Greater China startups saw decent fund flows from private equity (PE) and venture capital (VC) investors, and also a buoyant IPO market, in April-June 2021. Yet, investors are bracing for a tough period ahead amid Beijing’s tightening regulatory scrutiny of the country’s tech giants.
In Q2 2021, nearly $17 billion worth of deals were sealed between startups and PE-VCs, showed data from our latest DATA VANTAGE report Greater China Deal Review: Q2 2021. While this is down 29.7% sequentially, mainly due to the absence of billion-dollar investments, dealmaking was still more vibrant than in COVID-marred Q2 2020 when startups collected only around $9.5 billion
There were 425 investments in Q2 2021, down 8.4% from the previous quarter.
For the entire first half of 2021, investments amounted to $41.1 billion — an uptick of 7.9% from H2 2020. There were 889 transactions in H1 2021, up 12.2% from 792 deals in the previous six months.
Startups in the fields of software, consumer products, biotech, internet, and medical devices were investors’ most favoured bets. While these sectors garnered the most deals in Q2, startups in China’s food, and auto & auto parts sectors set new fundraising records thanks to the country’s rising consumption power, as well as tech advancements such as AI that powers the next generation of mobility.
IPO market buoyant, but regulatory scrutiny to weigh
IPO activity of Greater China firms was buoyant in Q2 2021, with 176 listings collectively raising close to $40 billion. The aggregate IPO fundraising value in the quarter was around 20% higher than the $33 billion booked in Q1 2021, while the number of IPOs increased 16.5%. The IPO proceeds in Q2 this year were also nearly double that of the same period last year when only around $21 billion was raised by 94 companies amid the COVID-19 disruption.
Stock markets in Hong Kong and mainland China retained their robust growth in Q2, thanks to Beijing’s capital market reforms from the launch of the Nasdaq-style STAR Market in 2019 to the expansion of registration-based IPO systems to Shenzhen’s ChiNext Board last August.
In Q2 2021, Hong Kong recorded the largest IPO size at over $9.7 billion. In terms of the number of IPOs, the ChiNext Board surpassed the STAR Market with 52 listings.
The US was still a major IPO location for Chinese companies, as 17 out of the 176 newly listed Chinese firms went public on Nasdaq or the New York Stock Exchange (NYSE), raising $9.4 billion.
But China’s regulatory uncertainties are expected to cloud future Chinese listings on Wall Street, as underscored by Didi Global’s latest ordeal. The ride-hailing giant landed the quarter’s largest stock sale with an upsized $4.4-billion US IPO on June 30, only to see its stock price plummeting under the government’s data security gauntlet. It is reportedly facing potential penalties by regulators in China that could include fines or even a delisting.
Investors DealStreetAsia spoke to, though, remain bullish on opportunities around China’s development. “First, it’s not unique to China… we encourage our portfolio companies to remain compliant. It doesn’t change our optimism around the opportunity set in China on a going-forward basis,” said Mukul Chawla, joint head, TMT at Temasek Holdings.
Nevertheless, we expect US IPOs by mainland Chinese companies to slump, at least in the short term.
The Greater China Deal Review: Q2 2021 report covers fundraising by startups in the region in the second quarter, with extensive data on:
- Top PE-VC deals of Q2 2021
- Top sectors that attracted investors
- Top IPOs by Greater China-based companies
- IPOs of mainland Chinese companies in the US
- Outlook for IPOs and fundraising in 2021
- Insights from prominent investors on China’s regulatory uncertainty
The report is available exclusively to DealStreetAsia – Research & Analytics subscribers. Subscribe/upgrade your subscription now to access our entire set of reports. Still not sure? Opt for a one-month trial for only $299.