China Deal Review: Startups bag $8.65b in Q1 riding on record funding in March

Beijing, China. Source: Li Yang/Unsplash

Chinese startups collected almost $8.65 billion across 135 transactions in the first quarter ended March 31, 2020, according to proprietary data compiled by DealStreetAsia.

The sectors that drove the deals include real estate technology, online education, tech-enabled healthcare, and AI & robotics, as well as consumer & brands, which have seen the self-quarantine norms pushing demand for instant noodles, hot pot materials, and tinned food through the roof.

Fundraising activities in Greater China reached a record high in March with 68 deals gathering an aggregate of over $6.13 billion against a combined $901.25 million raised in February across 34 deals.

In January, Chinese firms secured about $1.62 billion across 33 deals. The market remained largely intact in January with a decent growth of 31 per cent in deal value compared to the month earlier, even though the virus appears to have started to spread from central China’s Wuhan City since December 2019.

The influence of the virus on China’s dealmaking could persist in the second quarter of 2020, according to a recent report from Boston-based management consultancy Bain & Company, as quarantine rules are likely to continue until the end of April that might lead to a marked slowdown in the first half of this year compared with 2019.

The report estimates that the number of deals in Greater China will decrease 1 to 5 per cent in 2020, while the total deal value will fall somewhere between 15 and 25 per cent. But the consultancy expects a revival in H2 as financing needs coming around, as well as deals delayed in H1 recover and catch up.

In our quarterly analysis, we have put together detailed charts and dissection of prominent deals, active investors, deal stages and the most attractive sectors that have garnered the maximum venture dollars in the Greater China region between January 1 and March 31, 2020. (Note: We have considered VC deals worth $10 million and over.)

Mega-deals drive up traction

At least 17 Chinese startups managed to raise over $100 million in the first quarter. Together they collected almost $5.75 billion, representing 66.47 per cent of the total funds raised in the Chinese VC market.

Ten companies made it to the mega-deal list in March, compared with only one in February and six in January.

China’s VC deals worth $100m and over (Q1 2020)

Expand Table

StartupHeadquarterInvestment Size (USD)Investment StageLead Investor(s)Other Investor(s)Sector
Beike Zhaofang / Ke.comTianjin$2,410 millionD+-SoftBank, Tencent, Hillhouse Capital, Sequoia Capital ChinaReal Estate Tech
YuanfudaoBeijing$1,000 millionGHillhouse CapitalBoyu Capital, Tencent, IDG CapitalEd Tech
MiningLamp TechnologyBeijing$300 millionETencent, TemasekKuaishouAI/Robotics
TELDQingdao$195 millionAChina Chengtong Holding Group, China Reform Financial Network, CDH Investments

Venus Growth Company Limited, Guangzhou Xinye Investments, Shenzhen Gaopeng Venture Partners, Qingdao Henghuitai Industrial Development Fund, Zhongchuang Yongte (Foshan) Investments Qingdao Jinyang Investments, Qingdao Honghu Investments
Automotive
JunlebaoShijiazhuang$171 millionStrategic InvestmentSequoia Capital China-Consumer & Brands
Legend Cayman (An affiliate of Nanjing-based Genscript Biotech Corporation)Nanjing$150.5 millionEquity Investment-HBC Asia Healthcare Opportunities III, Johnson & Johnson Innovation (JJDC), LAV Biosciences Fund V, SMALLCAP World Fund, Vivo Capital Fund IX, RA Capital Healthcare FundHealth Tech
COSMOPlat (Affiliate of Haier Smart Home)Shanghai$134 millionAChina Structural Reform FundShanghai Chengtou Holding, China Merchants Securities Co (CMSC), Shenzhen TopoScend Capital, Cowin Capital, SAIF Partners, GF Venture Capital IoT
SNOWPLUSBeijing$125 million-Hong Kong Rothsfortune Investment Management Consumer & Brands (Vape)
RemeGenYantai$100 million-Lilly Asia Ventures, Lake Bleu CapitalVivo Capital, Janchor Partners, Hudson Bay Capital, OrbiMedHealth Tech
Meizhong Jiahe Hospital ManagementBeijing$100 million-CITIC Industrial Investment-Health Tech
Yimidida Supply Chain Holding Shanghai$143 millionD+--Logistics
ANE LogisticsShanghai$300 million-Centurium Capital-Logistics
Hesai TechnologyShanghai$173 millionCBosch Group, Lightspeed China PartnersON Semiconductor, Qiming Venture Partners, Detong Capital, Axiom Asia Private CapitalAI & Robotics
Zhiyun HealthHangzhou$144 millionC+, DCMB International, SIG Asia Investments
OP Financial, Samsung Electronics, Bojiang Capital, LB InvestmentHealth Tech
Transcenta HoldingHangzhou$100 millionB+CR-CP Life Science Fund, Charoen Pokphand GroupLily Asia Ventures, Temasek, Hillhouse Capital, Teng Yue Partners, Sequoia Capital China, ARCH Venture Partners, Epiphron Capital, the China Merchants Group Merger Fund, ChinaEquity Group Health Tech
Wanxue EducationBeijing$100 millionDADV Partners-Ed Tech
YunxuetangBeijing/Suzhou$100 millionDCenturium CapitalYF Capital, Susquehanna International GroupEd Tech

