China Deal Review: Startup funding slows for second straight month in Feb

Source: Sandy Millar/Unsplash

Dealmaking by China-focused private equity (PE) and venture capital (VC) firms slowed for a second consecutive month in February, amid the week-long Lunar New Year holidays on the mainland.

There were 122 PE-VC deals in the month that raised a combined $5.2 billion, according to proprietary data compiled by DealStreetAsia. The total value of investments was down 30.7% from January, while the number of transactions decreased 14.7%.

The financial terms of 10 of the deals remained undisclosed.

Dealmaking in China has had a slow start in 2021 after the record set last December when $9.1 billion was raised across 191 deals.

Megadeals

Like in January, there were no billion-dollar investments in February.

The number of megadeals, or investments worth $100 million and above in Greater China, stood at 15 in the month, amassing a total of $3.3 billion. At 62.9%, the share of megadeals in overall financing was lower than 69.7% in January, and 68.6% in December 2020, but managed to stay in the usual 60-70% range.

There was one transaction worth over $500 million in the month. SVOLT Energy Technology, a developer of electric vehicle (EV) batteries and energy storage solutions, pocketed 3.5 billion yuan ($540.8 million) in a Series A round.

Megadeals happened across a wide range of industries in February, such as healthcare services, biotech, automobile & parts, agribusiness, consumer products, financial services, and semiconductors.

Early-stage deals outstrip late-stage funding

As the Chinese government continues to promote tech innovations and entrepreneurship, early-stage deals, i.e. Series B rounds and earlier, recorded more transactions than growth- and late-stage deals, i.e. Series C and later.

There were 51 deals in their Series A stage and earlier, compared with 34 Series B deals. In contrast, there were only 14 Series C deals, three Series D round deals, and five deals in the Series E round and later. The funding stages of 15 deals were not disclosed.

Capital, too, tilted towards early-stage transactions in February, largely driven by upstarts who managed to garner megadeals to support their next stage of growth. Eighty-five early-stage startups raked in more than $2.8 billion in Series B and earlier stages, accounting for 54.1% of total financing. The share of early-stage funding was only 44.3% and 22.1% in January and December, respectively.

Of the 15 megadeals in the month, there were three in the Series A round, including SVOLT Energy Technology, Geely-backed intelligent auto developer ECARX, and central processing units (CPUs) maker Moore Threads, which announced its unicorn status on Feb. 25 within 100 days of inception.

Six megadeals were in the Series B round, namely vaccines producer Yisheng Biopharma, internet hospital and online pharmacy SPH Health Commerce, diagnostics firm WuXi Diagnostics, esports social networking service Quwan, baby & maternal brand Babycare, and agribusiness Wangjiahuan.

Overall, 60% of megadeals in the month were completed by emerging businesses.

Expand Table

15 Megadeals worth $100m and above (Feb 2021)

StartupHeadquartersInvestment Size (USD)Investment StageLead Investor(s)Investor(s)Industry/SectorVertical
SVOLT Energy TechnologyChangzhou$541 millionABank of China Group Investment, CMG-SDIC Fund ManagementBeijing Financial Street Capital Operation Centre, Changzhou Venture Capital Group, ZJU Jiuzhi Investment Management, IDG Capital, Cathay Capital, HT CapitalEnergy Storage & BatteriesElectric/Hybrid Vechicles
Beijing Yuanxin TechnologyBeijing$465 millionESequoia Capital China, TencentCITIC Securities, Qiming Venture Partners, Index Capital, Kunling Capital, CICC Capital, OrbiMed, Gopher Asset Management, E Fund ManagementHealthcare ServicesHealthTech
Horizon RoboticsBeijing$350 millionC3BYD Auto, Great Wall Motors, Changjiang Automobile Electronic, Dongfeng Asset, Sunny Optical Technology, Changzhou Xingyu Car Light, CMC-SDIC Capital, CICC Capital, Shougang Fund, Shanghai AI Industry Fund, Bohai Chuangfu, Minsheng Equity Investment Fund Management, Rosefinch Investment, ZWC PartnersAutomobiles, Other Vehicles & PartsAutonomous Driving
ANE LogisticsShanghai$300 millionCPEGreater Bay Area Homeland Investments Limited, NWS Holdings Limited, Creo Capital, Huagai CapitalLogistics & DistributionN/A
Clover BiopharmaceuticalsChengdu$230 millionCGL Ventures, TemasekOceanpine Capital, OrbiMed, Delos CapitalBiotechnologyBiotech
ECARXHangzhou$200 millionA+China Venture Capital FundAutomobiles, Other Vehicles & PartsAI and Machine Learning
Guodong GroupShanghai$170 millionPre-IPOMorgan Stanley, Ping An Capital, CICC Capital, CITIC Securities Investment, Guolian Group, SPDB International, Changjiang Wonderbay FundTelecomsN/A
SPH Health CommerceShanghai$160 millionBShanghai Biomedical Industrial Equity Investment Fund, JIC InvestmentSinocare, Shanghai SITICO Asset Management, New Alliance Capital, Ample Harvest Finance, Huadong IndustrialHealthcare ServicesHealthTech
Moore ThreadsBeijing$153.5 millionPre-AShenzhen Capital Group, GGV Capital, Sequoia Capital ChinaChina Merchants Venture, ByteDance, Pony.ai, Riverhead Capital Investment Management, Oceanpine Capital, Wen Ming Investment, First Capital, 5Y Capital, Shenzhen H&T Intelligent ControlSemiconductorsN/A
WuXi DiagnosticsShanghai$150 millionBThermo Fisher Scientific, Shiyu Capital, ABC International, Sunland Capital, CCBI Tech Venture, YF CapitalHealthcare ServicesHealthTech
Yisheng BiopharmaBeijing$130 millionBOrbiMed, Oceanpine CapitalBiotechnologyBiotech
WangjiahuanShenzhen$123 millionB+CPEPaul Run Holding, Ziming CapitalAgribusinessAgTech
BabycareHangzhou$108 millionB CDH InvestmentsHuaxing Grwoth Capital, Sequoia Capital ChinaConsumer ProductsN/A
Guangzhou Quwan Network TechnologyGuangzhou$100 millionBMatrix Partners China, Orchid AsiaTravel & LeisureSocial Media
uSMARTHong Kong$100 millionFinancial ServicesFintech

