2023 was a year in which the private equity (PE)-venture capital (VC) scene in Greater China got mired in geopolitical tensions and macroeconomic uncertainties, especially in the final quarter, when startup fundraising fell to its lowest level since the start of the pandemic.
Funds raised by startups headquartered in mainland China, Hong Kong, Taiwan, and Macau plunged 23.7% sequentially to just under $10.8 billion in Q4, the lowest since Q2 2020. The number of deals dipped marginally to 665 in Q4 from 670 in the previous quarter, according to DealStreetAsia DATA VANTAGE’s latest report Greater China Deal Review: Q4 2023.
The fall in deal value and volume shows how investors, who once splurged generously on Chinese tech juggernauts, have become cautious in making big-ticket investments amid the macro market volatility and shifting global power dynamics.
On a year-on-year (YoY) basis, the fundraising in Q4 marked a 25.6% drop from the $14.5 billion raised in Q4 2022, despite a meagre 5.2% rise in deal count.
Overall, 2023 saw the completion of 2,588 deals, up 13% from 2,290 deals in 2022. The full-year fundraising value of $50.5 billion was 5% less than the $53.2 billion raised in 2022.
Megadeals drop to 21 in Q4, the lowest since Q1 2020
There was no billion-dollar deal in Q4. As fundraising remains challenging, general partners (GPs) are taking time to deploy capital. Instead of writing fat cheques, many of them now focus extensively on the business fundamentals of both existing portfolios and pipeline deals.
As a result, the number of megadeals in the quarter, which refers to transactions worth $100 million or more, was at its lowest since Q1 2020. Twenty-one megadeals raised less than $4.9 billion in Q4, down 43.3% from Q3’s $8.6 billion.
The 21 megadeals accounted for 45.6% of the final quarter’s fundraising sum. This share had stood at 61.3% in Q3; just over 50% in Q2; and 65% in Q1, respectively.
The biggest fundraiser in Q4 2023 was Chinese ride-hailing firm Didi Global’s smart-car development arm, which was acquired by Hong Kong-listed electric vehicle (EV) maker Xpeng Inc for a total of $744 million.
Throughout the year, big-ticket dealmaking was less active than a year ago and was nowhere near the peak seen in 2021. Collectively, 2023 recorded 93 megadeals, versus 120 in 2022 and 235 in 2021, respectively.
Investors remain cautious about late-stage investments amid a tepid exit landscape. The later the funding stage, the less active the dealmaking activity.
Late-stage startups, i.e., companies at Series D round and later stages, sealed only 24 investments in Q4, or just 3.7% of the total deal count. In comparison, Series A and earlier stages logged the completion of 318 deals, accounting for 47.8% of the quarter’s total.
Early-stage dealmaking also dominated throughout the year. Series A and earlier deals amounted to 1,359 in 2023, representing 52.5% of the total 2,588 deals.
IPO activity cools down, but hope remains for 2024
2023 was a slow year for initial public offerings (IPOs) by Chinese companies. Q4, in particular, was the worst quarter with only 59 IPOs raising no more than $6.8 million in total proceeds.
The IPO market slump in the final quarter wrapped up the year with 317 primary listings, down 20.6% from 399 in 2022. Their overall IPO proceeds of $52.1 billion represented a 31.7% decrease from the previous year.
Chinese IPOs in Hong Kong are likely heading for a rebound in 2024, while the pace of new listings on mainland exchanges slows down due to Beijing’s attempts to balance its primary and secondary markets.
The new year may also welcome more small-cap Chinese IPOs in the US, thanks to recovering investor sentiment around overseas listings in 2023, which recorded 21 Chinese listings in the US raising a combined $667.9 million. But most such US listings are expected to happen before polls open for the US Presidential Election in early November.
The Greater China Deal Review: Q4 2023 report has extensive data on:
Quarterly and monthly startup fundraising trends
Top deals of Q4 2023
Most popular industries for venture investors
Top IPOs by Greater China firms in 2023 and major IPOs in the pipeline
Insights from prominent China-focused private market investors
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