Asia becomes a CVC powerhouse, may overtake North America

Photo: Reuters

Corporate venture capital (CVC) investments touched a record global high in 2018 as corporate investors backed 2,740 deals worth $53 billion in funding, according to a report.

CVC deal volume surged 32 per cent over 2017 and 47 per cent in terms of total capital invested, according to venture intelligence platform CB Insights’ 2018 Global CVC Report.

In 2018, Asia accounted for 38 per cent of total CVC-backed deals, up from 31 per cent in 2017. The region continues to close the gap on North American deal share, which recorded an all-time low of 41 per cent. In the third quarter of 2018, Asia overtook North America deal share for the first time.

 

The hot markets – China, Japan, India

 

 

According to the report, Chinese startups are looking more attractive than ever to CVCs as the market’s deal share grew 54 per cent between 2017 and 2018, from 228 deals to 351 deals in 12 months’ time. Funding also grew by 51 per cent in 2018, from $7.2 billion to $10.8 billion.

 

 

Japan is trailing very closely behind China. CVC investments in Japanese companies more than doubled between 2017 and 2018 from 158 deals to 317 over the year. Funding has also grown significantly, up 56 per cent year-on-year from $900 million to $1.4 billion.

The largest Japanese deal in 2018 was a $63-million Series A round for wealth management platform Folio. The investors in the round include LINE Corporation, Goldman Sachs, Dentsu Ventures, Mitsui & Co., SMBC Venture Capital, DCM Ventures, and Draper Nexus Ventures.

 

 

In India, CVCs continue to see promise in local startups, as deals have increased 20 per cent, from 59 deals in 2017 to 71 deals in 2018. Funding also grew slightly from $1.6 billion in 2017 to $1.8 billion in 2018. The largest round was a $1 billion Series E raised by budget hotel startup Oyo.

The hot stuff – AI, cybersecurity, digital health

Across Asia, CVCs are very much attracted to sectors such as artificial intelligence (AI), cybersecurity and digital health.

 

 

Based on the report, AI deals and funding amount have reached a record high. Deals with CVC participation grew 27 per cent to 291 in 2018, up from 230 deals in 2017 whereas funding was also up 19 per cent from $4.2 billion in 2017 to $5.1 billion in 2018. The deal of the year 2018 was a $620 million round raised by Chinese facial recognition startup SenseTime. The world’s most valued AI startup is said to be preparing for a $2 billion round.

The CVC deal share to AI startups in Asia may soon overtake deal share to North America, said CBInsights. In 2018, deal share to AI startups in Asia grew 13 per cent to 42 per cent – the second consecutive year of double-digit deal share growth for the region. Meanwhile, North American deal share has plummeted from 55 per cent in 2017 to 44 per cent in 2018.

So who is the biggest investor in the AI? Surprise, surprise – it’s Chinese internet giant Baidu Inc’s CVC unit Baidu Ventures. It made 13 unique investments in AI alone for 2018 while Japan’s SBI Investments has made 12 AI-related investments.

 

 

Moving on to cybersecurity, which is steadily attracting CVC investments into the sector. In total 112 deals were done, 19 deals more than in 2017. Although North American cybersecurity startups continue to dominate the CVCs’ interest, Asian cybersecurity startups take up about 22 per cent of deal share in 2018.

Singapore’s Singtel Innov8 is the second most active CVC in the cybersecurity space, who made five investments into the sector in 2018. US-based Intel Capital was the most active investor in the space with six investments made in 2018.

 

 

On digital health, although total funding amount for the sector has dropped slightly from $3.4 billion in 2017 to $3.2 billion in 2018, deal amount has reached new high – 192 deals in 2018, which is a 39 per cent spike from 138 deals in 2017.

In Asia alone, the region accounted for 38 per cent of total CVC-backed deals to digital health companies, 7 per cent growth compared to 2017. The region may soon overtake North American share, which fell 7 per cent to 41 per cent for 2018.

The most active investor in this sector is US-based Google Ventures, who have done 10 deals in 2018. It was followed by Baidu Ventures who invested into six companies, then SBI Investments, GE Ventures, Illumina Ventures, which each had five investments in the space.

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