ASIA'S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY - October 2018
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ASIA’S VENTURE CAPITAL ECLIPSE:
A PREQIN AND VERTEX VENTURES
STUDY
October 2018
|
CONTENTS
4 A WO RD F ROM 2 4 A S IA N V E NT U R E
P REQI N ’ S CEO C A P IT A L F U ND
M A NA G E R A C T IV IT Y
5 AT A G LA N CE
2 5 C A N S O U T H E A S T A S IA
6 A WO RD F ROM VER T E X
E M U L A T E C H INA ?
VEN TU RES’ C EO
3 1 IN FO C U S : A S E A N
8 CH I N A : I N N O VA TI VE
FU TU RE 3 2 A S IA N V E NT U R E
C A P IT A L P E R F O R M A NC E
13 I N F O C U S: G REA TER
CH I N A 3 3 IN FO C U S : NO R T H E A S T
A S IA
14 VEN TU RE CA P I TA L
FU N D RA I SI N G I N A S IA 3 4 A S IA N V E NT U R E
C A P IT A L D E A L S
17 I N D I A : TH E G ROWI NG
EN TERP RI SE MA RK E T 4 2 INV E S T O R S
23 I N F O C U S: SOU TH A S IA
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responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Asia’s Venture Capital Eclipse: A Preqin
and Vertex Ventures Study, October 2018. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to
confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in
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Preqin and Vertex Ventures Study, October 2018 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.
| 1
ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY
A WORD FROM PREQIN’S CEO
W
elcome to our new report, “Asia’s
Venture Capital Eclipse: A Preqin
and Vertex Ventures Study”, that
we are proud to present alongside
our partners in the project, Vertex
Ventures, a leading global venture capital investor,
and part of Singapore’s Temasek group.
‘Eclipse’ is a strong word, but it has been chosen
carefully. We are all accustomed to using superlatives
when describing the scale and pace of growth in
MARK O’HARE
Asia-Pacific economies, and nowhere is this more
evident than in the venture capital industry: Asia-
CEO, Preqin
focused venture capital assets under management
have more than doubled since December 2014 An important aspect of venture capital in Asia is the
($88bn in 2014 vs. $221bn in 2017), highlighting extent to which investors from around the globe are
the remarkable growth in the industry, which now participating in the opportunity. Asia-based investors
rivals that of the US for its scale and diversity. This account for approximately 28% of the interest that
investment has driven significant success: according Preqin has seen in Asian venture capital, but North
to the Global Startup Ecosystem Report 2018, about America leads with 53% of all investor interest in
one in three unicorns globally now come from China, Asia, while Europe accounts for a further 15%. The
comparing favourably with 41% in the US. market opportunities and the portfolio companies
may be Asian, but the investment opportunities are
The pace of growth may have taken many by truly global, and they are benefitting all investors.
surprise, but with hindsight it was entirely to
be expected. The industry’s growth reflects the This connectedness runs through the entire venture
confluence of several factors: rapid economic capital ecosystem, and many leading players have
growth, young and well-educated populations, high positioned themselves to maximum advantage –
levels of online activity (800 million internet users firms like Vertex Ventures that operate as a network
in China), distinct regional and local nuances to of venture firms focused on their individual regional
peoples’ habits and requirements, and an astute markets within Asia, but benefit from the network
global ecosystem of investors capable of spotting the advantages of being local in many places.
opportunities that this brings.
It is a very exciting – and challenging! – time to be
The result is a vibrant venture capital ecosystem at the forefront of venture capital investing in Asia.
capable of driving innovation at pace and scale; Preqin is committed to investing in our research
Preqin’s online platform now tracks over 2,600 and product to bring you the best possible data to
‘institutional-quality’ venture capital firms in Asia. help you chart your course through the exciting
Although China accounts for the largest portion of opportunities ahead. Together with Vertex Ventures
these firms, significant clusters of venture capital we hope that you will find this study and report to be
activity also exist throughout Asia. The dynamics of a helpful guide.
each sub-region differ, and the following pages delve
into some of the details. Happy investing!
