VC deals wear off in Asia, reach $7.4b in value for Q2 2016

Venture-backed companies in Asia raised a total of $7.4 billion through 343 investment deals in the Q2 2016, accounting for about a fourth of the VC funded deals globally, which stood at $27.4 billion during the same period, the latest CB InsightsKPMG Venture Pulse said.

The fundraising value remained flat over the previous quarter (in the same year), even as deal count plunged 12 per cent. Accumulating for H1 2016, total funding and number of deals reached $14.6 billion and 732 respectively, which are less than half of 2015 figures, signaling that the upward spiral over the past years might not be maintained.

The slight increase in funding value was largely due to a few $500 million-plus transactions.

“It’s harder now to ask for a big valuation if you aren’t able to show the ability to become profitable – or at least cash flow positive – in the near term. Investors appear to be becoming more selective and increasingly focused on core fundamentals,” noted Irene Chu, partner and head of high growth technology and innovation group at KPMG Hong Kong.

Divided by stage, the proportion of early-stage deals in Asia rose to a 5-quarter high of 39 per cent in Q2-2016, up from 33 per cent the quarter earlier. Meanwhile, the share of most other stages fell, particularly Series A, which declined from 27 per cent in Q1-2016 to 21 per cent.

Sizeable late-stage deals to companies like Didi Chuxing, Spring Rain Technologies, and Tokopedia gave a boost to the average figure for Q2-2016 to $100 million, following a dip of $67.5 million the previous three months.

10 largest Asian rounds represented more than $4.1 billion in funding, including three rounds worth a combined $1.7 billion for Didi Chuxing, and two $500 million-plus rounds in Ucar Group, another ride-hailing app, and ticketing app Weiying Technology.

Some 34 per cent of the investments were made by traditional companies and corporate venture capital arms, especially Alibaba, Tencent, Baidu and Rakuten. However, corporate investors are becoming more cautious, the report points out, giving an example of Hong Kong-based corporate investors who are evaluating potential companies from a strong strategic standpoint, investing only in those that can show clear strategic value add to their organization.

Meanwhile, the top VC firms in the region were still Blume Ventures, 500 Startups and Sequoia Capital, the three most active investors in Asia. Notably, Blume Ventures surpassed the previous quarter’s leader 500 Startups, who secured the second spot in Q2.

Investment by locations

China topped Asia in the funding value with $5.6 billion for 74 deals. Among the 10 biggest funding rounds to Asian startups, nine happened to be in Chinese firms. Even as the investment edged up over the previous quarter, it was still far from the peak of 136 deals and over $10.6 billion in Q3-2015. The downward trend was understandably caused by a stiffer exit climate as Chinese regulators intensified scrutiny of potential IPO filings.

For India, the second largest economy in the region after China, both deal number and size fell to 111 and $583 million. Top deals include a $100 million series D in hotel booking service provider Oyo Rooms, $50 million series C in payment startup MobiKwik and $32 million series B in small business loans platform Lendingkart.

“Investors in India are taking more time to evaluate bootstrap and pre-series A funding. There is significant investment interest still, but the decision to go ahead is taking a lot more time than earlier,” commented Sreedhar Prasad, partner for e-commerce and startups at KPMG India.

Southeast Asia is also witnessing a plummet in the number of deals over the last two quarters, reaching 51 in Q2. Funding scale also slowed to just $255 million.

Singapore topped the SEA list in terms of deal count with 15 deals at $54.6 million, followed by Indonesia with 13 deals and $158.3 million and the recent series E financing round for online marketplace Tokopedia alone accounting for $147 million.

Other major deals in this region were $30 million series B funding to Singapore-based logistics startup Ninja Van and the $16.7 million major minority stake acquisition of Vietnamese e-commerce platform Tiki.

While most of Asia saw softened VC activity, Japan, which has not traditionally been seen as a significant player in this VC market, might see transformation over the next couple of years. Total VC investment in the country has increased in the first half of 2016, compared to the previous two quarters, with much of this investment focused on early and seed-stage companies, the report shows.

In addition, Japan has also seen more interest from corporate VCs, corporate pension funds and organizations focused on enhancing VC market activities. US investor 500 Startups has launched its first fund in the country earlier this year, which has brought significant attention to the Japanese VC market.

In general, VC investment has cooled down in most parts of Asia as the return on investment, eroded by a potential interest rate increase in the US, is no longer as lucrative.

Thus, regional VC investors have widened their focus to outbound investment, with countries such as Canada gaining attention as a result of the current valuation of the Canadian dollar. “Investment in Europe may also rise over the next couple of quarters, given the devaluation of the euro and the pound in the wake of the Brexit vote,” the report says.

Investors in Asia are predicted to remain cautious over the next quarter, due to several economic uncertainties. However, opportunities are available in key promising sectors such as insurance tech and healthcare, which is the third most invested market and saw consecutive increases in investment over the last three quarters.

Also read:

Asia venture capital deal activity falls further from record high of last year

Venture capital investments rebound for tech startups in Q2

Venture capital funding in China drops to three-year low at $400m in Q2

India considering venture capital fund to invest in small defence firms

Venture capital investments rebound for tech startups in Q2

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.