Records are made to be broken. In the private equity and venture capital spaces this seems to be a global theme in 2018. 2017 saw an unprecedented amount of capital raised in the private equity space (at US$453 billion) and projections indicate that venture deal and dollar volumes will surpass dot-com records. However, in Asia, records aren’t simply being broken — they are being shattered. Global private equity and venture capital financing grew by 11.5 percent globally in 2017. But in Asia, at 37.6 percent that rate is more than tripled. [1] And that remarkable statistic is only the tip of the iceberg.
Greater China continues to be the source of much of Asia’s momentum. As at September 2018, of an estimated 101 PE and VC raises in the Asia region, 56 were completed by managers based in Greater China, accounting for just under three quarters of dry powder raised. [2]
Although in Greater China, the number of venture capital deals completed increased year on year by only around 3.4 percent, its share of the global market increased to 24 percent, placing Greater China second only to North America, where deal flow share decreased to 39 percent (well below its 58 percent historical average from 2007 to 2016). [3]
The above statistics demonstrate a particularly strong year for China if considered in the context of global data which shows that in 2017 there were 7 percent fewer venture deals completed as compared to the prior year. [4]
The numbers are similar when looking at how funds have been deployed. In the second quarter of 2018, for example, Chinese startups accounted for around 17 percent of all venture funding rounds globally, while taking in around 47 percent of total dollar volume (compared with 40 percent and 34 percent in the US, respectively). Greater China has clearly been a preferred destination for private equity and venture capital money.
The data coming out of Southeast Asian financial hub, Singapore, is equally if not more impressive. According to the Singapore Venture Capital & Private Equity Association, PE and VC funding into Southeast Asia almost tripled in 2017.
Much of that volume can be attributed to massive deals such as the US$12 billion Global Logistic Properties Limited transaction and the US$2 billion raised by Grab Holdings. However, the concentration of investment does not detract from the overall vibrancy of the Southeast Asian market.
Investments in start-ups in Southeast Asia also more than doubled in 2017. [5] And although Singapore and Indonesia continue to garner over 90 percent of the PE and VC deal value in the Southeast Asia region, other pockets continue to perform, with destinations like Vietnam more than tripling the amount of private equity and venture capital investment it attracted in 2017 (compared with 2015). [6]
Japan is no exception to the Asian phenomenon of strong growth. “Venture capital used to be the ‘ugly duckling’ of private equity in Japan”, according to James Riney, head of startup accelerator 500 Startups Japan. However, the success of home grown unicorns such as Mercari (valued, pre-IPO at over US$1 billion), massive amounts of dry powder allocated to PE by the likes of GPIF (the world’s largest pension fund) and Japan Post, coupled with the effects of Abenomics and government policies such as the J-startup program, seem to have caused a paradigm shift in the land of the Rising Sun.
Compared to 2016, 30 percent more funds closed in Japan in 2017. [7] Furthermore, in 2017, Japanese start ups raised US$2.5 billion — 4.5 times the amount raised in 2012with aggregate deal value in 2017 more than doubling from 2016 figures. [8] However, more startling, corporate venture spending in Japan reaching a record Y70.9 billion in 2017 (almost 60 times greater than the investment levels in 2011). In the eyes of at least one Tokyo based private equity fund manager, the upward trend is far from over, telling Private Equity International, “The first golden era of Japanese private equity is about to begin”.
It should be noted that the growth of the venture space in Asia does not seem to be part of a global trend towards emerging markets either. According to Preqin, the perception that emerging markets present the best global opportunities has stayed flat at 18 percent. [9] Furthermore, 91 percent of all capital secured for investment in emerging markets in 2018 (as at May) will target emerging Asia (up from 74 percent in 2013). [10] This indicates that emerging Asia is the darling of the emerging markets.
Interestingly, it is not only the data about fund raises and deal volumes that make Asia stand out this year. 2017 and 2018 witnessed the emergence of Asian investors leading the charge in many venture investment rounds. 30 percent of the lead investors identified by Crunchbase in Q2 2018 are based in China. Those investors lead 24 percent of deals. Similarly, in early stage investments, five of 14 lead investors were China based, leading 38 percent of closed deals.
It should be noted that these figures exclude the largest Asia based allocators in the private equity: Singapore’s GIC, China Investment Corporation, Hong Kong Monetary Authority, Korea’s National Pension Service, and China Life Insurance, each of which have current allocations to private equity of between US$9 and US$39 billion. [11]
Naysayers may argue that some of the venture capital data is misleading: skewed by the fact that “gradually, the lines are blurring between venture capital and private equity“, and massive single raises such as the US$14 billion Series C round of Ant Financial. However, when viewed in the whole, we consider that the data is compelling and the conclusion is self-evident: that PE and VC in Asia has had a record year.
If you would like any further information about the above please contact us and we would be happy to help.
James Gaden
Partner – Hong Kong
T: +852 2596 3433
E: james.gaden@walkersglobal.com
Thomas Granger
Patner – Singapore
T: +65 6603 1694
E: thomas.granger@walkersglobal.com
[1] Singapore Venture Capital & Private Equity Association, Southeast Asia PE & VC: Investment Activity, May 2018
[2] Preqin Special Report: Asian Private Equity and Venture Capital
[3] 2018 Preqin Global Private Equity & Venture Capital Report
[4] 2018 Preqin Global Private Equity & Venture Capital Report
[5] Singapore Venture Capital & Private Equity Association, Southeast Asia PE & VC: Investment Activity, May 2018
[6] Singapore Venture Capital & Private Equity Association, Southeast Asia PE & VC: Investment Activity, May 2018
[7] Preqin Special Report: Asian Private Equity and Venture Capital
[8] Preqin Special Report: Asian Private Equity and Venture Capital
[9] Preqin Special Report: Private Equity In Emerging Markets, May 2018
[10] Preqin Special Report: Private Equity In Emerging Markets, May 2018
[11] Preqin Special Report: Asian Private Equity and Venture Capital
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