Asia's venture capital scene stabilises in the second quarter

05 August 2020 Consultancy.asia

While a thriving investment market remains at some distance in the future, Asia’s venture capital landscape has shown signs of stability in the second quarter of this year, according to new KPMG analysis.

Asia was the first point of contact for Covid-19, and the regional economy was consequently the first to feel the repercussions. The first quarter of this year was dismal with respect to deal activity in the region as a result, although the relative stability in key markets such as China has rung in a more promising second quarter.

As the virus was brought under control, China’s investment activity saw a small uptick, while the investment landscape in Hong Kong also remained steady. Other Asian markets have managed to keep the virus and its impact in check, also contributing to regional stability. At the same time, the situation in India remains precarious, which tilts the overall balance towards caution.

Venture financing in Asia

The resultant picture is one of relative stability, as the steep downward curve representing Q1 has flattened out for Q2. Fueling this stability and expectations for future growth are certain trends that were unfolding in Asia’s market before the crisis, and have persisted during the turbulent period.

The region’s importance in the global digital landscape is the primary factor here. Markets such as China and India are among drivers of digital innovation, which put them in a relatively strong position when the entire world was forced to explore virtual means of working. “Digital platform businesses focused on meeting consumer needs, such as edtech, home delivery, and online gaming, remained very attractive, in addition to healthtechs,” explained KPMG.

Underlying all these businesses are new tech capabilities such as artificial intelligence, data analytics and cybersecurity, all of which are also holding strong under the circumstances. The trend is enough to keep investors interested in the region, and KPMG points out how the downward pressure on valuations as a result of the economic crisis is making the market ripe for corporate venture capital.Venture financing in ChinaSustained interest in Asia’s tech environment is evident from the focus areas in the venture capital activity that has unfolded in the region since the start of the year. In China, for instance, four out of the five biggest deals fall in the tech space.

These include $1 billion each raised by biotech MGI Tech and Didi Bike, $750 million raised by EdTech firm Zuoyebang, $500 million raised by Didi Autonomous Driving, and $400 million raised by produce delivery firm Xingsheng Selected. Incidentally, these were the five largest deals for all of Asia.

In India, while venture capital activity remains largely subdued, investments in the FinTech space remained robust in the second quarter. FinTech has been India’s flagship investment segment in recent years, to the extent that it outperformed China’s vibrant FinTech landscape in terms of venture capital investments in Q1 this year. Leading the way was Navi Technologies, with a raise of nearly $400 million.

Venture financing in India

Activity outside of the FinTech space was slow in India. Nevertheless, tech investors will remain wired in to developments in the Indian market, particularly after Facebook’s nearly $6 billion equity investment in Reliance Jio earlier this year. Reliance Jio is India’s largest telecom operator, and has since rolled out a WhatsApp-based ecommerce platform. These developments will keep venture capitalists interested in India in the near future.

A similar tech-focus was visible in Hong Kong, where secondary listings from NeEase and JD.com kept the Hong Kong Stock Exchange (HKEX) performance at a steady high. NetEase – a global online gaming provider – raised nearly $3 billion on HKEX, while the latter – a rapidly developing ecommerce giant to rival Alibaba – raised nearly $4 billion.

So tech investments remain high across Asia, and KPMG reports that the market as a whole is geared up for a bittersweet recovery period. “Despite short-term challenges, the outlook for the venture capital market in Asia remains relatively optimistic as the region continues with its recovery from Covid-19. There will likely be continued downward pressure on valuations over the next quarter, however, along with increasing consolidation in sectors particularly hard hit by the economic downturn caused by the pandemic,” said the KPMG report.


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