Venture Capital Deals in Asia Lead the Way

An increase in venture capital activity in Asia topped a record in the second quarter of 2017, with a total of $47 billion (£35 billion) in deals announced. The record sums spent are representative of what financial experts and investors such as Henner Diekmann have seen in 2017: almost half of global venture capital deal value is in Asia. Mr. Diekmann is a partner at Diekmann Associates, a law firm that offers guidance and advice on company setups, corporate structures and contracts in Southern Africa.

Since 2013, Asia's rise in venture capital dealmaking has been on a consistent rise, with the majority of the deals occurring in Greater China. According to a report by Preqin Private Equity & Venture Capital, transactions in China accounted for $28 billion (£21 billion) of the total deal value, with India coming second ($6 billion/£4.5 billion). Within the southeast region of the continent, a large proportion of deals happened in Singapore, while the largest proportion of deal value happened in Indonesia.

Over the years, Asia has seen a steady rise in the number and value of venture capitals deals. Activity in Greater China has largely spurred this growth, as some companies have become prominent entities on the same level as firms backed by venture capital in the United States. This growth speaks to the rise of several economies in the region, which provides an avenue for investment opportunities by venture capital firms.

As much as the dealmaking is good news for Asia's economic growth, the excitement has not been matched in other areas of the venture capital industry, notably the exit and fundraising sectors. Slow fundraising activity means less capital goes to venture capital managers for acquisitions, while slow movement in exits means these managers are unable to dissociate from their holdings. For Asia's VC industry to thrive, it's going to require robust activity on all fronts.

An Inside Look

Approximately 200 funds are raising capital for investment opportunities in the region, with the China State-Owned Venture Investment Fund among them. The fund has a target of about $29 billion (£21.97 billion), and if successful, could become the largest venture capital fund ever. Activity in Greater China is beginning to rival that of Silicon Valley in the US and could enable the country to become the centre of venture capital activity. The Chinese government's encouragement of entrepreneurship by providing financing is helping reinforce this message.

In early 2017, 183 funds with a focus on Asia had a target of raising $56 billion (£42 billion) in venture capital, nearly triple the amount funds had aimed for at the beginning of 2016.

China's Role

China's prominent role in the growth of venture capital dealmaking in Asia is not by accident. In 2016, investments from venture capital firms reached more than $31 billion (£23 billion) as investors eyed an increasing number of innovative ideas. Venture capitalists located in Beijing invested more than half of the total amount, with the popular sectors being artificial intelligence, big data, and robotics. There was also a continued interest in healthcare, fintech (financial technology) and education.

This strong performance in venture capital investment was driven by a number of big-deals, including Alibaba's affiliate Ant Financial funding round that reached $4.5 billion (£3.39 billion) in April 2016. Additionally, provincial governments got in on the action, with many provinces starting to invest in companies. The Hubei provincial government, for example, armed itself with $81 billion (£60 billion) to invest in venture capital companies such as CBC Capital and Sequoia Capital LLP.

Across the country, local governments are keen to invest as they seek to modernise the economy and spur the development of sectors such as biotechnology, fintech and online solutions, to reduce the dependence on heavy industries for jobs creation and growth.