Venture capital funding into Asian start-ups top $14 billion yet again

03 May 2018

Venture capitalists are increasingly eyeing Asian start-ups. While venture capital flows into start-ups globally, nearly breaking through the $50 billion mark for the first time in history, Asia-based activity stood above the $14 billion mark for the fourth consecutive quarter. Notable investments have been made in Industry 4.0 technologies, the automotive sector as well as in both ride sharing and e-commerce platforms.

Funding for start-ups across Asia reached $14.6 billion in the first quarter of 2018 across 317 deals in the region. The largest deals were in Singapore and Indonesia, with China, India and Japan also taking considerable shares of the venture capital (VC) investment space, according to a new report from Big Four professional services firm KPMG. 

In the most recent edition of its Enterprise’s Venture Pulse report, the researchers explores venture capital (VC) deals and investments across the globe, based on data from PitchBook. The analysis highlights that Asia-Pacific has matured substantially in the past few years, resulting in a structurally larger market size – in eight of the last twelve quarters venture capital deal value was higher than $10 billion. Moreover, KPMG’s authors hint at the fact that a new level of international diversity has been reached in the cross-border scene. 

Venture capital financing in Asia

The average venture capital investment in monetary terms has grown in the size over the past few years to be highest on record for three series’ types. Seed and Series A have seen incremental increases since 2010 equating to the median investments almost tripling in these two categories. The median Series B deal grew this year to $18.8 million (year up to April) from $15 million in 2017. The growth in Series B – provided to businesses that enter their second round of financing – hints at growing maturity of both start-ups and investors, as such investments are typically only provided when a start-up has accomplished certain milestones in developing its business.

However, for Series C and Series D+, the median deal size dropped on that of last year by $20 million and $8 million respectively.

Median deal size ($M) by series in Asia 2010 — 2018

Established technology companies top deals

Venture capitalists are investing in established technology companies at a higher rate than entrepreneurs at earlier stages of the game. This shift has seen more rewards, less risk taking and has seen a higher number of corporates investing in VC endeavours. This follows a global trend, which has seen corporate venturing boom in recent years. A global report from KPMG released last year found that the share of deal count by corporates has grown from 11% in 2012 to 15% in 2017. Going forward, the influence of multinationals and other large companies is forecasted to continue to rise, as they seek to invest in more innovative and agile firms that can help them navigate disruptive trends. 

The number of venture capital deals closed and the amount of VC invested in software make up the greatest slice of the overall pie. Software makes up over 60% of all venture financing when compared to other sectors such as energy and consumer goods. This fact combined with the knowledge that technology entrepreneurship receives more funding than traditional forms of entrepreneurship explains how Q1 2018 has seen less deals but more capital than previously.  

With $14.6 billion invested in the first quarter, mainly in established transport and consumer technology based ventures, investors are putting more money in Series D+ deals than all other series combined.

Asia venture financings by sector 2014 — 2018

Transport platforms were the primary focus for venture capitalists this quarter making up the top three companies for investments. The top three investments in the first quarter of 2018 were Singapore’s Grab, Indonesia’s Go-Jek and China’s Ofo, which are all transport orientated tech platforms. Together they attracted almost $5 billion in investments alone. 

Grab is a ride-hailing platform used by individuals and the private sector. It operates across eight countries in South-East Asia and attracted $2.5 billion worth of investments. Go-Jek began as a motorcycle ride-sharing app and developed into an all-in-one delivery service. The Indonesian based company raised $1.5 billion. The next biggest investment was in Ofo, a Beijing based station free bike-sharing app which attracted $866 million. 

The report states that “AI is expected to be one of the biggest bets in Asia for the foreseeable future, with activity occurring in a number of jurisdictions including China, Singapore, and Indonesia. Healthtech and Edtech are also expected to gain more attention from investors over the next few quarters.” 

