While OpenAI’s massive $40 billion funding boosted global and North American funding totals, Asia experienced a sharp downturn. The region saw its lowest funding quarter since 2014, with only $13 billion directed to VC-backed startups, marking a significant 40% drop from Q1 last year and a 25% decrease from Q4 2024.

This decline signals ongoing struggles for Asia’s venture market, which has seen drops in four of the last five quarters. Overall, the total investment figure is the lowest since Q4 2014, when Asia raised just $12.3 billion.

Late-Stage Struggles

Late-stage investment, particularly in technology growth, accounted for the largest declines, totaling just $6.1 billion across 145 deals. This represents a 29% drop from Q4 and a 27% decline from the same quarter last year. Deal volume also fell by 6% from Q4 and 25% from Q1 2024.

Notable late-stage deals in China included:

• Shenzhen Energy Environmental Protection, which raised $692 million in a venture round.
• Smart Fabric, a textile tech company, raised $460 million in a Series C round.
• Zhipu AI, a Chinese AI startup competing with OpenAI, raised $247 million in private equity.

While early-stage rounds saw a larger percentage decline in funding, late-stage rounds are often the largest contributors to overall funding totals, making this drop especially impactful.

Declining Interest in AI Startups

Despite global excitement around AI, funding for AI startups in Asia actually fell. These startups raised just $1.8 billion—14% of Asia’s total funding—half of what they raised a year ago and 23% less than in Q4. This highlights a slowdown in investment within the AI sector across the region.

Early-Stage and Seed Funding Slumps

Both early-stage and seed funding in Asia also saw notable declines. Early-stage rounds totaled only $5.3 billion in 533 deals, down 21% from Q4 and 53% from the same quarter last year. Deal flow also dropped 16% from Q4 and 19% from Q1 2024.

Seed and angel funding also dropped significantly, with only $1.6 billion raised in 791 deals, marking a 22% decrease from Q4 and 16% less than last year. The number of deals in this category fell by 19% from Q4 and a massive 48% from Q1 2024.

Country Breakdown

China’s funding share was a major contributor to the overall decline. The country’s startups raised just $6.5 billion, down from $12.5 billion in Q1 2024 and $8.2 billion in Q4 2024. This represents almost a halving of China’s share of Asia’s venture funding.

Only two of Asia’s top venture markets saw slight increases from last year. Israel’s funding ticked up to $1.1 billion from $800 million in Q1 2024, though it declined from Q4. Japan also saw an increase, raising $600 million compared to $500 million in Q1 last year, though it was down significantly from $1.3 billion in Q4.

The Impact of Geopolitical Tensions

Geopolitical tensions and ongoing conflicts are likely contributing factors to the region’s funding slump. The strained relationship between China and the U.S. has led to U.S. investors pulling back, particularly over concerns about security and AI. Additionally, China’s economy is still recovering from slow consumer spending, further hindering investor confidence.

Middle Eastern conflicts have also impacted Israel’s VC market, which has traditionally been a hotspot for investment.

A Potential Turnaround

Despite the downturn, there are signs that Asia’s funding market could rebound. Chinese AI startup DeepSeek, known for its cost-effective AI models, is reportedly seeking outside funding for the first time. The company’s innovative models have drawn interest from major investors like Alibaba, China Investment Corp., and the National Social Security Fund. If DeepSeek’s fundraising round is successful, it could signal a shift in Asia’s funding landscape for the next quarter.

Final Thoughts

Asia’s funding slump highlights the challenges startups face in a region affected by both economic and geopolitical factors. However, the potential for a turnaround remains, as demonstrated by companies like DeepSeek. For investors and startups, the key to success lies in navigating these uncertainties and preparing for shifts in the market.