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AT A GLANCE
Location of Asia-Based Venture Capital Fund Managers and Institutional Investors
1,063
255 84 73 110 137
South Japan
China Korea
134 74
45 42
India Hong Kong
65 36
Singapore
Fund Managers
Investors
Source: Preqin Pro
| 5
ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY
A WORD FROM VERTEX
VENTURES’ CEO
V
ertex Ventures was started with the keen
sense that technologies would be a critical
differentiator in an increasingly competitive
world. More than ever, accelerating
technological advances and innovation will
bring even greater disruptions to economies and the
world.
Focused on our mission to seek out promising
disruptive, transformational leaders from around the CHUA KEE LOCK
world and nurturing them into prospective global
champions, Vertex today is organized as a global CEO, Vertex Holdings
network of independently managed and localized Managing Partner, Vertex Ventures SEA & India
VC funds. Our global VC franchise comprises four
early-stage, IT-focused funds across China, Israel,
the US, Southeast Asia and India, as well as a global representing an impressive array of investor-
healthcare fund. Vertex also has a growth-stage- operator competencies and experience.
focused fund that looks at follow-on opportunities
from its portfolio of early-stage companies. We are proud to have built many great technology
companies that improve people’s lives and transform
At Vertex, we believe that innovation comes from all businesses. If we look to the answer as to why
over the world, requiring in-depth, local knowledge we have achieved so much over the years, it was
and networks to access the best investment because we unleashed the energy and individual
opportunities. At the same time, markets for genius of entrepreneurs driven by the sole objective
innovative products and services are global. Our of identifying, investing and supporting global
global-local structure enables our professional, champions. In doing so, we have also delivered
localized investment teams to be deeply connected outsized returns to our investors.
with the innovation markets and ecosystems they
operate in. This is important from both deal-sourcing Building on the foundations of our unique parentage
or portfolio-support perspectives, while having the and support from Temasek, deep operating
unique advantage of proprietary support from the experience and credible track record, Vertex is
global Vertex network. Across Vertex today, we have looking ahead towards building a differentiated and
a deep, global bench of over 40 VC professionals, enduring Global Venture Capital Platform.
6 ©Preqin Ltd. | www.preqin.comASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY
CHINA: INNOVATIVE FUTURE
How has China’s tech landscape evolved over the
years and how do you see it developing?
Over the years, China’s vast population has shown
a willingness to embrace new technologies.
Smartphone shipments have increased from 212
million in 2012 to 468 million in 2017. The Chinese
also use online services for gaming, social media
and shopping, registering online sales of $650bn,
spawning a $22bn online gaming industry as well
as increased social media use – as evidenced by
WeChat’s monthly active users rising from 100 TAY CHOON CHONG
million in 2012 to over 1 billion in early 2018.
Managing Partner, Vertex Ventures China
China is also one of the world’s leading players in
digital payments, with mobile payments exceeding sustain that advantage – giving it a fair chance of
$12tn for the first 10 months of 2017, nearly 40% surpassing the rest of the world in innovation.
more than 2016. In urban areas, China has practically
gone cashless. What do you think is unique about China’s
innovation model?
In 2000, there were less than 10 million internet China has a vibrant ecosystem with no shortage of
users in China, now there are 800 million internet funding. It also has a rising middle class that is open
users. The market has grown over 80x. Its market to new business models, services and products like
potential is at least 5x larger than that of the US; DJI’s drones.
if China has not overtaken the US, it is certainly
catching up fast. As a “bicycle kingdom”, most people in China are
used to commuting by cycling. We wondered if a
Today, we are observing the next wave of innovation more convenient and affordable bike-sharing service
in China. With a large, tech-savvy domestic market, could be made available in China. This was why we
China is an ideal place to experiment with new began looking out for promising bike-sharing start-
innovations (e.g. bike sharing, products/services ups and invested in Mobike in 2016. Today, Mobike is
for the middle class and mobile internet). There a symbol of China’s innovative transformation which
are many innovation opportunities for start-ups, can be found in more than 200 cities, offering first-
particularly in retail, healthcare and transportation. and last-mile solutions to everyone.
For example, Invented-in-China brands, robots and
AI are fertile breeding grounds for China’s next How does China compare to other start-up
unicorns. ecosystems?
