China’s venture capital (VC) investments in Southeast Asia dived in the first half of this year on the back of challenges in cross-border dealmaking due to the virus and a lack of mega-rounds of over $100 million in the second quarter.
Investments by Chinese VCs, defined as those with headquarters in Mainland China, fell 83 per cent in the first half of 2020 to $272.9 million, after jumping a whopping 849 per cent in H1 2019.
This contrasts with an accelerated pace of foreign direct investments by Chinese companies into the region, as manufacturers seek non-tariffed bases amidst the ongoing the US – China trade war, Nikkei Asia Review reported. In particular, new Chinese foreign direct investment in Vietnam, based on approved projects, swelled 5.6 times to $1.56 billion between the start of 2019 and May 20, 2020.
Pace lags behind the region’s deal activity
Southeast Asia’s startups raised $2.8 billion in Q2 2020, comparable to the $2.9 billion in Q1 but almost double that from a year ago, according to data compiled by DealStreetAsia – Research & Analytics. This means investments by Chinese VCs made up close to 5 per cent of the region’s total deal value in the first half of this year.
|Southeast Asia Deals|
|Time Frame||Deal Count||Announced Deal Value ($m)|
Source: DealStreetAsia – Research & Analytics
Gojek’s $1.2 billion and Grab’s $856 million financing rounds boosted deal value for Southeast Asia in Q1 2020 whereas Tokopedia ($500m), Gojek (about $300m) and Ninja Van ($239m) supported deal value in Q2 2020.
The deal volume in Southeast Asia for Q2 this year rose 63 per cent over last year, mainly due to pent-up demand and fundraising negotiations that began prior to movement restrictions caused by COVID-19.
Far from the peak seen in 2018
Average deal size by Chinese VCs in H1 2020 shrunk to $17.1 million from $126.3 million a year ago. The deal value was only slightly higher than the $15.7 million seen in H1 2018.
Chinese VC investments in Southeast Asia reached a peak in Q3 2018 (see chart below), riding on the back of mega deal rounds by late-stage companies in this region. A majority of big financing rounds in 2018 were announced by high-profile names such as Grab, Gojek, Lazada, Tokopedia and Sea Group.
In particular, Grab raised $1 billion in its Series H round where Ping An Capital and China Cinda Asset Management were involved, according to Crunchbase data. Between February 2018 to October 2018, Indonesian unicorn Gojek also raised $1.5 billion in a Series E round, in a deal-by-deal model, leading up to the $920 million raised for its Series F. Tencent Holdings, Meituan-Dianping, and JD.com were involved in these huge financing rounds.
Despite slower flow of China venture capital into the region, Shanghai-headquartered Qiming Venture Partners and 01vc have indicated their interest in looking for deals in Southeast Asia despite the Covid-19 headwinds, Business Times reported. This is due to the region’s accelerated digital adoption and favourable demographics. Both venture firms have been actively looking at South-east Asia’s venture scene since around 2016.