a slow start in the first quarter of 2023 (Q1’23), as several factors combined to stifle venture capital (VC) investment across the region. VC-backed companies in the Asia region raised USD 13.5 billion across 1,773 deals, according to the latest KPMG’s Venture Pulse Q1 2023 report. VC investment in China during Q1’23 totaled USD 7.4 billion as VC activity picked up in the second half of the quarter once the COVID-19 wave diminished.

Egidio Zarrella

Egidio Zarrella, Partner, Clients and Innovation, KPMG China, says:

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EV, alternative energy, Greentech —all of these areas are still doing very well right now in Asia. It’s such a positive area, such a good news story, that everyone is trying to get in on it. The other area that is getting a lot of attention right now is AI. Not just the consumer applications, but the real deeptech solutions. It’s a really exciting space.

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VC investment in alternative energy and electric vehicles remained very robust across Asia in Q1’23, with Chinese Mainland and Chinese Hong Kong accounting for the largest deals in the space, including a USD 750 million raise by EV vehicle manufacturer Zeekr, a USD 442 million raise by solar energy technology company SolarSpace, a USD 400 million raise by fossil fuels decarbonization company EcoCeres, and a USD 290 million raise by United Aircraft.

VC investment in China was particularly hard hit as the country battled a major COVD-19 wave in the wake of its autumn reopening, but VC activity picked up in the second half of the quarter once the wave diminished. As VC investors questioned high valuations, late-stage funding in China dropped considerably in Q1’23, while by comparison, pre-seed and Series A funding was much more stable. China is also working to strengthen the attractiveness of its mainland stock exchanges for tech-driven businesses in sectors like deeptech, EV, and biotech.

Irene Chu

Zoe Shi, Partner, KPMG China, says:

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VC investment in China remained quiet in Q1’23, although it did strengthen in the latter half of the quarter. Now we’re starting to see some renewed VC activity. Even if that activity hasn’t fully translated into deals quite yet, it is a positive sign. One new sector that is seeing growing activity is biotech and life sciences. That’s an area to watch as we head into Q2’23.

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While IPO activity was slow in Asia during Q1’23, it could see some renewed interest as a result of the new Chapter 18C listing rules in Hong Kong. In Hong Kong, AI solutions are maturing quite rapidly, particularly in building management, such as the use of AI to manage building operations, energy use, and security, and in health and biotech, including the use of AI for drug discovery and the modeling of disease spread.

Irene Chu

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

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The new Chapter 18C listing regime was launched at an opportune time given the investors’ increasing interests in startups focused on AI, robotics, alternative energy, agritech, and other similar areas — list on the Hong Kong Stock Exchange. This could help spur some new activity later in 2023.

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