Deal share by series in Asia 2010 — 2018

Venture capital in China

China received 7 out of the 10 largest VC investments in 2018’s first quarter, with a big focus on transport and automotive as well as Industry 4.0 technologies. For the Chinese, artificial intelligence (AI) as well as auto-tech and blockchain are top-priority for investors. All of these areas have had considerable interest amongst the Chinese government as well, who are attempting to create regulatory space and incentives to attract investment. The Chinese, as well as broader Asia push into such technologies is not going unnoticed – both the US and Europe have in recent months announced large-scale investments in a bid to catch-up with Asia. A report from Strategy& – the strategy consultancy arm of PwC – found that Asia Pacific outpaces the rest of the world in Industry 4.0 technologies

With the worlds largest population and one of the most connected cultures, China has a distinct advantage in AI technology development. Given that the greatest traditional barrier to AI was a lack of accumulated data, the combination of the two aforementioned factors allow China to advance in the AI field. By integrating AI into companies’ business models and supply chains, Chinese businesses are becoming well-positioned to fully realise the benefits of machine learning, suggests the report. 

China’s large population also puts the nation at the centre of the world’s automotive industry. Auto-tech, for instance; electric cars and autonomous vehicles are also attracting interest amongst investors who foresee imminent disruption. Also, auto-trading platform Chehaoduo raised over $800 million this quarter to join other well funded players in the online sales sector. The investment comes on the back of high interest for shared mobility among Chinese consumers. 

Map of VC deals by size in Asia

The Asian auto-tech sector is likely to attract VC investors as the evolution of Industry 4.0 technologies sparks rapid growth suggests Philip Ng, Head of Technology and partner with KPMG in China. “Areas like AI, Autotech, Healthtech, and Blockchain are expected to continue to attract more attention from VC investors in mainland China and Hong Kong over the next few quarters,” he said.  

Above 20 Chinese companies received more than $100 million in financing in the first quarter. This number indicates the sheer volume of interest that Chinese companies are receiving. Even though the amount of capital invested in actual terms has almost halved compared to Q4 of 2017, complete financing volume increased as did the number of deals done. Overall China is pushing forward in tech and expanding throughout Asia and beyond, often using Hong Kong as a stepping stone.

Hong Kong, a Special Administrative Region (SAR) in China and one of the top financial centres in the region, made moves to attract more Chinese businesses. Hong Kong was the world’s largest IPO arena in 2016 but failed to keep this status in 2017 amid the rebound of New York and London, among others. To remedy this, The Hong Kong Stock Exchange issued a consultation paper to encourage new IPO exits which suggests easing regulation around public listings. In particular, allowing biotechnology firms to list before generating profit and allowing companies with variable voting rights to list in the HKSE. 

Venture financing in China 2012 - 2018

2018 is likely to be a year to watch in terms of M&A’s in China. Online platforms and new technology companies are likely to see consolidation in the future with multiple companies who perform the same tasks and are competing for a growing market share. Whilst this is true for many industries, bike sharing is one of the most prominent examples. “Chinese tech giants have been successful at building and managing platform-based businesses,” said Irene Chu, Head of New Economy, Hong Kong Region - KPMG China.

“They are going after businesses that have massive users in different jurisdictions – not necessarily to generate big revenues in the short-term, but rather to own the customer base so that they can drive additional transactions by providing value-added services that connect consumers and merchants such as ordering and paying for lunch, transferring money or shopping for groceries – through their platform in the future,” she continued.

Asia’s private equity market

According to a report from Bain & Company, Asia-Pacific’s private equity market – the bigger brother of the venture capital scene – is worth around $159 billion in deal value. “The Asia-Pacific private equity industry had a spectacular year on many fronts. Deals were larger, investment was broader and large global investors were more active than ever. All markets in the region rose to new highs…. the market shows signs of maturing and entering a new phase of growth.” 

Related: Indonesian startup scene draws over $3 billion in venture capital.


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Asia Pacific private equity market surge signals new era, says Bain report

06 April 2018

The Asia-Pacific region saw a surge in private equity activity last year, with total deal value hitting a record $159 billion and exits raising $115 billion to record the second highest ever result. China remained the dominant area of buyout interest, while internet and technology firms continue to represent the greatest demand.

Private equity investment in the Asia Pacific region grew strongly in 2017, according to a new report by strategy and management consultants Bain & Company. Driven on the back of strong market fundamentals including large capital accumulations and positive market conditions, the figures represent the sector’s best all-round performance to date, and, according to the consulting firm, signal the start of a new era.

