Cautious VCs turn to Series A startups

Early-stage startups in Hong Kong have raised $23.3m this year.

Venture capitalists (VC) have become more risk-averse to big-ticket deals and are investing most of their funds in early-stage startups, where the funding market is expected to recover this year after a 36.81% decline in 2024, analysts said.

“Investors have significant uninvested funds but are focusing their capital towards early-stage companies with strong fundamentals and clear value propositions,” Neha Singh, chairperson and managing director at company tracker Tracxn, told Singapore Business Review.

“Investors are becoming more cautious and prioritising profitability over rapid growth, resulting in a valuation adjustment [for late-stage startups] after a pandemic-driven boom,” she said in a Zoom interview.

Early-stage tech startups in Hong Kong have attracted $23.3m (US$3m) in investments as of 23 January, according to data from Tracxn. Early-stage funding comprises Series A and Series B rounds.

Funding for their category rose 84.44% last year to $2.4b (US$310m) from a year earlier, Singh said. She attributed the increase to HashKey Group, a Hong Kong-based cryptocurrency trading and exchange platform that secured $777.1m (US$100m) in a Series A funding at a valuation of $7.8b (US$1b).

KPay Merchant Service Limited, an app-based point-of-sale system solution for businesses, also contributed to the increase by raising $427.4m (US$55m) in a Series A round.

Bhavik Vashi, managing director for Asia Pacific & Middle East at San Francisco-based tech company Carta, Inc., expects a “tremendous amount of early stage activity” in Singapore this year.

“When you think about early-stage investing, the check size is small, and the valuation, though pretty resilient, is still palatable,” he said in an interview via Zoom. “Fundamentally, you’re making kind of a binary “zero or one” bet when you make an early stage investment.”

“Early-stage investing will still be the most popular and the highest-volume funding stage [this year],” he added.

Other early-stage Hong Kong-based startups that obtained Series A funding last year include Crowd Education Limited (Mocaverse) which raised $77.7m (US$10m) and RD Holdings (Hong Kong) Ltd. which took up $60.6m (US$7.8m).

To date, four early-stage companies in Hong Kong have reached valuations above $7.8b (US$1b), including HashKey and Humanity Protocol, a platform designed to bridge online and offline identities.

“This trend implies the potential of companies to reach higher valuations at an early stage if they can identify the gaps in the market and attract investor interest,” Singh said.

As venture capitalists focused on early-stage startups, late-stage funding in Hong Kong dropped 66% year on year to $2.5b (US$320m) in 2024, the lowest in seven years.

Late-stage funding rounds include Series C through Series L, along with unattributed late-stage rounds, according to Tracxn.

Singh said late-stage funding in Hong Kong hit its peak in 2021 when $18.7b (US$2.4b) was raised. “After that, there has been a noticeable decline in late-stage funding.”

Despite this trend, a few late-stage Hong Kong-based startups managed to raise funds last year, such as online video streaming platform Viu International Ltd., which got $777m (US$100m) in a Series E funding round.

Vashi said low late-stage funding in Singapore and Asia is largely due to the limited involvement of local venture capitalists.

“A lot of companies that reach the growth or late stage often have to go to global funds to raise capital,” he said. “For Series C or D rounds, you typically see US or European investors either leading or participating significantly in those rounds.”

He added that late-stage or growth companies in Hong Kong are in a better position than their Singaporean counterparts, thanks to the China factor. “More investors are willing to provide growth capital in Hong Kong because China is such a big market.”

Late-stage recovery

Singh is optimistic about a potential recovery in late-stage funding in Hong Kong this year. As of 23 January, late-stage funding had reached $5.4b (US$690m), close to the 2024 total of $23.3m (US$3m).

Singh expects late-stage startups “with strong unit economics and profitability” to continue attracting investor interest and boost their valuations. “Sectors like blockchain and artificial intelligence (AI) are expected to receive increased funding owing to the recent growth trend in funding in these segments.”

Blockchain technology Hong Kong startups, especially those in the early stages of funding, have been a key focus for venture capitalists, Singh and Vashi said.

In 2024, they secured $940.3m (US$121m) in seed-stage funding, 35% higher than a year earlier, Singh said. The funding was led by HashKey with $777m (US$100m) and Mocaverse with $77.7m (US$10m). 

Blockchain technology was second to fintech, which topped Hong Kong’s verticals in 2024 by raising $1.5b (US$190m), a 35% yearly increase.

Top early-stage-funded companies in the fintech space were HashKey with $777.1 (US$100m) and KPay which raised $427.4m (US$55m), Singh said.

Fintech and blockchain were followed by the energy tech sector, which raised $505.1m (US$65m) in early-stage rounds in 2024, 27% higher than a year earlier.

Ampd Energy Ltd., a battery energy storage system solution provider, led early-stage funding with $212.2m (US$27.3m).
Funding for the health tech sector increased more than fourfold to $209.8m (US$27m), while environmental tech posted an almost fivefold increase to $295.3m (US$38m).

Vashi, for his part, cited ESG (environmental, social and governance) initiatives and cleantech as emerging sectors in Hong Kong.

Singh expects 2025 to be a better year for venture capital funding in Hong Kong after a record decline last year. Vashi also expects a turnaround. “We have probably already hit the bottom.”