VC investment in Asia held relatively steady in Q4’22, driven by several large megadeals in China, including a $2.56 billion raise by new energy vehicle company GAC Aion, a $1 billion raise by fast-fashion e-commerce platform SHEIN and a $631 million raise by SPIC Hydrogen Energy.

IPO activity remains soft in Hong Kong and Japan, strong in mainland China

IPO activity in Hong Kong and Japan remained slow in Q4’22, bringing an end to a lacklustre year for IPO exits. In Hong Kong, the life sciences sector showed the most resilience compared to other sectors, but still saw a decline in IPO value. Among the IPOs that occurred in Japan over the course of 2023, many resulted in subsequent share price drops.

Relative to most other jurisdictions, the IPO market in China performed remarkably well in 2022—with strong growth in IPO activity and value compared to 2021. Globally, Shanghai and Shenzhen were the top two fundraising exchanges globally this year, highlighting the uniqueness of China’s public markets compared to other, more integrated, global markets. The resolution of the PCAOB audit inspection challenges related to China-based companies listed in the US could see larger, global-focused companies in China considering US IPOs in 2023, although whether US IPOs will materialize will be dependent on market attractiveness and price.

China eases Covid-19 policy—bodes well for 2023

VC investment in China was relatively consistent to previous quarters in Q4’22, with VC investors taking a conservative approach to funding. At the end of Q4’22, however, China’s central government eased its stringent Covid-19 restrictions in mainland China considerably. While this has led to a sharp increase in Covid cases, the policy changes are expected to spark additional economic activity and VC investment over time as travel and face-to-face dealmaking become easier. VC investment will likely remain relatively soft in Q1’23 as China deals with the new Covid-19 wave, but there is strong optimism that investment will grow heading into Q2’23. The relaxation of mainland China’s Covid-19 restrictions could also spark additional activity in Hong Kong.

Energy and EV companies highly attractive to VC investors in China and Japan

Following on trends seen earlier in 2023, VC investors in China continued to pour money into EV and new energy companies during Q4’22. In addition to the $2.56 million raise by GAC Aion, Voyah Car Technology raised $631 million, SPIC Hydrogen Energy raised $631 million, BYVIN Auto raised $444 million, and battery company Hithium raised $280 million.

VC investors in Japan also showed significant interest in the energy and EV spaces. While VC investment was quiet during Q4’22, there was a large, for Japan, PE deal during the quarter: a $125 million investment by CPDQ into Shizen Energy Group. Japan’s energy and EV sector ecosystems have also continued to evolve, with a strong stable of early-stage startups expected to grow and attract larger funding rounds over time.

VC investment in India subdued in Q4’22, but long-term outlook positive

VC investment in India remained slow quarter-over-quarter as VC investors, primarily investors from the US, continued to take a wait-and-see approach given global macroeconomic uncertainties. The largest VC deal in India during Q4’22 was a $370 million raise by B2B ecommerce platform Udaan, followed by a $110 million raise by B2B payments company Procap. While VC was relatively sluggish, PE activity remained high in India during Q4’22, highlighting the ongoing attractiveness of India’s startup economy.

VC investment was soft in both fintech and edtech during Q4’22, likely accounting for the low VC investment total given these sectors typically account for most of India’s largest funding rounds. VC investment in the unified payments solutions dried up considerably; while VC investors continued to invest in fintech areas like microlending and B2B payments, deal sizes were much smaller. Following on the Udaan raise, the B2B logistics and delivery is expected to see increasing interest over the next few quarters.

Volume of Seed and Series A deals remains solid in Japan

VC investment was soft in Japan during Q4’22, although there continued to be a solid amount of deal volume at the Seed and Series A deal stages. Concerns about rising interest rates, the appreciation of the US dollar versus the Yen, and a US—and potentially global—economic downturn had many VC investors in Japan taking a cautious approach to their investments. In addition to ESG-related topics such as renewable energy, hot areas of investment in Japan during Q4’22 included healthtech, blockchain, and gaming.

Despite the slowdown in VC funding in Q4’22, CVC is not expected to decelerate to a significant degree given the strategic factors driving many corporates to make investments. Given growing concerns about IPO results, M&A exits have gained some traction in Japan, with some startups being bought out by their corporate investors.

As crypto comes under global scrutiny, Hong Kong poised to benefit

In the wake of the bankruptcy of Bahamas-based FTX, Hong Kong is well positioned to gain some attention and interest from both crypto-focused startups wanting to gain the confidence of increasingly skeptical investors and VC investors looking to validate investment opportunities. In early 2022, Hong Kong introduced a regime to regulate virtual assets; it is also in the process of finalizing a licensing regime for virtual asset service providers, which is expected to come into force on June 1, 2023.

Trends to watch for in Q1’23

2023 will be very interesting year for VC investment in China, in part due to the loosening of mainland China’s Covid-19 quarantine rules and restrictions and in part due to indications of potential central government policy changes that could see China becoming more open to cross-border investors and interactions with other economies.

VC investment in India is expected to remain soft in Q1’23, before starting to pick up in Q2’23—in part due to India’s strong growth and consumption expectations. VC investment in agtech is expected to grow considerably over the next 12-24 months as startups in the space mature and attract larger funding rounds.

In Q1’23, the Japanese government is expected to announce a number of programs focused on encouraging startup growth. This could help spur VC investment and the further maturation of Japan’s VC ecosystem in subsequent quarters.


Venture financing in Asia Q4'22

Historically, a lot of the larger fundraising rounds in Hong Kong have been fintech related. It’s been a more resilient and stronger sector than others. The FTX situation will likely see crypto investors pulling back and scrutinizing deals more, but this could actually be beneficial for Hong Kong over the next few quarters as there’s been a lot of work done here already to regulate the space and a licensing regime should be in place by the end of Q2’23.

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

  • Venture Capital investment drops slightly $22.6 billion across 2157 deals

  • Later stage valuations cool on a YoY basis

  • First-time funds grow their proportion of volume

  • Australia continues to attract significant deal value – outperforms Q3

  • Chinese companies raise 7 of largest 10 deals in Asia


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