“The Asia-Pacific private equity industry had a spectacular year on many fronts,” the annual Bain report states, “Deals were larger, investment was broader and large global investors were more active than ever. All markets in the region rose to new highs… But, beyond the heady deal making, the market showed signs of maturing and entering a new phase of growth.”The Asia-Pacific private equity industryGrowth for the private equity sector in the Asia Pacific for 2017 was considerable relative to previous years, hitting an all-time high of $159 billion, up 41% from $112 billion the year prior and at 19% higher than the $133 billion recorded in 2015. In comparison, at a global level, buyouts by private equity firms hit $440 billion, flat to the year previous. The deal count in Asia Pacific, however, declined somewhat in 2017 to around 1,000, down from the more than 1,100 closes in 2015.

The private equity exit market was also robust, hitting $115 billion on a total of more than 1,100 exits – up substantially from 2016 when there were $98 billion worth of deals and the number of exits stood at around 800. The past four years have performed well above the post-financial-crisis years, with the period (2012-2016) seeing an average of around $93 billion in exits.

Fundraising, meanwhile, has held steady throughout 2012-2016 at around $60 billion, with the 2017 result slightly above the mid-term average at $66 billion. Given the strong intake of funds, as institutional investors and family offices seek better returns to their piling capital, dry powder remains a luxury challenge for Asia's private equity industry, with more available capital than strong investment contenders.Private equity assets under management in Asia PacificAltogether, the Asia Pacific is becoming an increasingly significant contributor to the global private equity sector, accounting for around 24% of global assets under management by private equity firms, up from 22% the previous year. In context, the region accounted for around just 5% a little over a decade ago in 2003, rising steadily in the years since. In another analysis on the private equity market, by McKinsey & Company, the researchers found that the total of assets under management held by the industry is approaching the $3 trillion mark.

The number of M&A deals involving private equity investors also saw a sharp increase in 2017, hitting 17%, up from the around 11% to 12%-mark of the previous three years – with the growth reflecting an increased maturing of private equity activity according to the authors of the report, along with broader macroeconomic conditions.

Commenting on the results, Suvir Varma, head of Bain & Company’s Private Equity practice in Asia-Pacific, outlined the two key forces driving the local market’s new phase of growth; “Investors grew more confident in the region as the macro climate improved and company owners increasingly accepted private equity funding. As a result, major players, including global and regional private equity firms and institutional investors, stepped up their activity in Asia-Pacific last year, accelerating the flow of large deals.”Asia Pacific private equity investment value by region

China and Japan lead the way

With respect to intraregional trends, Greater China remained the relative centre of mass for activity in the Asia Pacific, with a total private equity investment volume of $73 billion across 569 deals to register a 56% increase on the 2012-16 average deal value.

Japan also saw deal activity jump 137% from the previous year, largely due to a $14.7 billion buyout of Toshiba Memory by a Bain Capital led group of investors, while Southeast Asia recorded a remarkable 136% bump to $20 billion, and South Korea was up 32% on the 2012-16 average with $13 billion worth of deals in 2017.

As an industry break-down, the assets most often acquired in the region were internet and technology-based, followed by health, financial services and logistics. At 46% of the total, internet and technology represented almost half of all deals in 2017 – in line with the last two years but a significant rise since 2012 when the combined segments accounted for just 22% of all deals.Asia Pacific private investment value by industryThe report concludes, "The Asia-Pacific PE market crossed several key milestones in 2017: the highest deal value ever, peak exit activity, the largest Asia-Pacific-focused PE fund ever and a record share of the global buyout market. Four years of successful investment cycles and positive cash flow have given investors confidence in the strength and reliability of the market. Those changes signal a maturing market and the start of a new era—one in which private equity is of increasing importance to the region’s economy.”

However, the authors also contend that private equity funds focused on the Asia Pacific will face several upcoming challenges, including an accelerating shift in the sources of value, noting that, until now, funds investing in the region have “been content to ride the wave of strong macro growth and expanding multiples – buying high and selling higher.” Already, the firm says, these external factors have become far less important with respect to value than just five years ago.