In Q2 2018, Global VC Scales Tipped In Favor Of Chinese Startups Over North America

It’s the first business day of a new financial quarter. For the Crunchbase News team, that means we’re poring over mountains of VC data in keeping with our quarterly tradition of digesting and reporting on what happened in the world of venture capital.

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Our reports on the global market, North America, China, Texas, and blockchain assets are coming out the week of July 9th, but in the meantime, we wanted to share some tidbits from our initial findings about the VC market.

All The Way Up

Both deal and dollar volume are up globally and in North America. China has also been a driving force in growing the venture capital pie. According to venture capital deal data from Crunchbase, it looks like Chinese startups have raised more VC money in Q2 2018 than their North American counterparts did during that same period of time.

The chart below breaks down reported venture funding data in Q2 and the preceding four quarters.

Our analysis indicates that Chinese startups raised 47 percent of all reported VC dollar volume last quarter compared to the 35 percent share collectively raised by companies based in the United States and Canada. This is the first time Chinese startups have eclipsed U.S. and Canadian companies in venture fundraising.

However, as is the case with all things, the devil is in the details.

One Round To Rule Them All

A non-trivial chunk of the reported funding raised by Chinese companies in Q2 was raised in just one round. In early June, news broke that Ant Financial, an electronic payments service company affiliated with Alibaba, had raised a staggering $14 billion in what’s technically a Series C round. To date, it’s the largest venture funding round in history. Led by Temasek Holdings and GIC (a Singaporean sovereign wealth fund), the round reportedly values Ant Financial at $150 billion. For perspective, that’s roughly twice Uber’s valuation and within spitting distance of Amazon founder Jeff Bezos’s current net worth.

If we were to exclude Ant Financial’s round, we’d find that Chinese startups just raised slightly more in Q2 than they did in Q1, based on reported data. Without the Ant Financial round, Chinese startups accounted for 36 percent of all funding in Q2, or the same percentage share as Q1. Like all databases tracking private market transactions, Crunchbase data is subject to reporting delays; therefore, exact numbers and percentage shares are subject to some change, but barring the addition of a few billion dollars worth of deals to either side, the gist of our findings isn’t likely to change.

All this being said, China’s venture capital market is growing in absolute and relative terms. The number of reported rounds raised by Chinese startups in Q2 2018 is up 395 percent from the same time period last year. As the chart below shows, it’s given Chinese startups a more significant chunk of global deal volume.

Due to the language barrier and other factors, the Chinese startup market is a bit of a blind spot for Crunchbase. The data set captures all of the “big” rounds and news, but there’s less information related to seed and early-stage ventures in China. The numbers cited above, like with the previous chart, were based on reported data, which is subject to change as new data is added to Crunchbase.

Despite growth in deal volume, Chinese startups still raise a small proportion of venture capital rounds, at least compared to the amount of money they raise. In other words, as far as fundraising goes, these companies punch above their weight.

Chinese corporations like Tencent and Alibaba are committing hundreds of millions of dollars to venture investments, state-sponsored venture firms are investing in China and abroad, and horizontal mergers are forming formidable players in the on-demand services and transportation sectors. With no immediate signs of slowing, the Chinese tech and venture capital ecosystem is positioned to maintain its current momentum and loom ever larger in the global investment landscape.

Stay tuned next week for Crunchbase News’s reports on Q2 2018, which will include coverage of China and the global VC market.