China Deal Review: Startup funding in Oct touches new high at $7.1b

Funding activity in China continued to gain momentum with the monthly deal value in October setting a record for this year driven primarily by mega deals worth $100 million and over.

Chinese startups raised nearly $7.1 billion across 104 venture capital (VC) and private equity (PE) transactions in October 2020, according to proprietary data compiled by DealStreetAsia. Although deal volume decreased about 24.1 per cent compared to September, the total funds raised rose to a new high this year with an 18 per cent growth from one month earlier.

Of the 104 deals, the financial terms of nine investments were not disclosed.

Fundraising by Chinese VC and PE players also bounced back with the launch of 1,379 new funds in the July-September quarter, per data from research and consulting firm CVSource.

The number was still 11.8 per cent lower than the same period in 2019, but the disparity was significantly narrowed compared to Q1 and Q2 with a year-over-year decline of 41.2 per cent and 35.3 per cent, respectively.

The “survival of the fittest” has grown more pronounced as risk-averse limited partners (LPs) become more selective amid the pandemic’s lingering influence and a global economic downturn. Most of these new fundraisers who still managed to close new vehicles in recent months are either top-notch fund managers with incomparable track records, or government-financed investment firms, according to CVSource.

17 mega deals raise 82.2% of capital in Oct

A small proportion of companies continued to harvest the largest chunk of VC/PE money in October 2020. These firms – mostly representing edtech, healthcare, e-commerce, and self-driving – stepped up their fundraising efforts to finance growth-stage development and to prepare themselves for growing market competition.

Investor appetite for growth-stage, near-IPO businesses also increased, driven by China’s public market boom in recent months following a series of Beijing’s financial market reforms.

Seventeen deals worth $100 million and above collectively amassed over $5.8 billion, or 82.2 per cent of the total funds raised in October. It represents a momentous growth in the proportion of the combined value of mega deals per month, compared to 14 such deals raising 65.6 per cent (almost $4 billion) of total capital in September. The proportion stood at 68.4 per cent in August and 62.5 per cent in July.

As the biggest fundraiser in October, Chinese edtech firm Yuanfudao closed $2.2 billion in its Series G1 and G2 rounds that almost doubled the firm’s valuation to $15.5 billion in less than seven months.

The combined deal value made it the second-largest transaction so far this year, just after a $2.4-billion Series D+ round raised by real-estate brokerage platform Beike Zhaofang this March. (Beike went public in the US on August 12 and now goes by its formal name “KE Holdings.”)

Yuanfudao had also pocketed $1 billion in a Series G round earlier this year.

As usual, later-stage investments saw fewer deals. There were 42 deals at Series A round and earlier, 25 Series B deals, 15 Series C deals, and five deals at Series D round and after.

Four fundraisers at the Series E stage and beyond collected nearly $2.8 billion, which was more than the total funds raised by startups in any other stage in October. All the four deals were at $100 million and over, including industrial products e-commerce ZKH Industrial Supply’s $315-million Series E round; biotech firm Genecast Biotechnology’s $149-million Series E round; edtech firm Huohua Siwei’s $100-million Series E2 round; and Yuanfudao’s landmark deals.

17 deals worth $100 million and above (Oct 2020)

