China Deal Review: Startup funding slides in Sept to $7.2b, deal volume slips too

Zhangjiajie, China. Photo by Joshua Sortino on Unsplash

After three consecutive months of growth in dealmaking activity, financing into privately-held companies in Greater China cooled off in September with transaction value and volume recording a decline from the month of August.

Chinese firms raised a total of $7.2 billion, recording a 19.6% month-on-month fall from nearly $9 billion in August. September saw the deal tally touch 181 transactions, 6.2% lower than the 193 deals in the previous month this year, according to proprietary data compiled by DealStreetAsia.

However, the September numbers marked a significant growth when compared to the corresponding period last year. The monthly deal count was 32.1% more than September 2020, while deal value increased by 19.7% year-over-year.

In the month’s biggest funding round, Caocao Mobility, a ride-hailing business launched in 2015 by Chinese automaker Geely, raised 3.8 billion yuan (about $600 million). Didi Global rival Caocao pocketed the fresh capital at a time when the counterpart faces a cybersecurity investigation by Chinese authorities over concerns of its possession of a wide swathe of user data shortly after its New York listing on June 30.

FerroTec, which manufactures semiconductor wafers, secured another big-ticket investment at 3.3 billion yuan ($511 million) with backing from state-owned investors in China. China’s State Development & Investment Corp (SDIC), China SME Development Fund, and others invested in the round as Beijing aims for global dominance in chip design and manufacture.

22 megadeals raise 62.7% of capital

Megadeals, or investments worth $100 million or more, contributed to the bulk of financing in the month. At over $4.5 billion, the combined value of 22 megadeals in September was lower than the value of 27 megadeals in August, which crossed $6 billion.

Even so, the size of megadeals was still prominent in the month, since 22 out of 181 deals, or 12.2% of all transactions, captured 62.7% of capital in the market.

Besides the two $500 million-plus investments in Caocao and FerroTec, there were 20 transactions in the range of $100-500 million. The biggest among them was an Alibaba-led, over-$300-million Series B round in self-driving technology developer DeepRoute.ai, and a $300-million investment that US automaker General Motors made into another self-driving firm Momenta, as investors spot great potential in the world’s largest auto market.

Other megadeals were raised by companies including COWAROBOT, which offers self-driving technology and solutions; Aulton New Energy, an operator of charging stations for electric vehicles (EVs); and SoftBank-backed robotics firm Agile Robots, whose $220-million round valued it at over $1 billion.

Startups at earlier funding stages were more popular than their growth- and later-stage peers in terms of deal count. Investors’ appetite for emerging businesses in Greater China retained, with 71 deals, or 39.2% of the month’s total deal count, being made at the Series A stage and before.

Deal count at the Series B stage followed with 49 deals. Less than one-quarter of deals was completed at the growth- and late-stage with 32 Series C deals, four Series D deals, and three deals at Series E stage and after.

Investors made bold bets on the Series B stage since this funding stage booked capital inflows of almost $3 billion, representing 41.2% of the total financing in the month. The month’s three biggest bets on Caocao, FerroTec, and DeepRoute.ai were all closed at the Series B stage.

The aggregate deal value at the Series C stage came second, accounting for about $1.9 billion, followed by that of the Series A stage and earlier, Series D, and Series E and beyond, respectively.