An area of distinction is its ascendancy as a global
With local support and policies attracting talent back AI hub. In fact, China has plans to create a $150bn
home, China offers a larger domestic market with the AI industry by 2030. According to CB Insights, of the
latitude for innovation, sustainable growth and more $15bn invested in AI start-ups globally in 2017, about
space for unicorns to grow. Chinese entrepreneurial half went to China. For the first time, China’s AI start-
drive is impressive, and this will allow China to ups surpassed those in the US in terms of funding.
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The entrepreneurial culture in China has gradually shifted from “Made in
China” to “Invented in China”.
While the US still has more AI start-ups than China, What are the domestic industries that are
the gap is closing. particularly exciting?
We spend most of our time looking for potential
China is also home to some of the world’s largest investments in AI, deep tech and consumption
high-tech companies like Huawei, Tencent, BYD, upgrade opportunities.
Gionee, Konka, TP-Link, TCL and OnePlus. These
companies are major contributors to R&D in China AI: The Chinese Government positioned AI as a
and have substantially upped their budgets in recent strategic priority and laid out a development plan
years. Huawei has already surpassed Apple, Oracle in 2017, aiming to become the world leader in the
and Facebook in its R&D investments. field. For instance, the City of Beijing plans to build
a $2.1bn AI development park in the city’s western
According to the Global Startup Ecosystem Report region that will house up to 400 AI enterprises. Just
2018, only 14% of current unicorns originated in last year, local investment was soaring with 7.3% of
China in 2014. Today, about one in three unicorns all local VC investment going into AI, big data and
come from China, comparing favourably to 41% in analytics start-ups.
the US. Beijing boasts of 40 unicorns, second only to
Silicon Valley, while Shanghai is home to 21 unicorns Founded in 2012, ByteDance, a popular Beijing AI
and counting. start-up famed for its personalized news aggregator
app Toutiao, is now planning for an IPO. Chinese
In addition to having more billion-dollar companies, citizens seem to be embracing AI with similar
China has also seen an increase in patents, especially enthusiasm, using facial recognition technology for
in the AI and blockchain sectors. While the US payment authentication. Machine learning requires
still has more venture capital investment in these a lot of data to achieve accurate results. China has
sectors, China has surpassed in terms of patent abundant data streams, with the majority of its 1.4
applications, with 4x as many AI-related patents and billion population online daily.
3x as many blockchain- and crypto-related patents
as of 2017. Facial recognition technology in China is now one
of the most advanced in the world because of its
The entrepreneurial culture in China has gradually massive training datasets. SenseTime and Face++ are
shifted from “Made in China” to “Invented in China”. the leading facial recognition technology companies
Mobike is an example of China’s many innovative in China. Both started only a few years ago and
design products – combining GPS, IoT chips, solar have now already received more than $1bn each
panel, air-free tyres, chainless, aircraft-quality from investors. Besides facial recognition, China is
aluminum and mobile payments. Millions of orange- applying AI to healthcare, self-driving cars, traffic
hued dockless bikes have been deployed around the management and various smart city applications.
world.
Our portfolio company, Horizon Robotics, is a case
China has its own factories, and now also owns in point. Horizon uses a proprietary Gaussian-
technologies, talents, strong spending power and architecture and embedded AI computer vision
unique consumption habits. This is expected to processors that power smart cars and smart
be the flywheel driving more innovative concepts, cameras, providing a complete solution including
models and technologies. algorithm, chipset and cloud. It has raised more than
| 9ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY
$100mn in Series A+ led by Intel Capital in December Yunyinggu develops new display technologies that
2017. can significantly improve the performance of flat
panel displays. Its proprietary solution is the world’s
In the education sector, almost 90 million Chinese best in achieving high PPI (pixel per inch) and can
citizens educated themselves online in 2016. The be applied to all kinds of flat panels such as LCD,
Chinese online education market is expected to grow LED, OLED and others. Smarter Micro is a fabless
to some 240 million users and a total value of $64bn semiconductor company that designs, develops and
by 2021. China’s leading internet giants – Baidu, provides MMIC, RF and Analog IC. The company’s
Alibaba and Tencent – have all invested heavily in product portfolio currently includes Gain block, GPA,
online education. AI is tested in Chinese schools. One Switch, Power Amplifier, Mixer etc.
in four Chinese schools were experimenting with
computer software using deep learning to evaluate Consumption Upgrade: The rise of the middle class,
students’ work. It is estimated that 60,000 schools different spending habits of a younger generation
are testing the technology. A beneficiary of this trend and the proliferation of social media platforms are
is XueBaJun – our portfolio company specializing in expected to spur the growth of Invented-in-China
the development of mobile online solutions to assist brands.
