The State of Asian Startup Ecosystem in 2024

With just less than two months to go in 2024, it’s time we take stock of how things went for the Asian startup ecosystem.

There was a tremendous shift in venture funding in 2023 as startups in Asia received lesser venture capital compared to 2022. This year has been a bit different but not by a large margin.

In this edition of Hedwig, The Content House takes a bird’s eye view of the state of venture capital funding in Asia and what it means for startups.

When VC Funds Evaluate

Amid the surge in artificial intelligence (AI) and large language models (LLMs), investment in startups has remained strong worldwide.

More or less, Asia has followed the same trajectory, except China and Southeast Asia which saw a marked dip in venture capital investments. Stringent focus on profitability, changes in market conditions leading to low liquidity, and government policies were a few reasons why VCs didn’t pour as much money into startups as the previous year.

Even though China struggled to attract foreign investors and get the economy back on track, Indonesia saw a bigger dip in funding than its Asian peers.

Let’s see how VCs treated startups in different countries:

India

India’s startup ecosystem enjoys being the third largest in the world. With domestic and foreign venture capital still flowing into the country, funding in the country surged by over 50% to USD 8.3 billion in the first nine months of 2024 compared to the same period last year. Meanwhile, the number of deals went up by 7.3% to 883, as per data by GlobalData Plc.

In recent years, many Indian founders have transitioned into investors themselves, a promising sign of a healthy market. Tier-2 cities are also experiencing a surge in venture funding, likely paving the way for new startup hubs beyond Bengaluru, New Delhi, Mumbai, and Hyderabad.

VC funds are optimistic about India’s economic outlook and the growth potential of its startups. Big-ticket deals, typically valued at USD 100 million or more, showed solid growth—increasing from 10 in Q1-Q3 2023 to 15 in the same period in 2024.

India produced six new unicorns during the first nine months of 2024. Some of the notable VC funding deals announced this year include:

• Zepto: It received USD 665 million and USD 340 million in two separate rounds.

• Meesho: It raised USD 300 million led by Tiger Global and Peak XV Partners.

• PharmEasy: It raised USD 216 million led by Manipal Education and Medical Group.

• PW (PhysicsWallah): The company raised USD 210 million in a Series B round led by Hornbill Capital.

China

The Chinese startup ecosystem this year increasingly centred around deep tech sectors, including AI, blockchain, and biotechnology. While overall, China is going through significant fluctuations in VC funding, there is definitely an influx of both domestic and foreign investments aimed at high-growth potential sectors.

That said, funding in startups fell 19.5% to USD 25.7 billion in the first nine months of 2024 from USD 31.9 billion in the same period last year. Deal volume was down 21.2% to 1,954, as per GlobalData.

Geopolitical tensions, economic slump, and an uncertain regulatory environment have made it difficult for investors to open their purse strings for startups in China.

The number of big-ticket VC deals also fell from 64 during Q1-Q3 2023 to 48 during Q1-Q3 2024.

But if we look at the Greater China region—mainland China, Hong Kong, Taiwan, and Macau—startups raised more than USD 41.8 billion in the first nine months of 2024, up 5.2% year-on-year. The aggregate deal count, however, was down 15.1% YoY to 1,633.

Chinese startups are increasingly looking beyond domestic markets to expand internationally, particularly in regions with similar market dynamics such as Southeast Asia and Africa.

Nevertheless, despite the subdued activity, China remains the second-largest VC funding market, both in terms of deal volume and value. It accounted for a 16% share of global VC deals and a 14% share of global VC funding value in Q1-Q3 2024.

The overall scene remains a bit pessimistic, but there is an indication of potential recovery. The presence of high-value deals suggests investors are willing to invest in high-potential, innovative companies that have a large addressable market.

Southeast Asia

There is a clear interest in the sustainability space in Southeast Asia. This demand for sustainable solutions has driven startups to focus on developing affordable products and services that address pressing issues like climate change and pollution.

However, the main focus this year has been on improving capital efficiency and profitability. This means VCs expect startups to demonstrate clear paths to profitability to attract funding amid a global economic downturn.

