China Deal Review: Dealmaking back on track as startups raise $4.22b in August

Shanghai, China. Source: Ralf Leineweber/Unsplash

Dealmaking activity in China is back on the growth track as the threat of COVID-19 recedes in many parts of the country. August saw continued month-on-month growth in overall investment, following gains in both deal count and deal value in July.

Chinese startups raised $4.22 billion across 101 venture capital (VC) and private equity (PE) transactions in August, according to proprietary data compiled by DealStreetAsia. Although the number of deals dropped 12.9 per cent compared to July, there was a 3.7 per cent uptick in total funds raised.

Of the 101 deals, financial details of eight transactions were undisclosed.

Institutional investors also breathed a sigh of relief as China’s fundraising market gradually regained traction. According to Chinese industry researcher CVSource, the number of newly-launched VC and PE funds in China reached 326 in August 2020. Although that is still 14 per cent down from August 2019, there were signs of improvement compared to July, when the number of new funds was 20.9 per cent less than a year ago.

In our monthly analysis for August, we have put together detailed charts of prominent deals, active investors, deal stages, and the most attractive sectors that have bagged the maximum venture dollars in the Greater China region.

For a more detailed analysis, and to enable comparison between primary and secondary markets, DealStreetAsia started tracking deals of all sizes since April 2020, as against considering only transactions worth more than $10 million earlier.

We have also introduced a standardised system for industry classification. It currently includes over 50 industries, as well as over 45 new economy and high-tech verticals, which will progressively increase to adapt to local market conditions in our closely-watched regions of Greater China, Southeast Asia, and India.

Deals over $100m account for two-third of capital raised

In recent times, a few market leaders have been garnering a bigger share of the available capital in China. This condition was more pronounced in August.

There were 14 deals worth $100 million and above in the month that collectively amassed $2.89 billion, or 68.4 per cent of the total fundraising. In July there were only nine such deals, which garnered $2.55 billion, or 62.5 per cent of the total fundraising.

There was no billion-dollar investment in August.

While China-focused investors put a sizeable amount of their money into more established firms, in their Series B round and beyond, their interest in writing cheques for smaller deals worth between 100 million yuan ($14 million) and 200 million yuan (below $30 million), as well as mini-deals worth less than 100 million yuan, remained strong.

Setting aside deals whose financial terms were not disclosed, there were 33 deals worth less than $14 million, and 36 deals in the $14-30 million bracket. They collected a combined $739.1 million, or 17.5 per cent of the total fundraising in August.

Ten medium-sized transactions in the $30-100 million range pocketed an aggregate of $596 million and accounted for 14.1 per cent of the total capital raised.

Later-stage investments saw fewer deals in August. There were 40 deals at Series A stage and earlier, 21 Series B deals, 18 Series C deals, and eight deals at Series D and beyond.

Companies in their Series B round collected more capital than startups in any other stage in August. More than half of the nearly $1.63 billion raised in this stage was by JD Health, the healthcare arm of the Chinese e-commerce giant JD.com.

In mid-August, JD Health entered into an agreement to raise over $830 million from Asia-focused private equity major Hillhouse Capital. According to a Wall Street Journal report on September 28, JD Health filed an application to go public in Hong Kong around December, which, sources said, could raise at least $3 billion.

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Deals worth $100m and above (August 2020)

StartupHeadquartersInvestment size (USD)Investment stageLead investor(s)Investor(s)Industry/SectorVertical
JD HealthBeijing$830 millionBHillhouse CapitalInternetE-commerce
Yipin ShengxianHefei$359 millionCTencent Investment, Capital TodayEastern Bell Capital FoodE-commerce
WaterdropBeijing$230 millionDTencent Investment, Swiss Re GroupIDG Capital, Light-Up Capital InsuranceInsuretech
Lepu BiotechShanghai$186 millionBPing An Capital, Riverhead Capital Investment ManagementSDIC Unity Capital, Haitong Innovation Capital Management, Qingdao Minxin Qiyuan Investment, China Reform Holdings Corporation's joint fundPharmaceuticalsHealthTech
iSpaceBeijing$174 millionBBeijing Financial Street Capital Operation CenterSequoia Capital China, CICC Alpha, CITIC Securities, Taizhonghe Capital, China Merchants Securities, Shanghai International Group entity, Recent Capital, Matrix Partners China, CDH Investments, Spring PartnersAerospaceN/A
Beijing Jingdu Children's HospitalBeijing$150 millionEquity InvestmentCenturium CapitalHealthcare SpecialistN/A
Huohua SiweiBeijing$150 millionE1KKR & CoGGV Capital, GSR Ventures, Longfor Capital, Sequoia Capital China, IDG CapitalEducation/TrainingEdTech
SinoventSuzhou$145 millionCLoyal Valley Innovation CapitalOceanpine Capital, CICC Qide Fund, Xinyun Capital, Jiuyou Capital, Deguan CapitalPharmaceuticalsBiotech
BirentechShanghai$130 millionPre-BHillhouse Capital's GL VenturesSky9 Capital, Gaorong Capital, GP Capital, Co-Stone Asset Management, Haichuang FOF, Green Pine Capital Partners, IDG Capital, V Fund, Zhuhai Da Heng Qin Company LimitedSemiconductorsCloud Computing
PalfishBeijing$120 millionCZhang Tao (The founder of Meituan-Dianping), FutureX CapitalSIG China, Whales CapitalEducation/TrainingEdTech
Suzhou Connect BiopharmaceuticalsTaicang$115 millionCRA Capital ManagementLilly Asia Ventures, Boxer Capital, HBM Healthcare Investments, Qiming Venture PartnersBiotechnologyBiotech
Li & FungHong Kong$100 millionStrategic InvestmentJD.COMLogistics & DistributionN/A
Adlai NortyeHangzhou$100 millionCHangzhou Tigermed Consulting, Yingke PEATCG Holdings, ICBC Asset Management (Global) Company Limited, ICBC Group, Yingke PE's affiliated fundsBiotechnologyBiotech
Dizal PharmaWuxi$100 millionLilly Asia VenturesSequoia Capital China, Trinity Innovation Fund, Wuxi NewForce FundBiotechnologyBiotech

