VC investment in Asia fell for the seventh straight quarter in Q3’23. Despite soft investment compared to historical norms, China continued to account for the largest share of VC funding in Asia in Q3’23, including a $1.87 billion raise by GTA Semiconductor and a $1 billion raise by Rox Motor. India saw VC investment slide further during Q3’23, with Juniper Green Energy raising the largest deal of the quarter ($350 million). VC investment in Japan, however, remained quite resilient in Q3’23, likely a tribute to the country’s rapidly growing VC market.

IPO market in Japan bucks trends; Continued slowdown China and Hong Kong

IPO activity in Japan has been strong in recent quarters, bucking trends seen globally. At the end of Q3’23, the number of IPOs for the year was well positioned to exceed 2022. The positive activity may be a reflection of the smaller IPO deal sizes in Japan compared to other jurisdictions. The Japanese government is proactively encouraging M&A activity in order to help scale companies prior to IPOs.

Stock market performance in mainland China remained lacklustre in Q3’23, in part due to concerns related to the country’s property sector. IPO activity remained soft, with the IPOs that did occur focused primarily on the new materials and semiconductor spaces. During Q3’23, the China Securities Regulatory Commission (CSRC) introduced a number of measures to help improve the performance of its stock market, support the secondary market in the country, improve liquidity, and support innovative companies in specific industries.

IPO activity in Hong Kong was also quiet in Q3’23, although the HKSE continued to focus on improving its attractiveness to companies across the ASEAN region. During the quarter, Hong Kong Exchanges and Clearing Limited (HKEX) opened an office in London in order to expand its reach, better engage with investors and funds in the UK and Europe, and foster a more connected investment environment globally.

China introduces new regulations for GenAI

The interest of VC investors in AI continued to grow in Asia during Q3’23, mirroring interest in other regions globally. The rapid evolution of GenAI over the last few quarters, however, has led to an increasing regulatory focus on the space, particularly in China. During Q3’23, the Cyberspace Administration of China enacted high level guidance in order to help foster and govern the evolution of GenAI in the country, with a particular focus on ensuring data security and appropriate controls.12

VC investment in India dips significantly

VC investment was very slow in India during Q3’23 as VC investors continued to shy away from making large megadeals.  Juniper Green Energy raised the largest deal of the quarter ($350 million) followed by  grocery firm Zepto which raised $200 million, electric scooter company Ola ($140 million) and e-scooter manufacturer Ather Energy ($108 million). Fish and seafood supply chain platform Captain Fresh also raised $71 million during the quarter.

Japan’s VC ecosystem continues to grow; startups raising larger rounds

VC investment in Japan was relatively strong during Q3’23, with a growing number of companies able to raise larger funding rounds, including Telexistence ($170 million), Gojo & Company ($101 million), Josys ($93 million) Mujin ($85 million), and CADDI ($89 million).

The VC ecosystem in Japan continues to evolve rapidly, with increasing participation from corporates and financial institutions. During Q3’23, megabank Sumitomo Mitsui Financial Group (SMFG) announced plans to launch a $210 million fund aimed at helping startups grow into unicorn companies.13 Other Financial institutions also increasingly accelerated loans to startups and provided debt financing to venture capital backed companies. 

Trends to watch for in Q4’23

VC investment in Asia is expected to remain soft in Q4’23 given ongoing economic and geopolitical uncertainties, although Japan is well positioned to remain an outlier as it continues to mature its VC market and ecosystem. In China, should the liquidity challenges faced by the real estate market be resolved, VC investment could begin to improve over the next couple of quarters. 

Global market conditions are affecting activity here in Hong Kong, but the fundamentals of the market are still very sound and the Hong Kong financial system is still stable. We are seeing a lot of effort by the government, regulators, and the HKSE to engage with investors, funds, and institutional investors in different parts of the world. During Q2’23, for example, the Hong Kong Exchange opened an office in London to build connections and relationships with investors in Europe.

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

  • Venture Capital investment drops to $20.3 billion invested across 2582 deals

  • Early-stage deals remain surprisingly resilient

  • Corporate VC pulls back in line with general market

  • Japan continues to see strong dealmaking

  • Electric vehicle ecosystem remains hot in China

  • Chinese companies raise 8 of largest 10 deals in Asia

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