India, Israel Lead The Way In Asian Venture Market Drop

With growing tensions starting to affect U.S. investment in China, it seems logical to conclude the 44% drop in Q2 venture funding in Asia is mainly due to a pullback by investors in Chinese startups.

But that doesn’t appear to be the case, at least according to Crunchbase numbers. In fact, China’s venture market seems to have steadied from last year, while uncertainty continues to roil the funding markets in the region’s other large venture hubs.

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Meanwhile, India, South Korea, Singapore and Israel all saw significant drops in venture funding when comparing Q2 of this year to the same time last year.

The Red Dragon stabilizes

There is no denying the strained relationship between China and the U.S. and its effect on investments in the world’s second-most populated country.

Venture capital giant Sequoia Capital announced in June it would break up from its China and India arms, likely a result of more promised regulations involving U.S.-based investment in China.

It also was reported last week President Joe Biden plans to sign an executive order to limit U.S. tech investments in China by mid-August.

Despite the increasing tensions, the venture market in China actually saw some gains both quarter over quarter and year over year — although numbers for the first half of the year were still down.

In Q2, China-based startups raised $11.2 billion, a slight 4% bump from the same quarter last year and up 22% from the first quarter, which saw only $9.2 billion in funding, per Crunchbase data.

For the first half of the year, $20.4 billion was invested — down from $24.3 billion in H1 last year and $23.8 billion in the latter half of 2022.

Some notable big rounds in the regions in Q2 included:

Fast-fashion startup Shein reportedly raised $2 billion at two-thirds of its previous valuation, according to The Wall Street Journal in May.
Anhui YOFC Advanced Semiconductor, a manufacturer of silicon carbide power semiconductor products, raised nearly $524 million in a Series A in June.
In April, SJ Semi, a foundry that implements front-end wafer manufacturing, closed a $340 million Series C.
That same month, pharmaceutical company Hasten Biomedical completed a $315 million venture round.

Venture plummets in India

While China’s venture numbers being down 16% in the first half of the year paints a dark picture for the region — especially since it is by far the largest venture market in Asia — it is nothing compared to the drop India witnessed.

India — Asia’s second-largest venture market — plummeted 72% quarter to quarter, falling from $8.5 billion in funding in Q2 last year to only $2.4 billion this year, per Crunchbase data. That’s even including a massive $1.3 billion round for renewable energy company Avaada Energy.

The drop in H1 is similar, with venture falling 73%, from $18.4 billion to only $4.9 billion in H1 of this year.

India’s not alone

The region’s other three largest venture markets also saw significant drops year to year.

Funding to startups in South Korea took a substantial hit, falling from $3.1 billion in Q2 last year to only $1.4 billion this year — a drop of 55%. That’s despite Seoul-based autonomous mobility firm 42dot’s $787 million raise in April.

South Korea’s first half numbers are even bleaker, dropping 60% — from $8.5 billion last year to only $3.4 billion in H1 this year.

Singapore’s venture story was nearly identical. Startups in that country saw funding dip 59% quarter to quarter — from $2.9 billion last year to only $1.2 billion this year.

First-half venture number in Singapore also dropped 62%, falling from $6.1 billion to $2.3 billion in H1 this year — again despite a big round for online shopping site Lazada Group, which raked in $353 million from its parent firm Alibaba, according to reports.

Even Israel — which prides itself on its tech startup scene — saw a substantial drop in venture funding, as the country faces significant political upheaval in Israel which seems to have made investors wary.

Israeli startups saw a 63% year-to-year drop in funding, falling from $2.7 billion in Q2 last year to only about $1 billion in Q2 this year — which also matched total venture funding in the first quarter of the year.

Overall, venture funding in Israel dropped 64% in the first half of the year compared to last, falling from $5.6 billion last year to only $2 billion in the first half this year.

What it means

The data indicates that despite attention-grabbing headlines about the decline of U.S. investment in China, the region overall has watched venture dip more dramatically in some of its other countries.

While China’s venture market dwarfs others in the region — making even a drop of a few percentage points significant — it will be extremely interesting to see if areas like India and Israel continue to see such substantial declines.

If those areas continue to see a drop, any rebound in the region in venture may rely solely on the Red Dragon.