In Mainland China, there are unmistakable signs of a revival in funds available for investors to allocate to expanding companies, marking the country as a fundraising exception in 2023 thus far.
Contrary to the global downward trend, China has seen a surge in venture capital fundraising. In the first half of 2023 alone, it totalled US$43.4 billion, compared to US$46.9 billion for the entirety of 2022. The sectors of alternative energy, energy technology, and battery storage persist as attractive areas for VC investment in the region.
Technologies and innovations are the primary attractions in most markets. In China, robust investment in AI, including generative AI, fuels significant startup growth, especially in critical industries. This growth is largely due to favourable government policies. The strong involvement of the government instils confidence in venture capital investors.
However, the scenario is different in other regions. Investment in startups in India and Southeast Asia has been lacklustre. Indian startups raised only US$6.58 billion in the first half of 2023, which is approximately half of the funds raised in the first quarter of 2022 alone. This figure represents a year-on-year drop of 66 percent.
In Q2 of 2023, Indonesian startups amassed a total of US$327 million in equity funding. Vietnamese startups, meanwhile, garnered US$413 million in total proceeds. However, these figures were outpaced by Singaporean startups, which secured US$1.24 billion within the same three-month period. If the current trend continues, the total funds raised in 2023 are projected to fall short of the previous year’s levels in these regions.
Despite market volatility, a growing number of startup funders and founders are discovering opportunities in cutting-edge technologies and innovations. These include generative AI, which boasts a wide array of potential applications, and Web3.
As Mainland China bucks the downward trend in the global VC investment market, Hong Kong has further cemented its status as an efficient regional financing hub for I&T. This is supported by its robust ecosystem of I&T startups and leading research and development institutes. The city has emerged as a favourable launchpad for companies exploring markets in the Greater China and Asian regions.
The upcoming Cyberport Venture Capital Forum 2023, scheduled for October 31 and November 1 at Cyberport, will host leading venture capitalists, startups, innovators, and thinkers. They will share their market insights and explore emerging trends, including top tech sectors for investment, the impact of AI, blockchain and other technologies, as well as the prospects for Web3 and AI markets.
Top tech sectors
The technology landscape, with its constant evolution, presents an attractive prospect for venture investment. However, this depends on a variety of factors, including market conditions, technological breakthroughs, and industry trends.
“Considering these factors, my top sectors for investment currently include AI, Web3, asset tokenisation, and semiconductors,” says Alireza Masrour, General Partner at Plug & Play. “These industries have demonstrated their potential to disrupt other sectors and have gained significant traction due to increasing market demand.” Masrour will be sharing his expertise as one of the speakers at CVCF 2023.
Louis Lee, the Co-Founder and Chief Distribution Officer at Propcap Technologies Ltd, believes that the leading sectors for venture investment are Web3, with an emphasis on digital assets and blockchain-related technologies, green and sustainable technologies, smart-living health-focused technologies, InsurTech, and RegTech. Lee will delve deeper into these markets at CVCF 2023 with forum participants.
Impact of AI and blockchain on capital funding market
The fusion of AI and blockchain has ushered in fresh investment prospects in the venture capital sector. Jupiter Zheng, CFA, Partner, Liquid Funds and Research, at HashKey Capital, notes, “A multitude of investors are exploring avenues to engage as limited partners (LPs). This trend presents a unique opportunity for specialised venture capital firms like ours to utilise our professional acumen and experience to make informed investments and foster industry growth,” says Zheng. He finds the convergence of AI and blockchain particularly promising, identifying numerous areas where these technologies can synergise to tackle existing gaps and challenges. Zheng is slated to be one of the speakers at CVCF 2023.
Lee believes that blockchain technology has significantly reduced the cost of capital funding markets, often referred to as the expense ratio, by eliminating the red tape associated with intermediaries such as brokerages and custodians. This technology has also automated some traditionally manual processes carried out by professionals, including auditing, bookkeeping, and fund administration.
“Through automation and disintermediation, tokenised real-world assets such as mortgages and credit investments can narrow the gap between investors and borrowers when paired with smart contracts,” Lee adds. “The introduction of more peer-to-peer elements in the capital market through blockchain could lead to the realisation of financial inclusion.”
Despite facing challenges in the cryptocurrency market, blockchain technology has been gaining significant momentum in response to market demand, according to Masrour. He points to recent media reports that highlight the adoption of this technology by major financial institutions such as JP Morgan and Citibank. For instance, JP Morgan has introduced the Tokenized Collateral Network (TCN), a blockchain-based application that enables its clients to use tokenised assets as collateral. The application marked a milestone by successfully executing its first transaction, involving prominent clients such as BlackRock and Barclays. This achievement underscores the potential for broader adoption of the application in the financial industry.
Prospects of Web3 and AI markets
Amid market volatility, experts assert the importance of investors maintaining an optimistic outlook. Despite facing challenges in certain markets such as cryptocurrency and Web3, the AI sector is witnessing unprecedented growth, according to Masrour. He notes, “AI is on the brink of transforming the service industry by automating repetitive tasks, thereby enhancing efficiency and productivity. Under human oversight, these AI systems can surpass human performance in terms of speed and accuracy, offering an encouraging synergy between advanced technology and human expertise.”
Zheng of HashKey Capital believes that it’s typical for emerging technologies or applications to undergo an initial phase of hype before reaching maturity. “Our strategy is to welcome this early-stage volatility, with our focus on contributing to and building the ecosystem while we patiently await the technology’s evolution,” Zheng says. “We are of the view that our active participation and continuous engagement will position us for long-term success as the technology advances and realises its maximum potential.”
“Venture Forward: Game Changing through Innovation”
CVCF 2023 is set to host inspirational exchanges among experts, seasoned venture capitalists, I&T startups, and other thought leaders. These industry professionals will share their expertise and explore in-depth a wide array of topics. Beyond discussions, CVCF serves as a platform for showcasing innovators, a venue for power pitches, a hub for deal flow, and the perfect networking environment that truly makes a difference. Register for your participation and gain the fresh vision and inspiration at CVCF 2023.
Find out more at: https://cvcf.cyberport.hk/en/index