Expand Table

StartupHeadquartersInvestment size (USD)Investment stageLead investor(s)Investor(s)IndustryVertical
YuanfudaoBeijing$2,200 millionG1, G2Tencent, DST GlobalHillhouse Capital, Boyu Capital, IDG Capital, CPE, CITIC Fund, GIC, Temasek, Trustbridge Partners, DCP Capital, Greenwoods Asset Management, Ocean Link, Danhe CapitalEducation/TrainingEdTech
ENOVATEShanghai$742 millionAutomobiles, Other Vehicles & PartsAutonomous Driving
DmallBeijing$418.5 millionCIndustrial Bank's equity investment platform, China Structural Reform FundHengan International, Lenovo Capital and Incubator Group, Futian Guiding Fund, Tianya Capital, Tencent, IDG Capital, CMB InternationalRetailE-commerce
ZKH Industrial SupplyShanghai$315 millionEYF CapitalChina Structural Reform Fund Corporation, CIC International, GLP-C&D Equity Fund, Xiamen C&D Inc, Tiger Management,Tencent, Matrix Partners China, Legend Capital, Genesis Capital, Eastern Bell Capital, Cowin CapitalInternetE-commerce
LianBioShanghai$310 millionCrossover financingRA Capital, Venrock Healthcare Capital Partners, CMG-SDIC Capital BlackRock, Casdin Capital, Farallon, Logos Capital, Perceptive Advisors, Pfizer, Sphera Healthcare, T. Rowe Price Associates, Tybourne Capital Management, Vida Ventures, Viking Global Investors, Wellington ManagementPharmaceuticalsBiotech
SmartSens TechnologyShanghai$225 millionChina Integgrated Circuit Industry Investment Fund (ICF), Xiaomi Changjiang Industrial Fund, CMB InternationalSequoia Capital China, China International Investment Fund, Wingtech Technology, Transsion Holdings, China Fortune-Tech Capital, Haitong Kaiyuan, Lenovo Capital, Forebright CapitalSemiconductorsN/A
3DMed DiagnosticShanghai$224 millionEquity FinancingCPECICC Capital, Jemincare, Tsing Song Capital, Spinnotec, Haier Biomedical, Ruiyi Investment LanShang Capital, Luxin Venture Capital, Shandong Transportation Industrial Development Fund, Sangel CapitalHealthcare ServicesHealthTech
ECARXHangzhou$194 millionA BaiduSIG ChinaAutomobiles, Other Vehicles & PartsAutonomous Driving
TTP Car/Tiantian PaicheShanghai$168 millionAutohomeInternetE-commerce
Dingdang KuaiyaoBeijing$150 millionB+Taikang Insurance Group, Haier Biomedical, Longmen Investment, SoftBank China Venture Capital (SBCVC), CMB International Corporation, Sinopharm-CICC RetailE-commerce
Hinova PharmaceuticalsChengdu$149.6 millionCShenzhen Investment Holdings Capital, Tigermed, Huarong Rongde Asset Management, Sinopharm-CICC, Hongtai Aplus, CCB International, Sealand Innovation, Infinity Group, CDHT Investment, Founder H Fund, CIFT, Longmen Capital, Brilliant Investment, Sharewin Capital, DNV Capital PharmaceuticalsN/A
Genecast BiotechnologyWuxi$149 millionEChina Structural Reform FundTaikang Asset Management, CCB Private Equity, GL Ventures, China Renaissance, CICC Capital, Matrix Partners ChinaBiotechnologyBiotech
Zhaoke Ophthalmology LimitedHong Kong$145 millionBHillhouse Capital, TPG AsiaLoyal Valley Capital, OrbiMed Group, Aier Eye HospitalHealthcare SpecialistN/A
3D Medicines Corporation (3DMed)Shanghai$140 millionDebut China Capital Management (China Securities affiliate), Efung CapitalTigermed, Header Capital, Ruiyi Investment, Shanghai Ruixia Investment Management, Dr. Adrian Cheng Chi-Kong JPPharmaceuticalsBiotech
JOYNEXTNingbo$107 millionCMG-SDIC CapitalNingbo Guofa Automotive, F&G Venture, Cathay Capital's CarTech Fund, Baoteng DianliAutomobiles, Other Vehicles & PartsAutonomous Driving
Huohua SiweiBeijing$100 millionE2TencentThe Carlyle Group, YuanfudaoEducation/TrainingEdTech
Gracell BiotechnologiesShanghai$100 millionCWellington Management, OrbiMed Healthcare Fund Management, 5Y CapitalVivo Capital, Temasek Holdings, Lilly Asia Ventures, King Star Med LPBiotechnologyBiotech

Growth momentum in software, consumer sectors

Software startups remained attractive to China-focused investors, as the scale of the domestic software industry continued to expand in the past decade to reach 7.2 trillion yuan ($1.1 trillion) in 2019, which was over 15 per cent of the global industry scale based on a chinabaogao.com report released in August.

Twenty-one software startups completed a new funding round, making it the most popular industry in October. A majority of these software developers are engaged in AI and machine learning (7), insurtech (3), and Software-as-a-Service (SaaS) businesses (3), followed by their peers providing solutions in the verticals of edtech, e-commerce, agtech, big data, and robotics & drones.

