Venture-backed companies in Asia raised a total of $7.4 billion through 343 investment deals in Q2 of this year, reports Deal Street Asia. China outperformed the rest of the region. The amount raised accounts for approximately 25% of the VC funded deals globally, which stood at $27.4 billion from the same period. Irene Chu, Partner and Head of High Growth Tech and Innovation Group at KPMG, Hong Kong, comments,
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.
Investors seem to be becoming more selective and increasingly focused on the core fundamentals of the company. Divided by stage, the proportion of early-stage deals in Asia rose to a 5 quarter high of 39% in Q2 of 2016, up from 33% from Q1. However, the share of most other stages fell, which dropped from 27% in Q1 to 21% in Q2.
Late stage deals from companies such as Didi Chuxing and Tokopedia gave boost to the average figure of Q2 to $100 million. Which means that bigger startups received more favorable funding rounds.
34% of the investments were made by corporate venture capital arms, such as Alibaba, Tencent, Baidu and Rakuten.
However, corporate investors are being more cautious with their investments, only investing in those that show clear strategic value add to their organization. The top VC firms in the region were Blume Ventures, 500 Startups and Sequoia Capital.
China’s investment performance vs Southeast Asia
China topped Asia in funding value with $5.6 billion for 74 deals – among the 10 biggest funding rounds to Asian startups, nine out of ten happened to be Chinese firms. Although investment edged over Q1, it is still far from the peak of 136 deals in Q3-2015. This is partly due to stiffer exit climate as Chinese regulators intensify scrutiny of potential IPO filings.
Southeast Asia is also witnessing a downturn in the number of deals over the last two quarters.
Singapore topped the region in terms of deal count, with 15 deals at $54.6 million, followed by Indonesia with 13 deals at $158.3 million.
Series E financing round for Indonesian based Tokopedia alone accounted for $147 million, which makes the total number appear slightly less sunny. Other major deals in the region were $30 million series B funding to logistics startup Ninja Van. This cements Singapore as the Southeast Asian ecommerce leader, with Indonesia still showing the most potential among the emerging markets.
In general, VC investment has cooled down in Asia as the return on investment, eroded by a potential interest rate increase in the US, is no longer as lucrative. Investors in Asia are predicted to remain cautious over the next quarter due to several economic certainties. However, sectors such as insurance tech and healthcare are predicted to have promising growth rate as investment increased over the last three quarters.
A version of this appeared in Deal Street Asia on July 20. Read the full version here.