Funding for Greater China startups rose sharply in the third quarter of 2024, a sign that investment momentum is gradually picking up, but the overhang of geopolitical risks and China’s economic recovery is likely prompting investors to tread with caution.
Capital raised by startups headquartered in mainland China, Hong Kong, Taiwan, and Macau stood at $12.69 billion in the July-September period, up 40.2% quarter on quarter (QoQ), according to DealStreetAsia – DATA VANTAGE’s latest report, Greater China Deal Review: Q3 2024.
Although the deal value bounced back, the deal volume has been on a downward trajectory since mid-2023 — dropping a further 5.9% from the previous quarter to 493 deals. This indicates a flight to quality as more capital is being allocated to fewer deals.
On a year-on-year (YoY) basis, Q3’s fundraising fell by 10%, while the deal count dropped by 26.4%.
Fundraising value rises in Q3, but volume declines
China’s state-backed investors continue to play a dominant role in bankrolling homegrown startups, as foreign investors are largely waiting on the sidelines for clearer signs of the country’s economic recovery.
In Q3, state capital investor Shenzhen Capital Group topped with participation in 12 deals, followed by third runner-up CICC Capital with eight investments.
Qiming Venture Partners came third to the surprise of a market where state capital prevails. The private VC firm, which currently manages 11 US dollar funds and seven RMB funds, participated in 11 deals in which the fundraisers secured a total of $313.9 million.
Overall, Greater China-based startups raised more than $41.8 billion in the first nine months of 2024, up 5.2% from the same period last year. The aggregate deal count, however, was down 15.1% YoY to 1,633.
Appetite for megadeals in auto & parts, aerospace grows
The latest quarter saw a rebound in megadeals amid a higher risk appetite for equities in the auto & parts and aerospace industries. But investors still await a stronger recovery for the market to match the highs of big-cheque dealmaking last seen around 2021.
The three months between July and September booked 21 megadeals, or transactions worth at least $100 million. Collectively, these deals raised almost $9 billion.
The completion of three $1-billion-plus deals pushed up the megadeal value in the quarter by 74.8% sequentially, while the volume also rose 16.7%.
Twenty-one megadeals rake in 70.6% of Q3’s total funding
Yinwang Smart Technologies, an intelligent automotive components developer backed by China’s Huawei Technologies, closed two over-$1.6-billion investments in August to become the biggest fundraiser of Q3.
It was followed by Wanxin Integrated Circuit, which signed agreements with investors in October to raise $1.36 billion for the construction of new 12-inch wafer production facilities.
Despite an active early-stage investment scene, late-stage dealmaking remained muted in Q3 partly due to the subdued IPO activity in mainland China. Only 0.4% of the Q3 deals happened at Series E and later funding stages, versus 45.8% at Series A and earlier.
IPO recovery continues in Q3, but macro factors cloud prospects
The start of a global interest rate easing cycle — marked by the Fed’s major rate cut in September — has elevated market confidence, contributing to growing optimism around the IPO performance of Greater China firms.
Lower rates and easing inflation are likely to encourage new listings on the heels of a recovering IPO market in Q3. This quarter recorded 43 first-time public share sales by Greater China firms, up 22.9% from Q2, while the overall IPO funds raised grew 3.8% to nearly $2.9 billion, according to Dealogic data analysed by DealStreetAsia.
IPOs by Greater China firms recover in Q3
Improved liquidity and a strong IPO pipeline in Hong Kong is adding momentum to the recovery of Greater China IPOs. But tightened onshore listing scrutiny after the introduction of the State Council’s “nine new guidelines” in April has considerably slowed down mainland Chinese IPOs.
Beyond Hong Kong and mainland China, the US remained a popular alternative for Greater China’s IPO hopefuls, especially those in the technology and consumer sectors.
But it is a long road for Greater China IPOs to make a comeback. From January to September, the number of IPOs by Greater China firms more than halved YoY to 122. Their IPO proceeds totalled $9.1 billion, just a fifth of that in the same period of 2023.
The Greater China Deal Review: Q3 2024 report has extensive data on:
- Quarterly and yearly startup fundraising trends
- Top deals of Q3 2024
- Most favoured industries by venture investors
- Top IPOs by Greater China firms in 9M 2024 and pending large-cap IPOs
- Insights from prominent China-focused private market investors
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