VC investment in Asia dropped for the third straight quarter in Q3’22. After falling to a low not seen since Q1’17 in Q2’22, VC investment in China rose slightly in Q3’22. Other jurisdictions in the region saw VC investment tumble, including India, Australia, Japan, and Singapore.
VC investors prioritize companies generating cash flows and high priority industries
During Q3’22, VC investors in Asia prioritized making investments in companies able to generate revenue or show positive cash flows, 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. In Q3’22, China-based electric vehicle battery maker Sunwoda EVB raised $1.1 billion, lithium battery company Hubei Rongtong High Advanced Material raised $744 million, intelligent electric vehicle platform company Avatar Technology raised $377 million, and solar power research and manufacturing company Gokin Solar raised $369 million, while India-based higher-education focused upGrad raised $210 million.
Fundraising activity on track to reach eight-year low
Fundraising activity across most of Asia was incredibly sluggish this year, with all indications that annual fundraising in the region will hit an eight-year low at the end of 2022. Only India bucked this trend, with fundraising already more than double the previous record annual high at the end of Q3’22.
Despite slow fundraising activity in China and Hong Kong, there were positive developments in Q3’22; during the quarter, Quming Venture Partners announced the closing of two funds totaling $3.2 billion: the $2.5 billion USD Fund VIII—which was oversubscribed-- and the 4.7 billion RMB Fund VII fund.8 These funds are expected to support early and growth stage companies in the healthcare and T&C spaces.
Asia sees higher IPO activity compared to other regions in Q3’22’
Compared to other regions, Asia experienced the highest IPO activity during Q3’22, with a number of new listings both on the mainland China exchanges and on the Hong Kong Stock Exchange. The HKSE saw its largest IPO of the year to date when China Tourism Group Duty Free raised $2.1 billion in September. Hong Kong’s IPO pipeline remained strong, although some companies might need to reassess their financials in light of shifting global market conditions. During Q3’22, there were also indications that the HKSE will shortly be issuing draft rules that would make it easier for hard-tech companies to list by reducing revenue and profit requirements.
VC investors in China remain focused on high priority sectors
VC investment in China during Q3’22 focused primarily on sectors 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, VC 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.
VC investment in India softens as economic challenges grow
VC investment in India was relatively quiet in Q3’22. The largest deals of the quarter included a $210 million raise by edtech upGrad, a $165 million raise by online eyeglass prescription company Lenskart, and a $130 million raise by neo-bank platform Niyo. Fintech was one of the most attractive sectors of investment in India this quarter; in addition to Niyo’s raise, online automobile insurance company InsuranceDekho raised $100 million, and digital lending company EarlySalary raised $97 million.
Healthtech gains significant attention from VC investors in Japan
VC investment in Japan dipped slightly in Q3’22, in line with trends seen globally. Despite the decline, key sectors continued to attract interest from investors in the country, including fintech, business productivity, healthtech, and ESG. Healthtech was viewed as particularly attractive during the quarter, with medical ICT firm Allm raising $183 million and digital therapeutics company CureApp raising $51 million.
Trends to watch for in Q4'22
VC investment in Asia is expected to remain soft in Q4’22 overall given global macroeconomic uncertainties and policy uncertainties in China. During Q4’22, China’s governing party will host its next major congress—an event held every five years. The congress is expected to guide China’s direction for the future. Any tangible policy outcomes from the congress could affect the health and focus of VC investment in the coming quarters depending on how initiatives are identified and rolled out.
Hong Kong could see increasing interest and investment from VC investors now that pandemic related quarantine requirements have been lifted, making business travel much easier. The outcome of the audit work paper inspections occurring in Hong Kong as a result of the agreement between China’s regulators and the PCAOB will also be important to watch in Q4’22. Should these inspections go well, there could be renewed interest in US-based IPOs from China-based companies, although such activity would take time to materialize.
Venture Capital investment drops to $21.7 billion across 2352 deals
Valuations hold steady
VC activity remains resilient in China, India and Japan
Corporate VC pulls back in line with broader market
Exit activity increases for 3rd consecutive quarter
Chinese companies raise 8 of largest 10 deals in Asia