Venture Pulse Q1'23

VC investment in alternative energy and electric vehicles remained robust across Asia in Q1’23, with China and Hong Kong accounting for the largest deals in the space, including a US$750 million raise by electric vehicle (EV) manufacturer Zeekr, a US$442 million raise by solar energy technology company SolarSpace and a US$400 million raise by fossil fuels decarbonisation company EcoCeres.

Interest in alternative energy also remained robust in India during Q1’23, with VC investors particularly focused on the two-wheel EV market. Given India’s role as a major automotive manufacturing hub, it is expected that alternative energy will remain a key priority for VC investors for some time. India’s government has also been very supportive of the EV space, introducing subsidies to spur adoption.

VC investment in China was particularly hard-hit this quarter as the country battled a major COVD-19 wave in the wake of its autumn reopening, although VC activity picked up somewhat in the second half of the quarter once the wave diminished. VC investment during Q1’23 totalled only US$7.4 billion — less than half of the US$15 billion seen in Q4’22.

As VC investors questioned high valuations, late-stage funding in China dropped considerably in Q1’23; by comparison, pre-seed and Series A funding was much more stable. Corporate VC investment in China also declined considerably during the quarter as corporates focused their capital on supporting their own operations rather than on growth and expansion. 

VC investment in India remained relatively soft in Q1’23 as VC investors intensified their scrutiny of potential deals. While the fear of missing out drove a lot of VC investment in India in 2021 and early 2022, VC investors have since enhanced their focus on startup performance and profitability. Fintech continued to drive many of the largest deals in India in Q1’23, including a US$445 million raise by PhonePe, a US$218 million raise by NoBroker, a US$200 million raise by KreditBee, and a US$150 million raise by Insurance Dekho. India also saw growing interest in agtech and gaming during the quarter. After a long period of euphoria, interest in edtech in India slowed considerably during Q1’23.

Despite the current slowdown in VC funding, macro factors in India have remained relatively strong compared to other jurisdictions. These are driving optimism that the country will see a bounceback in VC investment in the later half of 2023.

Japanese VC investment saw a slight increase during the quarter, compared to global downward trend in VC investment. However, it was comparatively slower than the level of investment seen during the same quarter in 2022. VC investors in Japan were more selective about post-Series C deals during Q1’23, although appetite for seed and Series A deals remained quite robust.

Japan's government made a strong commitment to foster innovation in its Integrated Innovation Strategy 2022. In Q1’23, it moved forward with several of the initiatives included in the strategy, including funding for research and development (R&D) at universities and centres of excellence and funding to support local governments as they establish startup hubs and clusters. In addition to Tokyo, Sapporo and Sendai have rapidly emerged as startup hubs in Japan. Osaka, Hiroshima, and Fukuoka are also aggressively using funds to attract startups to their prefectures.

Investor interest in AI has been relatively robust in Asia historically, although it increased further in Q1’23 in the wake of the global buzz generated by AI-powered chatbot ChatGPT. The applicability of AI to many diverse sectors makes it a particularly attractive area for investment. In Hong Kong, AI solutions are maturing quite rapidly, particularly in building management — such as to manage building operations, energy use and security, as well as in health and biotech for drug discovery and modelling of disease spread.