Unsurprisingly after what had been a strong run, the zero-Covid policies of the mainland, coupled with tighter monetary policy and economic headwinds meant that VC funding decelerated.

Covid restrictions and tighter global monetary policy have squeezed venture financing in Asia but moves such as Hong Kong’s bid to attract VC capital could point to a brighter future, according to a KPMG report entitled Venture Pulse Q1 2023.

The professional services firm said that venture financing in Asia saw a slow start in the first quarter of 2023. VC-backed companies in the Asia region raised $13.5 billion across 1,773 deals. VC investment in China during Q1 23 totalled $7.4 billion as VC activity picked up in the second half of the quarter once the Covid-19 wave diminished.

VC investment in China was particularly hard hit as the country imposed a zero-Covid policy of severe lockdowns and other restrictions. As VC investors questioned high valuations, late-stage funding in China dropped considerably in Q1 23, while by comparison, pre-seed and Series A funding was much more stable, KPMG said.

KPMG said that VC investment in alternative energy and electric vehicles remained “very robust” across Asia in Q1 23, with Chinese mainland and Chinese Hong Kong accounting for the largest deals in the space, including a $750 million raise by EV vehicle manufacturer Zeekr, a $442 million raise by solar energy technology company SolarSpace, a $400 million raise by fossil fuels decarbonisation company EcoCeres, and a $290 million raise by United Aircraft.

“VC investment in China remained quiet in Q1 23, although it did strengthen in the latter half of the quarter. Now we’re starting to see some renewed VC activity.

"Even if that activity hasn’t fully translated into deals quite yet, it is a positive sign. One new sector that is seeing growing activity is biotech and life sciences. That’s an area to watch as we head into Q2 23,” Zoe Shi, partner, KPMG China, said.