Most deals in the software industry were at Series A (10) or Series B (7) investment stage, and none of their deal value exceeded $50 million. Nanyan Information Technology, a Shanghai-based insurtech firm that develops big data and AI-based software to help insurers lift efficiency and reduce costs, closed the biggest round in the sector. It raised $37 million in a Series C round led by Cenova Capital.

China’s emerging consumer products companies saw increased traction. Investors’ confidence in the consumer market seems to have recovered, as virus-subdued Chinese consumption was projected to grow 7.4 per cent YoY in H2 2020 and 10.5 per cent YoY for the whole year of 2021, according to Morgan Stanley estimates.

There were an aggregate of twelve deals in the consumer products sector that raised a combined $153.8 million. These fundraisers included e-commerce channels-enabled consumer brands (5), beauty & hygiene brands (3), fitness & wellness-related products providers (1) and others.

All but one deal in the sector were raised by startups at Series A round and earlier. The largest deal was a $50-million Series C round secured by Chongqing-based self-heating hot pot brand Zihaiguo. The firm reached a post-money valuation of $500 million after the new deal led by China’s CICC Capital.

Startups in the space had gathered $553.2 million across 14 deals in September, while in August, six consumer brands operators had collected $39.2 million in total.

“Chinese markets of air conditioners, sportswear and dairy products are highly concentrated on large-scale players with a dominant sales network, [unique] brand identity, and advantages in economies of scale,” Robin Xing, chief China economist at Morgan Stanley, wrote in a blog on July 31. “On the contrary, in industries with a generally lower concentration degree – such as liquor & beverage and skincare industries – emerging brands could still enter into the market by targeting varied consumer demands.”

Sequoia China tops with participation in 12 deals

Sequoia Capital China, the bellwether of early-stage tech investments in China, surpassed Hillhouse Capital to reclaim its position as the most active investor in China’s private market in October. The firm backed 12 deals worth a combined $461.6 million.

Most active investors in Chinese private market (Oct 2020)

Expand Table

Investment companyNo. of dealsTotal value of participated deals (USD)LeadNon-lead
Sequoia Capital China12$461.6 million75
Hillhouse Capital & GL Ventures9$2530.3 million54
Matrix Partners China8$592.8 million26
Tencent6$3078.4 million42
CICC Capital and affliates6$737.5 million24
Legend Capital & Legend Star5$371.3 million05
Lenovo Capital 4$682.4 million04
Shunwei Capital4$55.4 million31
Yunqi Partners4$55.3 million22
Gaorong Capital4$51.8 million04

Sequoia Capital China led seven of the 12 deals. Apart from its participation in six smaller transactions worth less than $50 million, the investor backed two bigger deals, namely chip designer SmartSens Technology’s $225-million round, and a $67-million Series B round in novel gene-editing platform EdiGene.

The Chinese investment arm of Silicon Valley VC firm Sequoia Capital is in the market raising at least 15 billion yuan ($2.2 billion) for a new yuan-denominated fund, according to a Reuters report in September citing sources. The sources said that the RMB fund had reached the first closing in late 2019 and could fully close the fundraising in the coming weeks at about 18 billion yuan.

Sequoia Capital China, an early investor of top Chinese tech firms like Alibaba, mainly backs businesses in four major areas including technology & media, consumer products & services, healthcare, and industrial technologies in China.

Hillhouse Capital and its VC arm GL Ventures came second with participation in nine deals worth a total of over $2.5 billion. The duo was a lead investor in five of the nine transactions.

GL Ventures, which Hillhouse Capital had created this February to raise its stakes in early-stage deals, made seven of the nine transactions, including one megadeal at over $100 million: biotech firm Genecast Biotechnology’s $149-million Series E round.

Both of the two deals backed by Hillhouse Capital were larger than $100 million, including Yuanfudao’s $2.2-billion financing, and a $145-million Series B round in ophthalmology products provider Zhaoke Ophthalmology Pharmaceutical (ZKO).

Note: In our monthly analysis for October 2020, 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.