Southeast Asian startups raised USD 3.26 billion in venture capital across 474 deals in the first nine months of 2024, down 48% compared to USD 6.3 billion a year ago. Total debt raised by startups, on the other hand, jumped 62% to USD  1 billion, while deal count rose 6%.

Despite being investors’ favourites in the region, Southeast Asia was partially dragged down by Indonesia. In the first nine months, equity funding in Indonesia plunged by 66%, and the number of deals fell by 28% year-on-year. 

Vietnam turned out to be the worst-performing region, with a 79% drop in funding during the same period. 

Late-stage funding plunged the most in Southeast Asia, 73.6% to just USD 850 million between January and September 2024.

However, startup valuations have normalised and the funding winter is likely to begin to thaw in 2025, following the rest of the markets.

Japan

The Japanese startup ecosystem is seeing an increased interest in deep tech sectors such as biotechnology, AI, and quantum computing. Not just that, Japan also looks committed to working on sectors like climate change and public health. 

These areas are seen as critical for driving future innovation and economic growth.

The Japanese government has committed to fostering 100,000 startups and increasing startup investment to 10 trillion yen by 2027.

Japanese startups witnessed an almost 21% increase in funding reaching USD 2.43 billion this year till October 2024. The deal count rose by 19.5% year-on-year to 487, according to data by Tracxn.

While concerns about broader economic challenges such as inflation and market uncertainty kept investors on their toes, the overall trend for the startup ecosystem remains positive given the growth in early-stage investments and mounting interest from foreign investors.

Large corporates have had a positive year till now, which means their appetite to invest in promoting open innovation has automatically gone up. Many of them are getting increasingly interested in backing startups. 

South Korea

South Korea’s venture capital landscape is on its way to recovery. 

There was a substantial flow of funding into sectors such as autonomous driving, biohealth, and aerospace. Other sectors like AI, mobility, and content creation also saw a jump in venture funding.

In the first half of this year, the new investments increased by 18.8% compared to the same period last year. A total of 1,228 companies received fresh investments amounting to almost USD 2 billion.

Data by Statista shows equity funding in the country is projected to reach USD 3.32 billion by 2024. While early-stage companies are expected to dominate the market with a projected market volume of USD 2.14 billion, investors are increasingly looking at funding late-stage firms with proven business models.

Moreover, major corporations have stepped up investments in startups, with the government relaxing regulations to facilitate corporate venture capital (CVC) investments.

Notably, it’s the South Korean government that has emerged as the biggest supporter of local startups. Its flagship project, Startup Korea Fund is an ambitious public-private venture capital initiative to raise over 2 trillion won (approximately USD 1.4 billion) from 2024 to 2027 to support domestic startups and ventures. 

This initiative aims to boost innovation and technological advancement within the country, focusing on strategic technologies such as semiconductors, biotech, mobility, and AI.

Moreover, the Korean government hosts and finances startup accelerator program K-Startup Grand Challenge to attract talented entrepreneurs and promising global startups to do business in Korea. 

So, What’s The Takeaway? 

Several key themes have emerged this year that highlight both the resilience and adaptability of Asia’s entrepreneurial landscape.

The sustainability movement is gaining momentum, with startups across Southeast Asia increasingly prioritising environment-friendly practices and products. As a result, sectors such as renewable energy, waste management, and sustainable agriculture are expected to attract significant investment.

In addition, investors are seeking startups that can demonstrate clear paths to sustainable growth and profitability. This trend is prompting many entrepreneurs to pivot their business models towards profitability rather than solely focusing on growth.

The technological landscape continues to evolve, with advancements in artificial intelligence and digital transformation creating new opportunities for startups. The integration of AI into business strategies is seen as a critical factor for success, enabling companies to enhance customer experiences and streamline operations.

Despite challenges such as high inflation and geopolitical tensions, the overall outlook for the Asian startup ecosystem remains positive. With a growing middle class and increasing digital adoption, there are ample opportunities for startups that can adapt to changing consumer behaviours and leverage emerging technologies.

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