K12 students in their homework using deep-learning
technology. In recent years, consumers have turned to buying
more quality products. Many new local brands have
Deep Tech: There are also significant deep-tech well-designed products that have been elevated
opportunities in China. In advanced manufacturing to leading consumer brands by multi-channel
and robotics, China is a rising world-leader. The marketing like online media, WeChat, domestic
country employs the highest number of industrial movies and TV shows.
robots in the world and is home to two of the four
unicorns in the advanced manufacturing sub-sectors: We believe there are significant opportunities for
UBTECH Robotics and DJI. According to Inc, Shenzhen new brands in each consumer segment in China that
is the electronics manufacturing hub of the world, meet the unique consumer needs and preferences
making 90% of the world’s electronics. of a particular segment. For example, Loho is
an online-to-offline spectacles brand owner and
Riding this trend, we invested in Geek+, a start-up distributor. Neiwai designs comfortable and natural
offering advanced robotics and AI for logistics and innerwear that promotes health and wellbeing. 73
warehouse automation solutions. Geek+ robots hours designs and sells high heels that are entry-
have been deployed in DKSH, SF Express, Tmall level luxury – past the point of being basic or cheap,
and Suning’s warehouses. We also invested in but within the purchasing power of China’s middle
SolidEnergy which is a battery technology company class. Though it is not technology based per se, this
that manufactures the world’s lightest rechargeable segment clearly has significant potential.
cells. They supply these to large Li-ion cell
manufacturers to be integrated with a separator and Do you think there is too much liquidity in China
cathode into fuel cells which can be customized for chasing a few selected start-ups, leading to
drones, consumer electronics and electric vehicles. excessive valuations?
Now its products have been sold to many large Overall, valuations do not appear unreasonable. At
companies in China and the US. a micro level, one should consider valuations in the
context of the start-up’s potential over the longer
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We believe there are significant opportunities for new brands in each
consumer segment in China that meet the unique consumer needs and
preferences of a particular segment.
term. And China has start-ups with outstanding solution providers at the bottom, robotics body
prospects. From a market viewpoint, there is also manufacturers at the mid-tier and the core
ample liquidity and exits to support valuations. component manufacturers at the top. Based on
our research, we thought that the top- and mid-
As an early-stage investor, valuing a start-up takes tier components produced in China still lagged
more than simply benchmarking comparable behind other countries. Therefore, we decided to
companies at the same stage; it also requires a clear start from the bottom tier by investing in ioranges.
understanding of the start-up’s business model, By the time 3C manufacturing robotic applications
addressable market, growth potential and barriers to took off in 2017, ioranges had accumulated many
entry etc. early successes, gaining recognition from leading
customers and achieving significant business growth.
For example, when we invested in Mobike in 2016,
its valuation was in the tens of millions of US dollars China imported $227bn worth of integrated circuits
– deemed relatively expensive then. However, we in 2016, more than for imports of crude oil, iron ore
invested based on a conviction in its technology and and primary plastics combined. This weakness has
market potential. When Meituan Dianping acquired become more apparent in the recent ban on ZTE. We
Mobike recently, we exited at a valuation of $2.7bn. realized the importance of own-chip development
technologies and products many years ago. Since
How do you stay ahead of the herd when it 2003, we have been investing in semiconductor chip
comes to investing in the next big thing? design and manufacturing companies. For example,
As a VC, when it comes to investing, we need to we invested in Horizon Robotics; its core technology
adopt a long-term view of the actual pain-points that is the AI algorithm and the self-designed chip that
need to be addressed and their second-order effects. can maximize algorithm performance, while reducing
cost and power consumption. We also invested in
For instance, in 2015, most VCs in China did not pay Ancsonic, which is an active noise cancellation (ANC)
attention to smart manufacturing. We observed that solution provider. Ancsonic develops their own
it was getting harder for large factories like Foxconn, chipsets to ensure the security of the algorithm and
Quanta and Jabil to recruit, having to increase their for cost control.
recruitment budgets dramatically every year during
peak season. These examples reflect our investment thinking
and why it is important not to get caught up in fads.
