VC investment in Asia remained relatively soft in Q2’23, despite a $2 billion raise by Singapore-based online retailer Shein and a $700 million raise by India-based Byju.

Despite down rounds, follow-on funding remains key driver of investment in Asia

At mid-year, the percentage of down rounds compared to the total number of funding rounds in Asia was at its highest level in over ten years. While this may have affected the size and number of large mega-deals during the quarter, existing companies looking to attract follow-on funding continued to draw the lion’s share of VC investment at more modest deal values. While there is growing optimism among VC investors in Asia, particularly in China and Hong Kong, investors continued to act cautiously in Q2’23, prioritizing investments in companies with more maturity, while shying away from new and very early-stage startups.

VC investors in China prioritize companies able to show results

During Q2’23, confidence continued to grow in China, although VC investors remained highly cautious with respect to their investment decisions. The number and value of major growth-focused VC deals remained soft, particularly compared to the levels seen four-to-six quarters ago when confidence in IPO status and access to exits was significantly higher. During the quarter, VC investors in China also prioritized companies able to show real numbers and growth—whether revenue or profit—and the ability to be sustainable long-term.

Despite small uptick quarter-over-quarter, VC investment in India remains very subdued

VC investment in India rose slightly in Q2’23, although it remained very subdued compared to many historical quarters—including the same quarter last year, which saw over $8 billion in VC investment. The largest deals in Q2’23 in India included a $700 million raise by edtech Byju, a $600 million raise by online optical platform Lenskart, and a $168.1 million raise by mobile balance management app company True Balance.

Fintech, edtech, and gaming continued to attract solid interest and VC investment in India during Q2’23. Agritech also remained high on the radar of VC investors in the country, although it remains relatively nascent industry. As such, many of the agritech deals to date have been relatively small in terms of deal value, although deal sizes are expected to grow over time. 

Stock market performance helping drive investor confidence in Japan

Japan’s stock market has performed admirably in recent months, as evidenced by the strong upswing in the Nikkei 225 since the beginning of the year. This performance has likely contributed to the positive sentiment of investors and to the continued growth and maturation of the VC sector in Japan. Startups have continued to grow, raising larger funding rounds at much higher valuations. In Q2’23, mobility company Go raised $103.1 million while energy company Kyoto Fusioneering raised $79 million. Biotech companies also raised solid funding rounds, including Heartseed ($20 million) and EditForce ($15.5 million). IPO exits in Japan increased in Q2’23 compared to the same quarter last year, although the listed companies were all relatively small. In recent months, Japan has also seen several large technology companies announce plans to spin-off business units in order to focus on their core business. If completed, these spin-offs will likely drive additional IPO activity in Japan.

Trends to watch for in Q3’23

There is optimism in Asia heading into Q3’23, particularly in China and Hong Kong, although there is no certainty that this optimism will quickly translate into increasing VC investment. There is also some hope for stronger IPO activity in Hong Kong and China during the second half of the year, particularly given the planned spin-offs of a number of tech giant Alibaba’s business units. The success of these spin-offs could spur other IPO activity, while potentially also driving a new wave of interest in technology companies in China.

In Q3’23, Japan is expected to change regulations related to the origination of venture funds in order to attract more foreign VC investment into the country.

venture financing in Asia

We are seeing more companies starting to undertake the work required to conduct an IPO—which will hopefully bode well for the IPO market in Hong Kong heading into the second half of the year, although actual exits may take time to materialize. If some of these early movers see good demand and results, then others will follow—which should start to improve the VC market as funds are recycled back into the secondary market.

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

  • Venture Capital investment drops for 6th consecutive quarter

  • Early-stage deals remain resilient

  • Investment in software declines as a percentage of overall deals

  • Exit activity increases slightly on IPO resilience

  • Chinese companies raise 5 of largest 10 deals in Asia

Key contacts