The largest deal in Q1 was a $2.41-billion Series D+ round raised by Beijing-based online real-estate brokerage platform Beike Zhaofang. The round was backed by blue-chip investors including SoftBank, Chinese gaming and social networking giant Tencent, Asia-focused private equity major Hillhouse Capital, and Sequoia Capital China.

Beike, which matches apartment buyers with sellers through an online platform and roughly 30,000 brick-and-mortar stores in China, has seen the growing popularity of its online home visit and purchase services since the COVID-19 outbreak. The company facilitated an average of 346,000 virtual reality-based online house visits per day in February, which was nearly 35.5 times higher than the number in January.

Its parent company, Chinese real estate agency Lianjia, announced a plan in late Match to recruit over 20,000 new estate agents in 2020.

Overall, the real estate technology sector only saw three deals in the quarter. Two more players, regional real estate agency Daojiale.com and Beijing-based budget hotel brand Qingzhu, raised 500 million yuan ($70 million) and tens of millions of U.S. dollars in new funding, respectively.

Unlike the real estate technology industry in which fundraising was largely contributed by one bulge-bracket deal, the growing momentum in China’s online education field seems more logical since hundreds of millions of students are forced to move their study online during the pandemic.

As much as $1.38 billion were garnered by 10 Chinese online education companies in Q1, including Yuanfudao‘s $1-billion Series G funding round and another two $100-million deals closed by tech-powered corporate training platform Yunxuetang and test-prep service Wanxue Education.

Backed by Warburg Pincus, the Chinese online education platform Yuanfudao snagged the $1-billion Series G round of funding at a valuation of $7.8 billion. The mega-round was led by Hillhouse Capital, with participation from Hong Kong-based private equity firm Boyu Capital as well as returning investors including Tencent and Boston-born investment firm IDG Capital.

According to mobile app performance tracker App Annie, the company was ranked first in in-app purchases on the Chinese app stores’ education category between January and mid-March 2020.

The pandemic has noticeably intensified competition in the Chinese online education market as players like Sequoia-backed Zuoyebang and Youdao Jingpinke, an online K12 education unit of Nasdaq-listed Chinese internet giant NetEase, have all upped investment in marketing and brand promotion for a larger stake in the sector that is poised to develop exponentially in the following months.

Meanwhile, tech-enabled healthcare companies, as expected, have gained much traction in Q1 as they together have received more than $1.37 billion through 29 transactions, leading the fundraising efforts of Greater China-based startups in terms of deal count.

There were five transactions worth $100 million and more. The five companies, namely Legend Biotech, RemeGen, Meizhong Jiahe, Zhiyun Health, and Transcenta, have pocketed a combined $594.5 million and accounted for almost 43.35 per cent of the total funds raised in the field.

While the International Monetary Fund (IMF) projects the global economy to contract sharply by 3 per cent in 2020 – the worst since the Great Depression almost a century ago – China-focused marquee investment firms like Qiming Venture Partners, Sequoia Capital China, GGV Capital, and Gobi Partners told DealStreetAsia in recent interactions that they have maintained a steady pace of investments with an optimistic outlook for the market’s longer-term performance.

