Venture funding in Asia saw a significant 44% decline in the second quarter of 2023, with India, South Korea, and other regional nations leading the decrease, according to a report by Crunchbase. While China’s total funding numbers for the quarter remained relatively stable, a softening in early-stage funding raised concerns about the long-term health of China’s venture capital market.
6 September 2023 – In an unexpected turn of events, venture funding in Asia witnessed a significant 44% drop during the second quarter of 2023, as reported by Crunchbase, a platform tracking global startup trends and investments. Surprisingly, this decline was not primarily attributed to a reduction in investments in Chinese startups, despite the prevailing political tensions between China and the US and a ban on certain US tech investments in China.
Crunchbase’s report, released on Tuesday, highlighted that China’s venture funding numbers for the second quarter showed a modest increase, both quarter-to-quarter and year-on-year. The decline in overall funding across Asia was primarily driven by India, South Korea, and other regional nations.
A deeper analysis of Crunchbase data revealed a softening in early-stage funding for Chinese startups, which was partially offset by a surge in large growth rounds during the previous quarter. While late-stage large funding rounds contribute to a region’s total funding, the decline in early-stage funding raises concerns about the overall health of China’s venture capital market. A sustained decrease in early-stage funding can lead to a reduction in the number of startups maturing and subsequently raising substantial growth rounds.
Despite the decline, China-based startups managed to secure a total of US$11.5 billion in the second quarter of 2023, representing a 25% increase from the US$9.2 billion raised in the first quarter. Moreover, this figure showed a modest 7% uptick from the US$10.8 billion raised during the same period in the previous year.
However, Crunchbase’s assessment of first-half figures painted a more pessimistic picture of the venture market. The US$20.8 billion raised in the first half of 2023 marked a 13% decrease from the second half of 2022 and a 17% drop from the first half of 2022. Notably, this first-half total was the lowest amount of funding received by Chinese startups in a six-month period since at least before 2018.
The decline in early-stage funding in China seemingly gave rise to a surge in late-stage growth and private equity funding within the region. Chinese companies attracted a staggering US$5.8 billion in such funding during the second quarter, representing a remarkable 60% increase from the previous quarter’s US$3.6 billion and even a slight rise from the US$5.2 billion secured in the second quarter of 2022.
