Asian venture capital (VC) deal flow has quadrupled in two years, with total deal value in the region amounting to $31.6 billion for 2015 year-to-date (YTD), up from $7.7 billion in 2013.
Alternative asset intelligence service Preqin noted that the aggregate deal value in Asia for both VC and buyout funds hit record highs in 2014.
“While buyout activity does not look likely to match that in 2015, VC deals have already surpassed 2014’s total of $22.4 billion, reaching $31.6 billion by the end of August,” Preqin said, in a report.
“The increase in VC deals is reflected in the attitudes of both managers and investors – 43 per cent of Asia-based investors think that VC currently offers the best investment opportunities, up from 15 per cent in 2014,” Preqin found.
The proportion that thinks that small and mid-market buyout funds are best has fallen from 40 per cent last year to 29 per cent in 2015. The number of investors favouring large and mega buyouts and secondaries is 10 per cent each, down from 30 per cent and 20 per cent respectively.
While the 1,573 deals in the region do not yet exceed the 1,783 deals in 2014, totals in South Asia and the ASEAN region already match or surpass those of last year, the research house said.
Over the past two years, average VC deal size has increased by 259 per cent, from $5.6 million in 2013 to $20.1 million in 2015 YTD.
To further put into perspective, money has been heading towards growth stage deals, as depicted in the falling number of Asian-focused private equity funds closed each year since 2011.
So far in 2015, only 92 funds have closed (vs 291 in 2011), and only 27 per cent of Asia-based investors report making new commitments to funds this year.
In five of the last eight years, growth funds have accounted for 25 per cent or more of the total capital raised for Asia-focused private equity funds. In four of those years, growth funds have raised the most capital of any fund type.
Preqin CEO Mark O’hare commented that “with fewer stable, mature companies to target for buyout investment, there is more emphasis on enabling the growth of younger companies and start-ups as part of rapidly-growing economies”.
“The record values for deals and exits for such funds are a mark of the success of managers and investors in identifying early opportunities.” O’Hare added.
Asia – the most active VC deal space
In the third quarter of 2015 (Q3 2015), Asia challenged North America as the most active continent for VC deals.
VC deals in Asia comprised 38 per cent of the global number, and 45 per cent of global deal value in the quarter, while North America represented 44 per cent of both global number and value, Preqin said.
In that quarter, the aggregate value of deals in Asia was comparable to the total value of deals in North America.
India and China, the largest part of the Asian industry, marked 709 financings in the quarter, worth a combined $16.9 billion. There were 932 VC deals in North America in the same period, worth an aggregate $17.5 billion.
Asia’s share of global deal flow has increased by seven percentage points from Q2 to Q3 2015, and its share of deal value has increased by nine percentage points.
At the same time, the North American market share of the number of deals dropped by six percentage points from Q2, while the aggregate value that the region contributed to the global total fell by nine percentage points from 53 per cent in Q2 to 44 per cent in Q3.
Preqin head of private equity products Christopher Elvin said: “The VC industry is developing in two different directions between emerging and mature markets. In emerging markets, particularly in Asia, rapidly developing economies like China and India are providing increasing numbers of opportunities for investors and fund managers.”
He added that although more mature markets like North America and Europe are slowing in dealmaking, the average deal sizes are still rising in these regions, especially for later stage and debt financings, and now stand at record levels.
For financing rounds around global markets, angel and seed investments made up 22 per cent of VC deals in Q3, unchanged from Q2.
Series A deals comprised 20 per cent of the number of deals, and series B comprised 10 per cent. Add-on deals decreased from 8 per cent of the number of deals in Q2 to 5 per cent in Q3.
The average deal size has increased across all financing stages from 2014 to 2015 YTD. The average Series A deal value has increased 35 per cent, from $7.9 million in 2014 to $10.7 million for 2015 YTD.
Average venture debt deal size was stable in 2013 and 2014, at $9.7 million and $9.6 million respectively, but has now increased to $40.9 million in 2015 YTD.
Of the deals, the two largest investments in Q3 2015 were both in Chinese transport technology firm Didi Kuaidi.
The company received $2 billion in July, and a further $1 billion in September, from a consortium of investors including Alibaba and CIC.
Least PE funds closed in Q3, globally
On the private equity side, Q3 has seen a conspicuous cutback, with the fewest private equity funds closed in Q3 2015, globally, since the start of 2006.
Global private equity fundraising saw a further slowdown through the period, with 170 funds closed, 46 per cent down from the 317 closed in the previous quarter, and 41 per cent down from 290 in the same period last year.
Preqin said, in a separate report, that the aggregate capital raised by funds closed in this quarter was $116.9 billion, down from $129.3 billion in the previous quarter.
It was the third consecutive quarterly decline in fundraising, and represents a 29 per cent decrease from the $164.9 billion raised in Q4 2014, the most recent fundraising peak. In 2015 YTD, private equity funds have raised an aggregate $385.4 billion, down from $388.1 billion in the first three quarters of 2014.
In Asia, forty-five private equity funds focused on Asia and the rest of the world closed in Q3, raising a combined $22.5 billion. This is an increase from the $10.7 billion raised by 51 funds focused on these regions in Q2.