China Deal Review: PE-VC dealmaking has a slow start to the year after frenetic December

Hong Kong. Source: Robert Bye/Unsplash

Private equity and venture capital firms in China took a breather in January, after the hectic dealmaking activity witnessed in end-2020.

Chinese startups collected almost $7.5 billion in January 2021, down 17.6% from December, according to proprietary data compiled by DealStreetAsia. The number of investments also reduced by 25.1% month-on-month to 143, of which financial terms of 12 deals were undisclosed.

The downturn, usually transitory, is seen in the first two months of every year ahead of the week-long Lunar New Year holiday.

Last December had set an annual record with 191 investments worth a combined $9.1 billion. Throughout 2020, unlisted companies in Greater China raised a total of $56 billion in financing across 1,193 deals.

On the other side of the table, most PE-VC fund managers find themselves running out of dry powder.

A report from Chinese equity investment database CVSource showed that 5,483 debut funds made their way into China in 2020, down for the third consecutive year. Collectively, these PE-VC funds raised $451.8 billion in capital commitments — the lowest in the past five years.

The report expects small- and medium-sized fund managers to continue to struggle while raising capital, as limited partners (LPs) remain risk-averse amid the economic downturn.

In 2020, most dry powder was concentrated in the hands of a few top-notch general partners (GPs), such as CVC Capital Partners, which had closed CVC Capital Partners Asia Pacific V at $4.5 billion, largely exceeding its initial target of $4 billion; and Qiming Venture Partners and Gaorong Capital, each raising $1.2 billion for a new vehicle.

Mega-deals score

There were no billion-dollar investments in January. Nevertheless, the total value of megadeals — ones worth $100 million and above in Greater China — retained their usual share of 60-70% of overall financing.

The month’s two biggest transactions were both over $500 million. Artificial intelligence (AI) specialist 4Paradigm raised $700 million in a Series D round and Sequoia-backed electric vehicle (EV) startup Leapmotor secured $664 million in a Series B round.

These and another 21 megadeals raked in over $5.2 billion, or 69.7% of the total funding in January.

These big-ticket deals were completed by startups in a wide range of sectors, including EVs, autonomous driving, biotech, edtech, e-commerce, big data, AI, HR tech, and Software-as-a-Service (SaaS).

In December 2020, 25 megadeals had raised a little over $6.2 billion, or 68.6% of the total funding in the month. The share of megadeals stood at 69.9% last November with 16 megadeals totaling $5.3 billion. In October, this proportion had stood at 82.2% due to edtech giant Yuanfudao’s $2.2 billion Series G1, G2 rounds.

As always, earlier-stage investments had more transactions, a sign of the lively entrepreneurship environment prevailing in Greater China. There were 55 deals at Series A round and before, compared with 40 deals at Series B round.

At slightly over $3.3 billion, more capital flew into early-stage deals, i.e Series B round and earlier. Within early-stage deals, startups at Series B round garnered the most capital ($2.4 billion). Growth- and late-stage deals, i.e Series C round and later, garnered $3.1 billion in financing in the month.

Of the 23 megadeals, seven happened at early-stage, versus 12 at Series C round and after. There were four deals with an undisclosed funding stage.

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There were 23 megadeals, worth $100m and above, in Jan 2021

