China Drives Q2 Investment In The Asia-Pacific

There have been recurrent worries that the global center of tech is shifting westward from North America to Asia. This speculation is somewhat vindicated by the staggering amount of VC dollars China has been able to attract in the region. Huge funds, deep-pocketed, competitive tech behemoths, and international trade disputes have pushed Asia, and China specifically, into the spotlight over the past year.

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Crunchbase News has explored just how much the region has changed over the past few quarters and how much of that growth can be credited to China—a country boasting three of the top five most valuable private companies in the world.

Asia-Pacific Investment Roundup

On a year-over-year basis, deal volume in the Asia-Pacific region experienced a 14 percent jump in total known rounds, according to Crunchbase data. This speaks to a long-term trend of Asia-Pacific investors increasingly willing to pump capital into the region’s growing startup ecosystem.

In looking at the data on a quarter-over-quarter basis, deal volume in the Asia-Pacific region decreased by roughly 11 percent. That reduction, combined with strong growth in dollar volume (as shown in the chart below), indicates the prevalence of large late-stage deals for startups in the region.

Crunchbase data show that startups in the Asia-Pacific region attracted $72 billion in the first half of 2018, with $43 billion in venture capital funding in Q2 2018 alone. To put the past year into perspective, dollar volume has grown by over 260 percent. Ant Financial’s latest $14 billion round amounted to more than the entirety of venture capital that was directed to startups in the Asia-Pacific in Q2 2017.

As we anticipated, late-stage deals took up the bulk of that funding volume. And while the Ant Financial deal accounted for a significant part of the growth in deal volume from Q1 to Q2, deal sizes were still relatively large overall. In fact, the average size of late-stage deals of known size in Q2 2018 amounted to about $211 million compared to roughly $104 million in Q1. In Mainland China alone, that average size doubles to $426 million. Of course, as that difference illustrates, China has a huge influence on deal growth in the overall Asia-Pacific region

How Much Does China Matter, Really?

The increase in capital toward startups in the Asia-Pacific was often directed to startups in China. In fact, according to Crunchbase, China accounted for a full 87 percent of venture deals in the Asia-Pacific and nearly two-thirds of the total known deal volume in Q2 2018.

Taking Mainland China Out Of The Mix

With about two-thirds of the dollar volume directed toward startups in Mainland China, it’s difficult to make determinations about the state of venture capital in other regions of the Asia-Pacific.

According to Crunchbase data, deal volume in the Asia-Pacific, outside of Mainland China, decreased by nearly eight percent quarter-over-quarter with about 360 reported deals in Q2 2018. Late and seed-stage deals decreased slightly from Q1. The volume of early-stage deals remained constant.

Rounds for startups based in Singapore and India made up about 81 percent of the late-stage deal volume for Asia-Pacific countries. Deals for startups in India made up nearly 47 percent of all reported seed rounds, 41 percent of all early-stage deals, and 39 percent of all late-stage deals for all Asia-Pacific countries outside of Mainland China. Singapore followed India in carrying 16 percent of all seed deals, 18 percent of all early-stage deals, and 11 percent of all late-stage deals.

Dollar volume in Q2 2018 was about 63 percent lower than that of 2018, with early, late, and seed-stage deals bringing in about $2 billion in known venture capital funding. However, Q2 2018 was not completely devoid of large late-stage deals. In Singapore, Didi Chuxing and Softbank-backed Grab raised another $1 billion in venture funding in a deal with Toyota. The deal brought the startup’s valuation up to $10 billion. Another notable company, social streaming service Bigo Technology, made its mark in Q2 2018 with a $272 million Series D round led by China-based social gaming portal YY.com.

India’s late-stage deals were relatively smaller but more numerous than that of Singapore. The country’s largest reported deal was a $450 million round for Paytm Mall from Softbank and Alibaba. The e-commerce startup is valued at $1.5 billion. Another startup, Bangalore-based food delivery company Swiggy, scored a $210 million investment from DST Global and Naspers. Notably, Mainland China-based online-to-offline service heavyweight Meituan-Dianping also participated in the round.

It’s clear that some companies outside of Mainland China in the Asia-Pacific have piqued the interest of VCs and corporate investors alike. In fact, there is some evidence that the interest in Southeast Asia has trickled down into more early-stage deals.

Southeast Asia Meets Early Stage Growth

In Southeast Asian countries, seed and early-stage dollar volume increased on a quarter-over-quarter and yearly basis. Dollar volume for late-stage deals decreased slightly.

Investors have funneled billions of dollars into startups like Grab, Carousell, and Go-Jek over the past couple of years. Interest in those late-stage startups may have boosted the growth of early and seed-stage startups. Vishal Harnal, General Partner at 500 Durians, the Singapore chapter of 500 Startups, told Crunchbase News that he thinks this is the case.

“The interest in early-stage investing has been driven largely by the prominence of local success stories like Grab, Carousell, and Bukalapak,” Harnal told Crunchbase News in an email. “A desire to participate in and profit from the next wave of those companies has enticed businesspeople, professionals and high-net-worth individuals with discretionary capital to take a punt in nascent startups.” He added that early-stage investing is becoming more accessible and formalized through angel networks; furthermore, the investment climate is becoming more competitive.

“These developments have made the ecosystem more robust and have also increased the competitiveness for the best deals significantly,” Harnal noted. “In fact, a number of venture capital firms that previously invested at pre-seed and seed in the region have moved to Series A. Having a strong brand, reputation, network, and expertise has become more critical than ever to ensure that the best founders have you top of mind and come to you for investment.”

500 Durians, a seed and early-stage investor itself, committed $21 million to online consumer-to-consumer marketplace Carousell’s latest $85 million Series C. It is the largest deal by a 500 startups chapter ever, according to Harnal.

“We had originally invested in Carousell during their seed round in 2013 from our Southeast Asia-focused 500 Durians Fund,” Harnal wrote. “We kept close tabs on the company’s performance and watched it grow into one of the most dominant consumer platforms in the region.”

Competitiveness and the desire to invest in or become the next big success story in Southeast Asia is potentially driving more entrepreneurial and technical talent to the region.

Methodology:

Companies considered in this section only include those that have listed geographical locations on Crunchbase. Companies in the Asia Pacific include Mainland China, Hong Kong, Macao, Taiwan, South Korea, North Korea, Japan, Mongolia, Philippines, Indonesia, Myanmar, Laos, Thailand, Cambodia, Singapore, Malaysia, Vietnam, Australia, New Zealand, Bhutan, Bangladesh, British Indian Ocean Territory, Indonesia, Maldives, Nepal, Pakistan, and Sri Lanka. Countries in Southeast Asia include members of the Association of Southeast Asian Nations (ASEAN).