Q4’24 Venture Pulse Report – Asia

AI continued to attract a significant amount of interest from VC investors across Asia during Q4’24. During the quarter, China-based Didi Autonomous Driving raised a $298 million funding round. VC investors in Asia have embraced the applicability of AI to industry solutions, showing significant interest in startups able to apply AI to the challenges of different market sectors; for example, the use if AI to drive more efficient biotech research or the development of more efficient cleantech solutions.

VC investment in China remained very slow in Q4’24 as VC investors held back from deploying capital in the market given the challenging economic environment. Despite the soft level of investment, interest among VC investors in China has picked up in recent months as investors have shown increasing interest in opportunities in the AI space, including AI-related activities like robotics and autonomous driving.

Alternative energy, including electric vehicle manufacturing, has continued to be one of the most resilient areas of VC investment in China. There has been fierce competition among automotive startups in the country, both in the EV space and, more recently, on the autonomous vehicles front.

VC investment was quite muted in India during Q4’24, despite relatively strong market activity. The slowdown in completed deals was likely more of a speed bump than a long term challenge, with some optimism that deals will materialize heading into Q1’25. Quick commerce remained a hot sector of investment during the quarter, evidenced by a $350 million raise by ten-minute delivery company Zepto.

An encouraging trend in India has been the increasing number of tech startups looking at IPO exit opportunities — either filing their listing paperwork or beginning the process to do so. Over the last eighteen moths, there has been growing acceptance of these companies by India’s capital markets, stock exchanges, the retail public, and institutional investors. With more institutional investors subscribing to IPOs and more active trade happening, more startups are seeing IPOs as a real exit option.

In Japan, venture capital (VC) deal value experienced a slight decline in Q4, following a robust Q3. Despite this dip, the overall VC deal value in 2024 exceeded the total for 2023. This increase was primarily driven by significant funding rounds, such as AI startup Sakana AI's $217 million Series A in Q3 and HR management platform SmartHR’s $134 million Series E in Q2.

As more mature startups secure funding, the size of VC rounds has grown significantly. The average VC deal value reached a record $6.6 million as of Q3, up from $5.7 million in 2023.

The market more broadly has also continued to evolve, with a growing number of foreign VC firms looking to do business in the country; for example, recently US-based Anderson Horowitz announced plans to open an office in Japan.

VC investors in Japan have show interest in a diversity of sectors. The healthtech — particularly digital healthcare services — semiconductor, and aerospace and defence sectors have also gained a lot of traction among VC investors in Japan. Deeptech has also grown on the radar of VC investors, in part because of government efforts to encourage investment in the space. The government has been very active in supporting startups in Japan; it is currently in the latter half of its Startup Development Five Year Plan.

Stock market performance in both China and Hong Kong has improved somewhat, possibly helped by the announcement of a $1.4 trillion economic stimulus package by China’s central government and by declining interest rates in Hong Kong. IPO activity in mainland China remained relatively quiet in Q4’24; one exception was the dramatic increase in REIT IPOs.

Hong Kong’s IPO market ranked among the top 5 global IPO venues during 2024, despite a relatively slow first half of the year. IPO activity picked up in Q3’24, led by the IPO of China-based appliance giant Midea, which raised $4 billion in the HKSE’s largest IPO in three years. Then, during Q4’24, China-based Horizon Robotics — a chip manufacturer for robots and autonomous vehicles — held a successful IPO on the HKSX, raising $696 million.¹ The HKSX also saw the return of biotech companies looking to IPO in Q4’24, although volume remained well below of historical peaks.

Favourable arrangements between Hong Kong and China contributed to a streamlined approval process for mainland China-based companies to list in Hong Kong; this has subsequently led to more applications for HKSX listings, which bodes well for the HKSE heading into Q1’25.

The VC market in Japan is really starting to mature, particularly on the funding side. Early on, there wasn’t much in the way of overseas VC funds looking into the space — there was a big funding gap between Japan and the rest of the world. Now, we’re starting to see more foreign VCs looking to open offices here — Anderson Horowitz just being one. Over the next year, we expect to see more activity from foreign investors, which will be good for Japanese startups as they look to raise bigger rounds.