Software, healthcare startups remain attractive

Eleven startups in China’s software industry completed a new funding round, making it the most popular sector in August. A majority of these software developers are engaged in AI and machine learning (3) and Software-as-a-Service (SaaS) businesses (3), followed by their domestic peers providing software in the verticals of big data (2), Internet of Things (IoT) (1), and human resources technology (1).

None of these deals was worth $100 million or higher. AISpeech, a voice recognition firm that develops solutions and systems based on natural language interaction technologies, potentially closed the biggest round in the sector. The firm announced to have raised “tens of millions of yuan” in a Pre-IPO round, without disclosing the specific fundraising amount.

AISpeech had pocketed 410 million yuan ($58 million) in a Series E round led by Shanghai-based, dual-currency fund CTC Capital in April 2020.

In August, healthcare startups across various sectors were also favoured by China-focused investors. Thirty-two healthcare firms, including those from pharmaceuticals, biotech, medical devices, healthcare specialist, healthcare IT and services, closed $1.41 billion.

Their combined deal value accounted for over one-third of the total capital raised in the month, compared with one-fourth in July.

Nearly half of the 14 mega deals (worth $100 million and above) happened in healthcare-related sectors. Together, the six healthcare firms closed $796 million:

  • Lepu Biotech, a biotech startup that develops tumour immunology therapies, raised 1.291 billion yuan ($186 million) in a Series B round co-led by Ping An Insurance’s investment vehicle Ping An Capital and Sunshine Insurance Group-backed PE firm Riverhead Capital Investment Management.
  • Suzhou-based biopharmaceutical firm Sinovent secured 1 billion yuan ($145 million) in a Series C round co-led by Loyal Valley Innovation Capital, as the company looks to promote the clinical trials of new products and the pre-clinical studies of early-stage products.
  • Beijing Jingdu Children’s Hospital, one of the largest private children’s hospitals in China, was understood to have raised nearly $150 million by offering a controlling stake to Beijing-based PE Centurium Capital. Launched in June 2015, the hospital claims to treat nearly 300,000 outpatients and 8,000 inpatients a year.
  • US and China-based clinical-stage biopharmaceutical firm Suzhou Connect Biopharmaceuticals closed $115 million in a Series C round led by RA Capital Management, a Boston-based multi-stage investment company.
  • Adlai Nortye, a clinical-stage biopharmaceutical firm that develops immuno-oncology medicines, completed a Series C round at nearly $100 million. The Hangzhou-based firm has several ongoing drug candidates ranging from early Pre-clinical to Phase III-ready stage.
  • Shanghai-based Dizal Pharma, a joint venture among Chinese state-owned SDIC Fund Management, Swedish drugmaker AstraZeneca, and Zytz Partners, raised $100 million in a funding round led by Lilly Asia Ventures, which would finance its launch of a new headquarters in eastern China’s Wuxi city.

Sequoia China, Hillhouse, Matrix China top investor list

Sequoia Capital China, the bellwether of early-stage tech investments in China, remained king of the hill as it backed nine deals worth a combined $620 million.

Apart from leading six smaller transactions, the investor also participated in three megadeals, including Dizal Pharma’s $100-million round, a $150 million Series E1 round in online K12 education platform Huohua Siwei, and a 1.2-billion-yuan ($174 million) Series B round in Beijing-based commercial space launch startup iSpace.

Hillhouse Capital and its VC arm GL Ventures came second by injecting capital into six investments worth an aggregate of nearly $1.07 billion. The Asia-focused PE major served as the lead or sole investor in five of the six deals. It was also the most deep-pocketed investor in August in terms of the total value of participated deals.

Two of six investments by Hillhouse Capital and its VC arm GL Ventures were larger than $100 million, including JD Health’s over-$830 million Series B round and a $130 million Series Pre-B round in AI chip developer Birentech, which was led by GL Ventures.

Matrix Partners China, the China team affiliated with US-based VC Matrix Partners, ranked third in terms of the number of participated deals. The firm invested in five startups that together raised $285.4 million, among which it led two investments. Matrix Partners China had only one million-dollar deal under its belt, namely iSpace’s $174 million Series B round.

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Most active investors in Chinese private market (August 2020)

Investment companyNo. of dealsTotal value of participated deals (USD)
Sequoia Capital China9$620 million
Hillhouse Capital & GL Ventures6$1069.4 million
Matrix Partners China5$285.4 million
CICC Capital and affiliates4$434 million
Qiming Venture Partners4$178 million
Gaorong Capital4$161.4 million
Shenzhen Capital Group4$144 million
Tencent3$590.4 million
Easter Bell Capital3$446.4 million
GGV Capital3$258 million

Liya Su contributed to this story.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.