So we began focusing on smart manufacturing, Importantly, how we can stay ahead of the curve is
especially industrial robotics. This industry can by investing in start-ups that are focused on solving
be divided into three layers: the lowest-level real pain-points.
| 11ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY
Comparison of Vertex Ventures China Funds vs. Greater China-Focused Venture Capital Funds (Vintage 2007-2015)
45
41
40
35
30
Net IRR (%)
25
20 Top Quartile: 20.9
20
Median: 16.7
15
10
5
0
Vertex Ventures China I (2008 Vintage) Vertex Ventures China II (2013 Vintage)
Source: Preqin Pro
ABOUT THE AUTHOR
Mr. Tay Choon Chong joined Vertex in 2009. Prior to joining Vertex, he was the Senior VP of GIC based in
Beijing, China, from 2007 to 2009. Prior to that, Choon Chong was the Senior VP of ST Aerospace responsible
for its Component Aviation Service Division. From 2000 to 2005, he headed Fortune VC Singapore and covers
VC investment in China and Singapore. Choon Chong graduated from Imperial College with BEng in Electrical
Engineering and from Stanford University with MSc in Electrical Engineering.
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IN FOCUS: GREATER CHINA
China, Hong Kong, Macau and Taiwan
Fig. 1: Annual Greater China-Based Venture Capital Fundraising, 2010 - 2018 YTD (As at July 2018)
400 25
Aggregate Capital Raised ($bn)
350
20.8 20.9 20
300 18.8
No. of Funds Closed
250 15.0 15
200 13.7
11.6 352
150 285 10
7.8 210 7.7
100 157 173
152 129 4.0 152 5
50
31
0 7 8 8 6 6 10 4 6 3 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD
Year of Final Close
No. of Funds Closed (Rest of Greater China) No. of Funds Closed (China) Aggregate Capital Raised ($bn)
Source: Preqin Pro
Fig. 2: 10 Largest Greater China-Based Venture Capital Fund Managers by Aggregate Capital Raised in the Last 10 Years
(As at July 2018)
Firm Headquarters Total Funds Raised in Last 10 Years ($bn)
China Reform Fund Management Beijing, China 20.2
YF Capital Shanghai, China 5.3
Shanghai Integrated Circuit Investment Fund Shanghai, China 4.4
Shanghai DOBE Cultural & Creative Industry
Shanghai, China 4.2
Development
Legend Capital Beijing, China 4.1
IDG Capital Beijing, China 4.0
Qiming Venture Partners Shanghai, China 3.7
Nanjing Zijin Investment Nanjing. China 3.2
Shunwei Capital Partners Beijing, China 2.9
Baidu Capital Beijing, China 2.7
Source: Preqin Pro
| 13ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY
VENTURE CAPITAL
FUNDRAISING IN ASIA
T
wo hundred and fifty-one Asia-focused capital market, but rather highlights the fact that
venture capital funds reached a final close many large fund managers are now actively investing
in 2017, securing $20bn in aggregate capital, their capital rather than raising it. It is perhaps
down from the fundraising peak of $28bn in unsurprising that China-focused funds closed make
2016 (Fig. 3). With aggregate capital targeted up the majority of aggregate capital raised in 2017:
standing at a record $67bn in July 2017 (Fig. 6), 74% ($15bn) of all Asia-focused aggregate capital
and 68% of all Asia-focused funds closed meeting raised by funds closed in 2017 is targeting China (Fig.
or exceeding their targets in the same year (Fig. 9), and seven of the 10 largest funds closed in the
4), the decline in aggregate capital raised does not past 10 years predominantly target the country for
necessarily indicate a slowdown in the Asian venture venture capital opportunities.
