Asia

The AI space in Asia attracted a significant amount of attention in Q1’25, driven by the launch of China-based DeepSeek’s R1 model. This was seen as a major win for China’s AI sector, given the expectation that access to DeepSeek’s open source model will help a lot of AI application companies further advance their own models and AI-driven solutions. During the quarter, two Chinese tech giants also launched major AI offerings — including Tencent, which launched the T1 reasoning model,¹ and Alibaba, which released the Qwen 2.5 artificial intelligence model. This feverish level of activity highlights the highly competitive nature of the space and the quest for dominant market position.²

market and stock exchanges in Hong Kong (SAR), China got off to a strong start in Q1’25. The HKSE hosted a number of IPOs, including Mixue — China’s largest bubble tea company — which saw shares rise 47 percent in first day trading.³ Given the degrading performance of the US stock exchanges over the quarter, there was a notable shift of Asia-based investors back to the HKSE, and growing interest from investors from Korea and Japan. The rise in transaction volume was particularly positive, prompting a sense of positivity heading into Q2’25. During Q1’25, Hong Kong also enhanced its efforts to market the HKSE as a place for IPO fundraising within other jurisdictions, including Saudi Arabia and Japan.

VC investment in China was muted in Q1’25, both as a result of a natural slowdown in deal activity related to Chinese New Year, and because of ongoing economic challenges. Following on trends seen in recent quarters, much of the VC investment in China during Q1’25 occurred in areas considered to be major government priorities, including hard technologies, new energy, electric vehicles, and AI.

Cleantech company SE Environmental raised the largest deal in China during the quarter ($688 million) followed by new energy vehicle company Changan Kaicheng ($274 million), AI-powered autonomous van company Neolix Technologies ($137 million), electronic design automation company Univista ($137 million), and chip manufacturer InventChip Technology ($136 million).

VC investors in China also continued to show interest in earlier-stage companies, evidenced by the popularity of pre-Series A deals during the quarter. Tis likely reflects a desire to invest in companies early in order to leverage the growth when their technologies are ready to be monetized in the market.

India saw VC investment drop slightly in Q1’25 as investors held back from making major investments given the rapidly evolving geopolitical situation. Capital markets also took a beating in India during the quarter amid concerns of overpricing. While markets recovered somewhat in the second half of Q1’25, the general trajectory was lower than initially expected in Q4’24.

VC investors in India remained highly focused on consumer offerings in Q1’25, with areas such ase-commerce and quick commerce attracting the most significant attention; during the quarter sociale-commerce platform Meesho raised $550 million. Payments and lending also continued to be a key sector of investment in India, with Tonetag — a startup focused on voice-powered commerce and payments — raising $78 million.

VC investment in Japan remained relatively strong in Q1 2025, reaching $902 million across 290 deals, compared to $1.1 billion on 318 deals in Q4 2024. In the context of broader declines across Asia, Japan’s performance was notably stable. That said, the market faced headwinds, including ongoing softness in IPO activity, which limited perceived exit opportunities and dampened expectations for VC fund performance. Additionally, a growing number of startups struggled to secure follow-on funding during the quarter — a trend that may lead to increased sales or dissolutions heading into Q2 2025.

In Japan, AI, DeepTech and SpaceTech attracted the most attention from VC investors in Q1’25, in addition to drug discovery, ESG-related solutions, and SaaS IT solutions. Spacetech was particularly notable given the $51 million raise by microsatellite company ArkEdge Space and the $44 million raise by space transportation and satellite development company Interstellar Technologies. Government support for the space satellite sector, the ready availability of rocket launch locations in the country, and the expectation that Japan will increase its space-related defense budget will likely keep SpaceTech a hot area of innovation and investment heading into Q2’25.

Historically, VC investors in China have been hesitant about investing in biotech because of the long timeframe required for returns. This trend shifted in Q1’25, in part because of the growth in licensing-out trends, which have led to developments in different regions and attracted fresh cash flows to China-based biotechs. During the quarter, VC investors showed increasing interest in biotechs with the potential to license out their pipelines.