StartupHeadquarterInvestment Size (USD)Investment StageLead Investor(s)Investor(s)Industry/SectorVertical
4ParadigmBeijing$700 millionDBoyu Capital, Primavera Capital, HOPU InvestmentsChina's National Manufacturing Transformation and Upgrading Fund, China Development Bank, China Reform Holdings Corporation (CRHC), China Jianyin Investment Limited (JIC Group), CSC Financial, Haitong Securities, Sequoia Capital China, CPE, Goldman Sachs, Jinyi Capital, FountainVest PartnersSoftwareAI and Machine Learning
LeapmotorHangzhou$664 millionBHefei local government, SDIC Chuangyi Industry Fund Management, ZJU Jiuzhi Investment Management, Yonghua CapitalAutomobiles, Other Vehicles & PartsElectric/Hybrid Vechicles
Hive Box Holdings Limited (backed by SF Express)Shenzhen$400 millionStrategic InvestmentTrustbridge Partners, Asia Forge (Cayman), SCC Growth VI 2020 F, Redview Capital Investment VII Limited, All-Stars PEIISP VI Limited, All-Stars PESP X LimitetdLogistics & DistributionN/A
Horizon RoboticsBeijing$400 millionC2Baillie Gifford, YF Capital, CPE, Contemporary Amperex Technology Co Limited (CATL)ORIX Corporation, CloudAlpha Tech Fund, Neumann Advisors, Aspex, Hermitage Capital, Elite Cci Capital, China Shandong Hi-Speed Capital, CSC Financial, Yuantai Investment Partners FundSemiconductorsAI and Machine Learning
Keep Beijing$360 millionFSoftBank Vision FundHillhouse Capital, Coatue Management, GGV Capital, Tencent, 5Y Capital, Jeneration Capital, BAIInternetFitness & Wellness
Sunsea ParkingGuangzhou$310 millionB2, B3Yutong GroupCMC Capital Partners, CDB Equipment Manufacturing Fund, Hengjian Emerging Industries Fund, Zhuhai Huajin Capital, Flower City Ventures, Tryin Capital, Qiming Venture Partners, Sinovation Ventures, Kinzon CapitalAutomobiles, Other Vehicles & PartsAutonomous Driving
EnflameShanghai$279 millionCCPE, CICC Capital's sub-fund, Primavera CapitalTencent, Redpoint China Ventures, SummitView CapitalSemiconductorsAI and Machine Learning
KlookHong Kong$200 millionEAspex ManagementSequoia Capiptal China, SoftBank's Vision Fund 1, Matrix Partners China, Boyu CapitalTravel & LeisureE-commerce
WorkTransShanghai$190.5 millionC, DSequoia Capital ChinaTencent, CICC CapitalInternetHR tech
UISEE TechnologyBeijing$154 millionBChina's National Manufacturing Transformation and Upgrading FundAutomobiles, Other Vehicles & PartsAutonomous Driving
MEMSIC SemiconductorTianjin$154 millionAFortuna CapitalYF Capital, Olympus Capital's Asia Environmental Partners (AEP), Yangtze River Delta Collaborative Advantage Industry FundSemiconductorsN/A
VISEN PharmaceuticalsShanghai$150 millionBSequoia Capital China OrbiMed, Sherpa Healthcare Partners, Cormorant, HBM Healthcare Investments, Pivotal bioVenture Partners China, Logos Capital, CDG Capital, Ascendis Pharma A/S, Vivo Capital, Sofinnova InvestmentsBiotechnologyBiotech
Huohua Siwei/Spark EducationBeijing$150 millionE3Trustbridge PartnersTencent, HIKE CapitalEducation/TrainingEdTech
Boan BiotechYantai$136 millionYuanBio Venture Capital, Advantech Capital, Qianhai Ark Asset Management, BioVeda China Fund (BVCF), Blue Ocean Capital Group (BOCG), Prospere Capital, CCB International, Starr CompaniesBiotechnologyBiotech
Agile RobotsBeijing/Munich$130 millionBSequoia Capital China, GL Ventures, Linear Capital, BOCOM International, CMB International, New Hope GroupHardwareRobotics & Drones
Abbisko TherapeuticsShanghai$123 millionDThe Carlyle Group, Warburg Pincus, OrbiMed, Lake Bleu CapitalJanchor Partners, Sage Partnres, SHC, Greater Bay Area Homeland Development Fund, Lilly Asia Ventures (LAV), Temasek Holdings, Qiming Venture Partnres, Hankang Capital, CICC CapitalBiotechnologyBiotech
BaibuGuangzhou$110 millionD+Hidden Hill CapitalInternetE-commerce
JiligualaShanghai$100 millionCTencent, Trustbridge PartnersEducation/TrainingEdTech
Erwan TechnologyBeijing$100 millionD, EPAC, Xingzhi Capital (affiliated with New Oriental)Qiming Venture Partners, Lingfeng CapitalEducation/TrainingEdTech
YunxuetangBeijing/Suzhou$100 millionE1TencentEducation/TrainingEdTech
TalkingDataBeijing$100 millionCR Data Fund (CR Capital Management)IT InfrastructureBig Data
Sunsea ParkingBeijing$100 millionBGoldman Sach, Anchor Equity PartnersReal Estate Development & Operating CompanySaas
Newlink GroupBeijing$100 millionCMB InternationalHongtai Aplus, Joy Capital, NIO CapitalRetailInternet of Things

Internet sector leads in deal count

Fundraisers in the internet, semiconductor, and software industries outperformed their domestic counterparts across all other sectors in terms of deal count.

Internet led in deal volume as 18 investments in the field garnered $820 million. A majority of these fundraisers develop e-commerce, Internet of Things (IoT), and big data platforms and/or solutions using internet-based infrastructures.

Keep, now the most popular workout app in China, completed the biggest deal in the internet space as COVID-induced gym closures prompted more users to exercise at home. At a post-money valuation of $2 billion, the startup bagged $360 million in a Series F round led by SoftBank’s Vision Fund, with participation from Hillhouse Capital and Tencent.