Pharma, software, medical devices firms gain traction

Startups in the pharmaceuticals and medical devices industries staged a comeback in February, clocking 14 deals each, to reclaim their position as a popular portfolio of China-focused investors. The investors see promise in the sectors, given China’s ageing population.

Meanwhile, internet and semiconductors, which had led the pack in January in terms of deal count, fell out of the top five.

Drugmakers raised more capital ($445.5 million), compared to medical devices fundraisers ($174.5 million).

Unlike pharmaceutical companies which raised more funding given their capital-intensive nature, all deals in medical devices were no bigger than $30 million and predominantly in the Series B round or earlier.

These emerging developers of medical devices & equipment present a prevalent tendency towards tech adoption. Nearly half of the 14 medical devices makers leverage advanced technologies, such as artificial intelligence (AI), to develop their products. And at least four of them are engaged in the R&D of robots used in surgeries, rehabilitation, medical imaging, and beyond.

Software companies also completed 14 deals worth a combined $309.5 million in February. The largest financing was a Temasek-led 500-million-yuan ($77.1 million) Series C round in Black Lake Technologies, a Software-as-a-Service (SaaS) startup that develops data-driven collaboration solutions for the manufacturing industry.

All other software fundraisers completed a round in the Series A or B stage, while funding stages were undisclosed in four deals.

Three investments fell in the $30-100 million basket: Burgeon Software’s 300-million-yuan ($46 million) Series B round, ECCANG’s $40 million Series B round, and Oray’s $40 million deal, while the remaining 10 deals were all smaller than $20 million.

A majority of these software startups are involved in SaaS (5), and AI & machine learning (4), while a few are in e-commerce software (2), big data (2), and fintech (1).

GL Ventures tops as most active investor

GL Ventures, the VC unit launched in February 2020 by Asia-focused PE major Hillhouse Capital Group, was the most active investor in February. Although the parent firm only invested in one transaction as the lead investor in the month, the VC arm injected capital into 14 investments, including nine deals where it led or co-led the deal.

Among the 14 deals, GL Ventures joined hands with Temasek to co-lead a $230-million Series C round for Clover Biopharmaceuticals, a clinical-stage biotech company that develops transformative biologic therapies. It also participated in three $50 million-plus deals, namely semiconductor startup AkroStar’s 400-million-yuan ($62 million) Series Pre-A round; chipmaker Cygnus’ 400-million-yuan Series Pre-A round; and contact lenses brand moody’s Series B and B+ rounds, in which the startup raised a combined 380 million yuan ($58.9 million).

Expand Table

Most active investors in China's PE-VC market (Feb 2021)

Investment companyNo. of dealsTotal value of participated deals (USD)LeadNon-lead
Hillhouse Capital & GL Ventures15$593 million105
CICC Capital and affiliates7$1,198 million25
Sequoia Capital China7$918.5 million34
Matrix Partners China6$207 million42
Legend Capital & Legend Star6$109 million33
GGV Capital5$351.5 million23
CDH Investments and affiliates5$224.5 million41
Northern Light Venture Capital (NLVC)5$103 million23
Cowin Capital5$61.5 million32
OrbiMed4$865 million22

CICC Capital, affiliated with the Hong Kong-listed investment banking firm China International Capital Corporation (CICC), and Sequoia Capital China, the bellwether of tech investments, were tied in second place for the number of participated deals.

The two investment companies backed seven deals each. CICC Capital and its affiliates led two of these transactions, while Sequoia Capital China led three.

Both invested in digital healthcare and pharmacy chain operator Beijing Yuanxin Technology’s 3-billion-yuan ($465 million) Series E round.

Other CICC-backed megadeals included AI chip designer Horizon Robotics‘ $350-million Series C3 round, and a 1.1-billion-yuan ($170 million) Pre-IPO round in communication infrastructure firm Guodong Group.

Sequoia Capital China also backed Moore Threads’ first financing attempt, and Babycare’s 700-million-yuan ($108.4 million) Series B round.

Note: In our monthly analysis for February 2021, 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 has 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.

Liya Su contributed to the 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.