There are still pockets of strength in the venture capital (VC) space in Asia despite falling for the sixth straight quarter in 2Q2023, according to KPMG’s Venture Pulse report.

In 2Q2023, VC-backed companies in Asia raised US$20.1 billion, down 42% compared to the US$35.1 billion raised in 2Q2022, KPMG finds. This is despite a US$2 billion raise by Singapore-based online retailer Shein and a US$700 million raise by India-based edtech firm Byju.

Although VC dealmaking continues to moderate, it is at a slower pace than before. This may result in growing assurance among investors and startups that the myriad of volatile factors have now been priced in, the report says.

“However, plenty of potential variables for investing remain intact, which could lead to a plateau in dealmaking tallies at best,” it adds.

Within Asia, the alternative energy, energy technology and battery storage space continued to be a very attractive area of VC investment in the region particularly in China. For example, Lithium-ion battery component company Libode raised US$374.7 million, solar technology firm Qingdian Photovoltaic raised US$217.5 billion, while fusion technology company Neo Fusion raised US$216.1 million during the quarter.

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, says KPMG.

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While there is growing optimism among VC investors in Asia — especially in China and Hong Kong — investors continued to act cautiously in 2Q2023, prioritising investments in companies with more maturity while shying away from new and very early-stage startups.

Fundraising in China surpassed its 2022 total. In recent quarters, both China’s central government and a number of local governments have worked to support technology development and startup growth, particularly in critical industries. This has ranged both from direct investment in startups to partnerships with VCs in order to make specific investments.

KPMG says that the government participation is likely one reason why fundraising in China has bucked the downward fundraising trend seen in other regions of the world as well as in other jurisdictions within Asia. “It is hoped that this fundraising will help spur VC investments in the country heading into the second half of the year.”

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In India, VC investments rose slightly in 2Q2023 but remained very subdued compared to previous historical quarters. Aside from Byju, online optical platform Lenskart raised US$600 million, while financial services platform True Balance raised US$168.1 million.

Fintech, edtech and gaming continued to attract solid interest and VC investment in India during the quarter. Agritech also remained high on the radar of VC investors in the country, although it remains a 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.

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