The venture capital market in Asia is not immune to the decline in funding seen globally.
Venture capital funding on the continent fell to $36.3 billion in the first quarter, down 7% from the same quarter last year – and a much more dramatic drop of 31% from in the last quarter of 2021, according to Crunchbase The data.
For one thing, the numbers aren’t shocking given the decline in global and North American venture capital dollars. On the other hand, like most countries in the world, Asia is coming off a record year in venture capital funding of $174.4 billion last year.
Deal flow also fell massively compared to the fourth quarter of 2021. The first quarter of this year saw only 1,709 announced deals, a 21% drop from the 2,153 deals closed in the fourth quarter of the last year.
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Advanced stage drops
The biggest drop came in late-stage and technology growth funding, which totaled just $22.5 billion in the first quarter — a 34% drop from $34.1 billion in the first quarter. last quarter of 2021, and 9% compared to the first quarter of last year.
This decline in the dollar offsets most of the decline that Asia experienced quarter over quarter. It also seems to illustrate the same investment thesis that many venture capital and growth companies are supposed to implement, in which they forego costly late rounds at high valuations and seek to invest money elsewhere.
The number of late-stage deals and technology growth also declined significantly from last quarter. Only 257 late-stage deals were announced in the first quarter, down 27% from the 353 deals closed in the fourth quarter of 2021. However, this number of deals is actually an increase from the 231 closed in the same period last year.
Early Stage Dips
Funding from early rounds showed similar trends – with dollars down, but deals up compared to the same time last year.
Seed funding was just $11.7 billion last quarter, down 29% from $16.5 billion in Q4 2021 and down 10% year over year. ‘other.
The first quarter saw 586 seed-stage deals closed, down 24% from the fourth quarter, but up 8% from the first quarter of 2021.
Seed and angel dollars go up, deals go down
The first stage of funding – seed and angel – presented a somewhat mixed bag for Asia’s first quarter. The quarter saw over $2 billion go into such rounds, a 13% increase from the fourth quarter and a whopping 87% increase from the first quarter of 2021.
However, since these rounds represent the smallest dollar amounts, the increase was not enough to really move the funding needle. Also, while dollar amounts were up, transactions were down. The quarter saw just 866 deals, down 16% from the 1,028 that closed in the fourth quarter and down 13% year-over-year.
Who took the biggest hit?
With declining funding numbers, it makes more sense to think that Chinese startups have borne the brunt of the pullback – and that would be correct.
Venture capital funding in China in the first quarter was $13.6 billion, down 50% from the fourth quarter of 2021 and down 46% year-on-year.
However, venture capital funding in the first quarter in India – the continent’s second-largest venture capital hub – nearly matched the fourth quarter at $10.8 billion. That amount also represents a 128% year-over-year increase, which seems to put it on pace for another strong year.
Along with lower funding totals, the Asian market is also following the North American trend of a slower IPO pipeline. Fewer than a dozen venture capital-backed companies on the mainland went public last quarter, down from about three dozen in the first quarter of last year.
This is not shocking, considering how regulations have tightened – both in the United States and China – regarding Chinese companies listed on US exchanges after calling on Titan. Have I got made public on the NYSEonly to be removed from the list months later when the Chinese government said it would investigate the company for allegedly violating data privacy and national security laws.
However, some notable companies went public in Asia in Q1, including:
- China-based chip maker ASR Microelectronics raised over $1 billion in January.
- China-based biotechnology company Remegen raised over $400 million last month.
Mergers and acquisitions, however, were up about 50% year over year, with about 90 deals announced in the first quarter. Some of the most important transactions include:
Take away food
Just as Asia has followed the rise of venture capital funding in North America over the past year, it appears to be slowing down, as has the Western Hemisphere.
Asia faces many of the same headwinds that the United States currently faces, perhaps even to a greater degree. The continent’s largest venture capital market, China, is still facing a COVID crisis as the new omicron variant spreads and causes more supply chain disruptions.
Tensions between the United States – the world’s largest venture capital market – and China continue to be tense, especially as the war in Ukraine rages on and other geopolitical tensions escalate.
On a more basic private market front, Asian startups are looking a lot of what their American brethren are seeing, with falling valuations, tougher-to-rise growth cycles and a shrinking IPO window.
“It’s not surprising in a negative sense, but as valuations were foamy in 2021, it’s part and parcel of natural market cycles to correct in the same way that public equity markets have corrected,” said Minette Navarreteco-founder and president of an investment company in Southeast Asia Start businesses. “Causing factors include higher inflation, US Fed interest rate hikes and the Russia-Ukraine war that are driving negative sentiment in the markets.”
That said, it’s also worth noting that the numbers for the first quarter are actually higher than those achieved just three quarters ago. In the second quarter of last year, total funding was $35.4 billion, about a billion less than last quarter.
Next quarter will likely add much more clarity to the story being written.
The data in this report comes directly from Crunchbase and is based on reported data. Data reported is as of April 4, 2022.
Note that data lags are more pronounced in the early stages of venture capital activity, with seed funding amounts increasing significantly after the end of a quarter/year.
All financing values are given in US dollars, unless otherwise indicated. Crunchbase converts foreign currency to US dollars at the spot rate in effect as of the date funding rounds, acquisitions, IPOs, and other financial events are reported. Even though these events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historical spot price.
Glossary of Funding Terms
Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes VC rounds of unknown series, equity crowdfunding, and convertible notes at $3 million (USD or converted USD equivalent) or less.
The early stage includes Series A and Series B rounds, as well as other types of rounds. Crunchbase includes VC rounds of unknown rounds, venture capital and other rounds greater than $3 million, and those less than or equal to $15 million.
Late phase includes Series C, Series D, Series E and subsequent VC rounds after “Series [Letter]” naming convention. Also included are VC rounds of unknown series, VC and other rounds above $15 million.
Tech growth is a private equity round raised by a company that previously raised a “venture” round. (So basically any round of the previously defined stages.)
Drawing: Dom Guzman
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