List of 22 megadeals in Sept 2021

Expand Table

StartupHeadquartersInvestment size (USD)Investment stageLead investor(s)Other investor(s)IndustryVertical
Caocao MobilityHangzhou$600 millionBTransportation ServicesRidesharing /Transport
FerroTecHangzhou$511 millionBZhejiang State-Owned Capital Operation, Sunic CapitalSDIC Chuangyi Industry Fund Management, Zhejiang Provincial Financial Development Company, CCB International, China SME Development Fund (Oriental Fortune Capital), BOCOM International, Qingdao Minxin, Shanghai Guosheng Group, Hangzhou Qiantang Industry Investment Fund, China Cinda Asset Management, CICC Pucheng Investment, CICC Capital, Orient Securities Capital Investment, Shanghai Free Trade Zone Equity Fund Management, Yangtze Optical Fibre and Cable Joint StockSemiconductorsN/A
DeepRoute.aiShenzhen, China/Fremont, the US$300 millionBAlibaba GroupJeneration Capital, Geely, Fosun RZ Capital, Yunqi Partners, Glory VenturesAutomobiles, Other Vehicles & PartsAutonomous Driving
MomentaBeijing$300 millionGeneral MotorsAutomobiles, Other Vehicles & PartsAutonomous Driving
COWAROBOTShanghai$250 millionCAutomobiles, Other Vehicles & PartsAutonomous Driving
Aulton New EnergyShanghai$232 millionBGuangzhou Finance Holdings, Guangzhou Kaide, Enze Capital (affiliated with Sinopec Capital)Korea Investment Partners (KIP), CY Capital, Guangdong Merchant Venture CapitalEnergy Storage & BatteriesElectric/Hybrid Vechicles
Agile RobotsBeijing/Munich $220 millionCSoftBank Vision Fund 2Chimera, GL Ventures, Sequoia Capital China, Linear Capital, Xiaomi, Foxconn Industrial Internet, Midas InvestmentHardwareRobotics & Drones
KeenonShanghai$200 millionDSoftBank Vision Fund 2CICC Alpha, Prosperity7 VenturesConsumer ProductsRobotics & Drones
New CarzoneNanjing$200 millionDAsia Investment CapitalAlibaba Group, Dragon CapitalAutomobiles, Other Vehicles & PartsE-commerce
HAI ROBOTICSShenzhen$200 millionC, DC:5Y Capital; D: Capital TodayC: Sequoia Capital China, VMS Group, Scheme Capital, Source Code Capital, Walden International; D: Sequoia Capital China, 5Y Capital, Source Code Capital, 01VC, Legend StarLogistics & DistributionRobotics & Drones
eSign Hangzhou$186 millionESequoia Capital China, IDG Capital, Hidden Hill Capital (affiliated with GLP)Sealand Innovation Capital, GIG Asset Management, Wens Capital (affiliated with Wens Foodstuffs Group), Fortune Capital, Grand Flight InvestmentBusiness Support ServicesAI and Machine Learning
COSMOPlat (affiliated with Haier)Qingdao$155 millionBChina Life Technology and Innovation FundGuosheng Capital, Shanghai Guohe Capital, Shandong New Growth Drivers Fund Management, Hongtai Aplus, Qingyue Fund, Cowin Capital, Shenzhen TopoScend CapitalInternetInternet of Things
Mech-Mind RoboticsBeijing$155 millionCMeituan, IDG Capital Sequoia Capital China, Source Code Capital SoftwareRobotics & Drones
XtransferShanghai$138 millionDD1 Capital Partners Financial ServicesFintech
CiderBeijing$130 millionBDST GlobalGreenoaks Capital, A16ZConsumer ProductsE-commerce
Cellular Biomedicine GroupShanghai$120 millionAAstraZeneca-CICC Healthcare Industry Fund, Sequoia Capital China, Yunfeng CapitalGIC, TF CapitalBiotechnologyBiotech
XSKY (Beijing) Data TechnologyBeijing$110 millionEBoyu CapitalLegend Capital, CICC Alpha, Broad Vision Funds, Kunlun Fund, Hundsun Technologies, Suzhou Yishang Equity Investment, Northern Light Venture Capital (NLVC), Qiming Venture PartnersSoftwareBig Data
IASO BiotherapeuticsNanjing$108 millionCCDH BaifuCCB International, Everbright Limited, Co-Stone Capital, CNCB Capital, Plaisance Capital, GL VenturesBiotechnologyBiotech
DeltaHealthShanghai$100 millionSwire PacificEight Roads Healthcare ServicesN/A
Black Sesame TechnologiesShanghai$100 millionC, StrategyC: Hubei Xiaomi Yangtze River Industry FundC: Wingtech Technology, FulScience, China Automotive Chip Industry Innovation Strategic Alliance, SummitView Capital, FutureX Capital, Oriza HUA, Lenovo Capital & Incubator Group, Sunic Capital; Strategic investment: Hubei Xiaomi Yangtze River Industry Fund, FulScience Automotive ElectronicsAutomobiles, Other Vehicles & PartsAutonomous Driving
NrealBeijing$100 millionCNIO Capital, Yunfeng Capital, Hongtai AplusCPE, GP Capital, GL Ventures, Sequoia Capital ChinaConsumer ProductsAR & VR
VisionXZhuhai$100 millionBTemasek Holdings, Lake Bleu Capital, Sequoia Capital China, Green Pine Capital Partners, Sherpa Healthcare Partners, 3H Health Investment, HighLight Capital (HLC)Healthcare SpecialistN/A