Keep also offers fitness equipment and snacks for the weight-conscious on its app and on e-commerce platforms like Alibaba’s Tmall.

Business-to-business (B2B) textile e-commerce website Baibu was the other megadeal fundraiser in the internet sector. The startup, which helps connect textile factories, traders, and retailers, bagged $110 million in a Series D+ round led by global logistics firm GLP’s investment arm Hidden Hill Capital.

Semiconductor overtakes health as Beijing propels homemade chips

Dealmaking around semiconductors made it to the top-three list for the first time in months — an early sign that Beijing’s efforts to achieve self-reliance in chip development has started getting noticed in the private market. In January, PE-VC investors channeled a combined $950.5 million to 14 deals in the space.

Semiconductor startups have become more attractive to China-focused investors, as the government spares no effort to advance this industry given the trade tensions with the US that hit the tech sector. The State Council, the chief administrative authority in the country, further stepped up its support to homegrown semiconductors last year by introducing a new set of favourable policies, such as tax concession, to encourage more R&D, investments, and initial public offerings (IPOs) of domestic chip developers.

Propelled by government incentives, Beijing-based AI chip startup Horizon Robotics pocketed $400 million in a Series C2 round co-led by UK-based Baillie Gifford, YF Capital, which is backed by Alibaba’s co-founder Jack Ma, and CITIC’s alternative asset manager CPE.

Its peers Enflame, and MEMSIC Semiconductor completed megadeals in January at $279 million and $154 million, respectively.

Investments in China’s semiconductor market are set to grow further, with China already being the world’s biggest consumer of all semiconductor products, both for internal use and export. According to market researcher Daxue Consulting, China had a 60.5% share of global semiconductor consumption as of 2019.

While semiconductors moved up the ranking, health-related segments dropped out of the leading echelon — a potential sign that the traction in health sector witnessed in 2020 is now receding.

Health-related industries, which include biotech, medical equipment development, pharmaceuticals, healthcare services, healthcare specialists, and healthcare IT, raised over $1.2 billion in total financing from 31 deals. The numbers represent 21.7% of the month’s deal count and 16.2% of deal value.

It was a visible decrease from December, when such fundraisers had secured almost $3 billion across 65 deals, or approximately 34% of deal count and 32.7% of deal value.

Investment endeavour of Chinese tech giant

Sequoia Capital China, Tencent, and Hillhouse Capital, together with its VC arm GL Ventures, were the three most active investment groups in Chinese startups in January.

Since DealStreetAsia started tracking China’s PE-VC market in mid-October 2019, investment powerhouses Sequoia and Hillhouse (GL Ventures inclusive), were perched on top of the investors’ list, nine times out of 10.

Considered the bellwether of early-stage tech investments, Sequoia backed 12 deals in the month, including five megadeals — endocrine therapy developer VISEN Pharmaceuticals, robotic solutions firm Agile Robots, HR tech startup WorkTrans, AI major 4Paradigm, and travel & leisure booking service Klook.

GL Ventures, which Hillhouse Capital had created in February 2020 to capture early-stage opportunities, made eight investments, while the parent participated in one deal. It injected capital into Agile Robots and Keep.

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Most active investors in China's private market (Jan 2021)

Investment companyNo. of dealsTotal value of participated deals (USD)LeadNon-lead
Sequoia Capital China12$1,462 million48
Tencent10$1,698.5 million37
Hillhouse Capital & GL Ventures9$524.5 million45
GGV Capital9$429.5 million54
CICC Capital and affiliates7$749.5 million34
Qiming Venture Partners6$563 million15
IDG Capital6$77.5 million24
5Y Capital5$443 million23
Matrix Partners China5$269 million05
Lightspeed China Partners5$95 million23

Tech giant Tencent, which operates the country’s ubiquitous messaging app WeChat, appeared to be more aggressive last month in terms of making big bets. It poured money into 10 deals, over half of which were megadeals.

Three of the six Tencent-backed megadeals were closed by edtech companies, namely K12 edtech firm Huohua Siwei, online English learning platform Jiliguala, and Yunxuetang, which delivers corporate training services to clients like KFC and Didi Chuxing. Its other investments were made into WorkTrans, Keep, and Enflame.

The gaming and social networking giant was more active in dealmaking than any other Chinese firm in 2020 as well. Globally, Tencent invested 111 billion yuan ($17.2 billion) into 168 transactions at home and abroad, according to Chinese business information service provider ITjuzi. It was followed by Alibaba, Baidu, and JD.com.

Note: In our monthly analysis for January 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 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.