Fig. 3: Annual Asia-Focused Venture Capital Fundraising, 2006 - 2018 YTD (As at July 2018)
500 28.1 30
24.1
Aggregate
AggregateCapital
400 22.7 25
20.4
No. of Funds Closed
18.8 20
300 15.9
CapitalRaised
12.0 15
10.0 11.6 460 11.0
200 374
7.7 10
Raised($bn)
6.7 5.7 290 262
100 234 239 217 251
144 67 5
127 131
($bn)
104
0 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD
Year of Final Close
No. of Funds Closed Aggregate Capital Raised ($bn)
Source: Preqin Pro
Fig. 4: Fundraising Success of Asia-Focused Venture Capital Funds, 2006 - 2018 YTD (As at July 2018)
100%
17% 17% 26% 18% 25%
27% 27% 30% 31% 29%
Proportion of Funds Closed
80% 36% 38%
47%
60% 48% 38%
58% 33% 38% 30%
42% 43%
33% 48% 51%
40% 42%
53% 44%
20% 35% 41% 35% 40%
30% 30% 25% 31%
20% 20% 19%
0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD
Year of Final Close
Below Target Met Target Exceeded Target
Source: Preqin Pro
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Fig. 5: Average Time Spent in Market by Asia-Focused
Venture Capital Funds Closed, 2006 - 2018 YTD Fig. 6: Asia-Focused Venture Capital Funds in Market
(As at July 2018) over Time, 2013 - 2018
20 18.5 18.8 600 66.5 70
17.1 17.0 60.1
Aggregate Capital Targeted ($bn)
Average Time Spent on Road
15.3 15.6 500 60
15 14.5 14.8
13.1
No. of Funds Raising
12.2 11.9 12.1 50
400
(Months)
10 40
8.3 300
517 30
5 200 19.3
13.9 20
100 7.2 9.6
150 188 10
0 60 84 102
0 0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018 YTD
Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
No. of Funds Raising Aggregate Capital Targeted ($bn)
Year of Final Close
Source: Preqin Pro Source: Preqin Pro
Fig. 7: Annual ASEAN-Focused Venture Capital Fig. 8: Annual India-Focused Venture Capital
Fundraising, 2006 - 2018 YTD (As at July 2018) Fundraising, 2006 - 2018 YTD (As at July 2018)
Aggregate Capital Raised ($bn)
Aggregate Capital Raised ($mn)
12 800 30 2.5
10 700 25 2.0
No. of Funds Closed
No. of Funds Closed
600
8 500 20
1.5
6 400 15
4 300 1.0
10
200
2 5 0.5
100
0 0 0 0.0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018 YTD
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018 YTD
Year of Final Close Year of Final Close
No. of Funds Closed Aggregate Capital Raised ($mn) No. of Funds Closed Aggregate Capital Raised ($bn)
Source: Preqin Pro Source: Preqin Pro
Fig. 9: Annual China-Focused Venture Capital Fundraising, 2006 - 2018 YTD (As at July 2018)
400 357 25
23.1
Aggregate Capital Raised ($bn)
350 21.2
292 20
300
No. of Funds Closed
18.1
250 220 14.9 15.0 15
200 166 11.6 177
159 160
150 7.9 134 10
9.0
4.2 80 7.6
100 2.2 67
46 4.6 5
50 22 32
2.8
0 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD
Year of Final Close
No. of Funds Closed Aggregate Capital Raised ($bn)
Source: Preqin Pro
| 15ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY
Fig. 10: Largest Asia-Focused Venture Capital Funds Closed, 2006 - 2018 YTD (As at July 2018)
Fund Size Final Close
Fund Firm Vintage (bn) Fund Type Date
China Integrated Circuit Industry
SINO-IC Capital 2014 138.7 CNY Growth Dec-14
Investment Fund
Shanghai Integrated Circuit Investment Shanghai Integrated Circuit Venture Capital
2016 28.5 CNY Apr-16
Fund Investment Fund (General)
Shenzhen Zhaoshang Guoxie
Shenzhen Guoxie I Equity Investment
I Equity Investment Fund 2017 30.0 CNY Growth Dec-16
Fund Partnership
Management
Shanghai Municipal Creative (Design) Shanghai DOBE Cultural & Creative Venture Capital
2011 26.9 CNY Aug-11
Industrial Investment Fund Industry Development (General)
Hillhouse Fund III Hillhouse Capital Management 2016 4.2 USD Growth Feb-16
Beijing Zhongjiao Jianxin Equity
CCCC lndustrial Fund Management 2014 20.0 CNY Growth Dec-14
Investment Fund
Nanjing Jianning Zijin Equity Investment Venture Capital
Nanjing Zijin Investment 2012 3.2 USD Mar-12
Fund I (General)
Inventis Investment Holdings
Inventis China Growth USD Fund V 2010 3.0 USD Growth Sep-10
(China)
Zhongjieneng Seasalt Green
Development Industry Investment CECEP Huayu Fund Management 2017 3.0 USD Growth Feb-17
Center
Actis Emerging Markets 3 Actis 2007 2.9 USD Balanced Dec-08
Source: Preqin Pro
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INDIA: THE GROWING
ENTERPRISE MARKET
How have market conditions in India changed
over the years and how has Vertex adapted to
the changing environment?