“The general investor sentiment in China is that the market will not have such a deep and long downturn cycle as compared to the rest of the world,” said Tang Chibo, partner of China-based venture capital firm Gobi Partners. “This is especially pronounced as compared to Europe and the US, where expectations are this [pandemic] could even last until next year.”

Helen Wong, partner, Qiming, said that the company has readied a $1.1-billion fund to pick up “rare gems” in the fields of healthcare, deep tech, and internet-based businesses like online education, online entertainment, and e-commerce, as well as models that are cashing in on changing consumer behaviours during the pandemic.

Sequoia China tops the list with 12 deals worth $2.82b

On the other side of the Chinese VC ecosystem, gross dry powder in the market has started to decrease since 2019 due to Beijing’s increasingly stringent regulations. There were only 102 new China-focused funds last year, down 61.94 per cent compared with 268 in 2018, according to Bain & Company.

However, those who managed to close funds were rewarded with more capital since the average size of the 63 RMB-denominated funds stood at $214 million, up about 15.68 per cent from $185 million in 2018; while the average size of foreign-currency funds was $678 million, representing a nearly 26.73 per cent growth from $535 million the year before.

Most active investors in China’s VC market (Q1 2020)

Expand Table

Investment CompanyDeal VolumeTotal Value of Participated Deals (Million USD)
Sequoia Capital China12$2821 million
Qiming Venture Partners6$367.3 million
Tencent5$3804.5 million
Hillhouse Capital5$3538 million
Cowin Capital5$229 million
GGV Capital5$58 million
IDG Capital4$1137 million
China Merchants Group and Affiliates4$289 million
Cathay Capital4$156 million
China Growth Capital4$144.3 million

Sequoia Capital China, widely viewed as a bellwether for Chinese tech investment, stood out as the most active investor in China in terms of the number of deals it participated in Q1. The company participated in at least 12 deals that amounted to roughly $2.82 billion, including the aforementioned Beike’s $2.41 billion Series D+ round, and a strategic investment of over 1.2 billion yuan ($171 million) in dairy products maker Junlebao.

The China team of Silicon Valley-based venture capital major Sequoia Capital just reloaded ammunition in December 2019 with the completion of its largest China growth fund to date, “Sequoia Capital China Growth Fund V,” at just under $1.80 billion, and “China Venture Fund VII” at $549.5 million.

As the China arm grew more affluent to bet on gigantic deals, its interest in Chinese early-stage companies remains largely unchanged since seven of its 12 deals in Q1 were made into startups at Series B round and earlier, ranging from IoT and cloud computing to healthcare and AI & robotics. It was one of the earliest China-focused investment firms to take the investor-startup matchmaking event online to mitigate the fallout from the COVID-19 outbreak.

In terms of deal volume, China’s Qiming, which manages over $5.3 billion and focuses on the TMT and healthcare industries, ranked second with participation in at least six transactions in Q1.

The company poured money into six deals valued at a combined $367.3 million. The three larger deals include a $173 million Series C round in Hesai Technology, which develops 3D-sensors (LiDAR) for autonomous vehicles, an $88.3 million investment into community e-commerce platform Nice Tuan, and a $70 million Series C round in Shanghai-based biopharmaceutical firm Abbisko Therapeutics.

After distributing over $1 billion cash returns to limited partners (LPs) in 2019, Qiming might have welcomed an even better year to source opportunities in China amid a slowdown in dealmaking among counterparts and returning rationalism on startup valuation.

However, the company noted that the dampened valuations in the midst of crises are not necessarily a benefit for venture capitalist since they are just “a better reflection of the risk you are taking,” said Wong. “Probably a lot of late-stage companies will retreat from the market [because of this].”

China’s Tencent, and Hillhouse Capital, which is led by Chinese businessman Zhang Lei, were two of the most deep-pocketed investors in Q1. Tencent and Hillhouse Capital both participated in five deals, with the total deal value amounting to approximately $3.80 billion and $3.54 billion, respectively.


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.