VC investment in Asia dropped during Q1’22, driven by global geopolitical uncertainty, a surging COVID-19 Omicron wave in several jurisdictions, increasing volatility in the public markets, and ongoing regulatory developments in China. Despite the decline, the level of VC investment remained relatively solid compared to historical norms – in part due to the number of $100 million+ megadeals seen across the region.

Diverse jurisdictions and sectors attract large funding rounds

While the VC market in Asia did not see any blockbuster $1 billion+ deals during Q1’22, a number of jurisdictions attracted $500 million+ funding rounds – showcasing the growing strength of the region as a whole. India attracted three of the largest rounds during Q1’22, with an $800 million raise by BYJU, a $700 million raise by Swiggy, and a $478 million raise by DailyHunt. China’s biggest deals included an $800 million deal by JD Property and a $784 million deal by Changan New Energy as well as a $471 million raise by InnoScience.  Other countries that attracted major deals during the quarter included Singapore – with a $500 million raise by Princeton Digital Group, and South Korea – with a $442 million raise by Megazone Cloud. In addition to the geographic diversity, the region saw a range of sectors attracting investment, including edtech, food delivery, healthtech, and B2B services.

India cools somewhat in Q1’22

VC investment in India slowed somewhat in Q1’22 relative to record totals during the second half of 2021. However, VC investors continued to show interest in a wide-range of sectors, including e-commerce, fintech, edtech, social platforms, and gaming. The gaming sector in India, in particular, has seen a significant evolution over the last two years, with more companies now focusing on the development of India-specific gaming content. This is only helping to drive interest and investment in the space.

The rapid maturation of key sectors in India, combined with the significant number of market entrants, is starting to drive M&A activity as competition for market share heats up. In the social media space, Q1’22 saw dominant market player ShareChat acquire a short video app from its rival MX for approximately $700 million. Looking forward, sectors like edtech and food delivery will likely also see consolidation.

Priority sectors remain hottest areas of investment in China

In China, companies focused on areas identified by the government as important to economic growth continued to attract VC investment during Q1’22, despite a drop-off in investment activity in other sectors. VC investors were particularly interested in companies focused on new energy vehicles, semiconductors, and other hardware-related technologies. There was also increasing interest in companies working to improve the efficiency of traditional manufacturing processes or providing SaaS B2B services.

After a record 2021, VC investment in Japan takes a breather

VC investment in Japan took a breather in Q1’22, after reaching a record annual high in 2021. Japan’s VC market continued to mature, however, with an increasing number of foreign investors participating in the market and a growing number of niche VCs focusing on market subsets, most prominently B2B SaaS. During Q1’22, the deterioration of stock market conditions and declining valuations has driven some investors to broaden their investments. This will likely drive increasing investment in areas like deeptech, Web 3.0, metaverse solutions, alternative energy, and health and biotech.

Following the release of its Growth Strategy Action Plan, the Japanese government has positioned 2022 as the first year of startup creation. This will likely drive interest in the space over the next few quarters. The government is also working with the Financial Services Agency to undertake institutional reforms to support the growth and revitalization of unlisted companies and to develop a distribution system for unlisted shares and a set of relaxed requirements for specified investors.

Trends to watch for in Q2’22

Heading into Q2’22, there is significant concern regarding the performance of the capital markets in Asia – in addition to the specific performance of China-based companies listed in the US. An extended period of volatility, in addition to tightening regulations in China, could spark additional pullback from investors, particularly foreign investors. 

In India, while investors are expected to grow more cautious given rising commodity prices, increasing interest rates, and heightening global geopolitical uncertainty, the amount of money available in the market will likely help moderate the impact heading into Q2’22.  Fintech and e-commerce will likely remain very attractive to investors, while interest in agtech is expected to grow considerably given the country’s large agricultural sector.

Venture financing in Asia Q4'21

VC investors were particularly interested in companies focused on new energy vehicles, semiconductors, and other hardware-related technologies in Q1’22. There was also increasing interest in companies working to improve the efficiency of traditional manufacturing processes or providing SaaS B2B services.

Egidio Zarrella
Partner, Clients and Innovation
KPMG China

  • Venture Capital investment drops to $32.6 billion across 2712 deals

  • Exit activity remains relatively robust with close to $80 billion in value

  • Venture fundraising sluggish to start the year

  • VC invested in India reaches $7.9 billion on over 300 deals

  • Top 10 deals spread among China (4), India (3), South Korea (1), Singapore (1)

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