Drive for digital champions fuels APAC VC boom

Annie Turner/TM Forum
31 Jul 2015
00:00

As featuredin TM Forum's Inform

According to research from KPMG and CB Insights, venture capital investments in Asia soared in the second quarter, reaching more than half the level of the US. The research highlights several interesting trends.

First, the ‘raw’ numbers. Investment in Asia reached $10.1 billion (across 313 deals) versus $19.2 billion (1,180 deals) in Q2 in the US, which itself is seeing a boom in private investment. Total investments in Asia for the first half are more than $60 billion, compared to a total of $88.3 billion for the whole of 2014.

Most of the money is going into tech

Eight out of every ten VC deals in Asia go to internet and mobile companies. An unusually high level of investment in Asia was concentrated into ‘developed start-ups’, with 25 funding rounds topping $100 million compared to 30 in the US. The Financial Times says this due to a series of huge deals aimed at building new digital champions in China, South Korea and India.

The latest round of funding has led to the creation of nine more so-called unicorn companies in Asia; that is, VC backed companies with valuations of more than $1 billion. The biggest funding deals in the second quarter in Asia were by SoftBank which invested $1 billion in the South Korean ecommerce company, Coupang. Chinese mobile internet company Dianping attracted $850 million and Indian ecommerce firm Flipkart received $550 million.

Corporate funding boom

Investment is particularly strong from corporations, which participated in 32% of financing deals with Asian VC-backed companies during Q2 – an amount higher than in any other region, with a particular bias towards China (see below). Q2 VC investors included Alibaba, Tencent, Baidu, Rakuten and others. Inflation is high in China and wages are continuing to rise, hence corporate investment is seen as a means to improve the bottom line.

A high proportion of the corporate activity globally is driven by companies looking to get ahead of the technology curve. This trend is expected to continue as it is often cheaper for companies to invest in technologies rather than develop them internally.

As companies globally renew their focus on growth, corporate investing is becoming a critical part of their strategies, especially among the world’s largest companies. Such investments allow companies to grow while addressing critical risks and possible disruptors to their organization’s sustainability.

The gravitational pull of China

The research found that VCs strongly believe they can’t afford not to be in China. Lyndon Fung, US, Capital Markets Group, KPMG China, comments, “The new trend in China is to invest in companies that are aggressively going to market through bargain deals and incentives to build a customer base and drive registered users. These companies start by capturing market share and then shape user behavior to generate profit a couple years down the road.” A model proven by the likes of Google, Facebook and Amazon, among others.

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As the report notes, “Many companies have established funds to invest in numerous companies with the hope that one will be the Alibaba of tomorrow” – whose collectives businesses are greater than Amazon and eBay put together.

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