VC investment in Asia-Pacific robust in Q3’21, marking the second highest quarter ever, KPMG analysis finds

Total venture capital investments in Asia-Pacific almost reached a record high in Q3’21.

Total venture capital investments in Asia-Pacific almost reached a record high in Q3’21.

28 October 2021, Hong Kong – Total venture capital investments in Asia-Pacific almost reached a record high in Q3’21, with funding across 2,616 deals amounting to USD48.1 billion, the most since Q2’18 and the second-highest quarterly figure ever.

KPMG’s Venture Pulse Q3 2021 report found that after one of the sharpest declines during the first half of last year, the Asian-Pacific ecosystem had rebounded strongly. The recovery rate was astonishing, from USD$20.5 billion in VC invested in Q1 2020 to US$48.1 billion in Q3 2021. As the pandemic abates, venture funding is likely to flow once again at rates similar to recent highs as startup ecosystems across the region continue to remain active and experience significant growth.

Evolving regulations in China affecting VC investment, but only in some sectors

China recorded US$23.7 billion VC investment in Q3’21. Both VC investment and IPO activity in China slowed partly due to evolving government policies and regulations for specific sectors like edtech and fintech. During Q3’21, new implementation guidance related to Chinese companies listing overseas was announced, including plans to enhance oversight and improve overseas data flows and data security regulations.

Egidio Zarrella

Egidio Zarrella, Partner, Clients and Innovation, KPMG China, says:

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VC investment in China remained consistent with Q2'21. Hardware-focused startups have been gaining a lot of attention from VC investors in China given the government's identified long-term strategic priorities. In the first half of 2021, hardware startups attracted over USD$5.5 billion in investment. Q3'21 saw that number grow even further, with all indications suggesting investment will remain strong into Q4.

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In China, healthcare companies have grown rapidly, with a growing number going public either in Hong Kong (SAR, China) or Shanghai. Given the government’s desire to reform health care and China’s aging population, healthtech is expected to remain a hot area of investment in the foreseeable future.

Allen Lu

Allen Lu, Partner and Head of TMT Audit of KPMG China, says:

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VC investors in China are quite cautious at the moment because of the different regulatory changes occurring in the market, particularly in areas related to fintech, tutoring, and overseas public listings. The caution is centered heavily on certain sectors; others — like healthtech, hardware, and consumer market solutions are still attracting quite significant levels of VC investment in China.

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Q3’21 saw cooldown in venture-backed exits, but 2021 could remain record year of exit value

The first half of 2021 saw record levels of exit activities, largely thanks to the surge in public listings across multiple exchanges within the region. Q3’21 has been much more muted, likely due to companies and regional governments working out compromises between various levels of economic exposure both abroad and domestically. Thanks to public listings, 2021 easily remains the record year for exit value.

Irene Chu

Irene Chu, Partner, Head of New Economy and Life Sciences, Hong Kong, KPMG China, says:

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In Asia, the pipeline of later-stage companies continues to be solid. VC investors are looking for opportunities to exit, so the IPO market is robust. In China, investors remain cautious about sectors that are affected by the regulatory changes. Still, companies that are not as sensitive such as biotech, green tech and consumer markets related at the right stage have been able to attract funding.

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