Auto & allied sector thrives

The automobile & parts industry topped in terms of deal value with the completion of 11 deals – largely on account of fundraising by China’s autonomous driving upstarts DeepRoute.ai, Momenta, COWAROBOT, and Black Sesame Technologies. Collectively, startups in the field raised close to $1.2 billion, or 16.6% of all financing.

This may just be a start of a potential acceleration in the growth of China’s autonomous driving sector. The Chinese authority last month unveiled its first national standards for autonomous driving, laying the foundation for carmakers to develop vehicles for future mobility. The standards, ranging from Level 0, which relies largely on human drivers, to Level 5 that enables “full driving automation,” will come into effect in March 2022.

Across other industries, the software space saw more transactions than any other sectors. Twenty-two software startups closed new investments in September, or 12.2% of deals in the month, although the $699.5 million raised was only a fraction of the total financing.

Semiconductors, a sector much touted by the Chinese government in its efforts to achieve global supremacy in tech, kept up its chase at second position in terms of deal count. Twenty-one semiconductor startups gathered a combined $936 million, up from last month when 18 such firms raised $447 million in total.

However, challenges to growth remain as this sector faces an acute shortage of tech talent. The deficiency of talent in China’s semiconductor industry doubled in 2019 to about 300,000 from 150,000 in 2015, according to a 2021 report by the China Institute for Educational Finance Research at Peking University cited by South China Morning Post.

Sequoia China captures 14 new deals

Sequoia Capital China, led by China’s famed rainmaker Neil Shen, again dominated as the most active investor in Greater China with capital injections into at least 14 deals in September. The value of the deals amounted to approximately $1.4 billion, which was also the most sizeable combined deal value compared to transactions backed by other investors.

Shen created Sequoia China in 2005 as the China franchise of Silicon Valley’s Sequoia Capital. The firm has invested in nearly 600 companies over the past 16 years, including some of China’s biggest tech firms like Alibaba, JD.com, Meituan, and Didi Global.

Sequoia China in mid-October filed with the US Securities and Exchange Commission (SEC) its plans of raising three new infrastructure-focused funds. Typically, it focuses on investments in the TMT, healthcare, consumer products and services sectors.

Sequoia China backed seven megadeals in the month. These fundraisers include robotics firm Agile Robots, warehouse robotics startup HAI Robotics, e-signature service eSign, industrial robot developer Mech-Mind Robotics, cell therapies firm Cellular Biomedicine Group, augmented reality (AR) startup Nreal, and medical device supplier VisionX.

Other active investment groups in September include CICC Capital, a flagship investment platform of Chinese investment bank China International Capital Corporation Limited (CICC); Cowin Capital, an equity investment firm in Shenzhen; and Shunwei Capital, which is backed by smartphone brand Xiaomi’s founder Lei Jun.

Most active investors in China’s PE-VC market (Sept 2021)

Expand Table

Investment companyNo. of dealsTotal value of participated deals (USD)LeadNon-lead
Sequoia Capital China14$1361 million410
CICC Capital and affiliates12$1140.5 million66
Cowin Capital8$405 million35
Shunwei Capital8$137 million62
GL Ventures & Hillhouse Capital7$503 million25
IDG Capital6$426 million42
Xiaomi6$424 million42
YuanBio Venture Capital6$116 million42
Kaitai Capital6$58 million15
5Y Capital5$226 million32
*If one deal is backed by only two investors, we consider neither of the two investors as a lead investor.

Liya Su contributed to the story.

Note: In our monthly analysis for September 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.

Our database only considers deals officially announced by the related investee, investor(s), and/or financial advisor, while information based on market rumours and news reports citing sources is excluded.

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.

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.