There has been significant growth in the Indian
startup base from around 3,000 in 2009 to over
5,000 in 2017. While the US and China are the top
two geographies for number of unicorns, India has
the second highest average unicorn valuation, led
by Flipkart. Several prominent start-ups projecting
tremendous growth stories include Paytm, OLA,
Flipkart, Inmobi and Swiggy. BEN MATHIAS
Exits are also generally positive. The IPO market is Managing Partner, Vertex Ventures
very robust with more than 100 IPOs in India in H1 Southeast Asia & India
2018, with NewGen Software and consumer tech
firm Dixon Technologies having successful local first wave of mortalities in 2015, but you will continue
IPOs. We are also seeing a lot of M&A happening to see companies fail, just as you will continue to see
right now. H1 2017 included more than 50 M&A companies become wildly successful. Venture capital
deals (up 25%), with corporates’ M&A share rising is a high-risk, high-return business.
to about 30%. B2B acquisitions continue to rise,
mostly focused on building tech capabilities (e.g. In the aftermath, many of our VC peers had to
Altran Technologies bought Aricent for $2bn). B2C deal with insider funding rounds or down rounds.
acquisitions are primarily for market expansion (e.g. Although we did not deal with those, we did make a
Walmart’s $16bn acquisition of Flipkart). few investments during that period such as FirstCry
(online store for baby products), XPressBees (last-
While these are good times, there are also mile delivery) and Yatra (online travel firm) that have
challenging parts of the cycle. We were fortunate turned out very well for us. FirstCry is by far the
that we slowed down during 2014 and 2015, when market leader in its category and Yatra is now listed
the markets were overheated. In fact, our CEO, Mr on the NASDAQ.
Chua Kee Lock, told the media then “that it was easy
to raise money as the [2015 Indian] market was hot,” Looking ahead, the Indian Government is aiming to
but had added that “the music would soon stop, create a trillion-dollar economy through its “Digital
and at that time, you should not be caught without India” campaign in the next few years. Close to a
a chair.” Some VCs were upset with his stance then. billion people will come under the digital ecosystem,
They asked him why we were not actively investing in making the scale and opportunity unprecedented
India. But he had been speaking from experience of anywhere else in the world. Many multibillion-dollar
having seen such cycles. companies can be created out of India which will
ride this wave of digital innovation. To prepare for
Anecdotally, for every 10 start-ups a VC fund invests next decade, a new generation of public and private
in, it will typically lose money in five, make modest digital infrastructure in the form of IndiaStack, GST,
returns in three and make great returns in two. So low-cost data etc. is converging in India. We raised
at least half of all start-ups will go through some SEA & India Fund III to capitalize on these emerging
existential challenge in their life. In India, we saw the opportunities.
| 17ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY
It was easy to raise money as the [2015 Indian] market was hot, but
the music would soon stop, and at that time, you should not be caught
without a chair. – Chua Kee Lock, CEO of Vertex Holdings & Managing Partner of Vertex
Ventures Southeast Asia & India
What was the rationale for setting up an SEA & You raised $210mn for your SEA & India Fund III;
India fund instead of a standalone India fund? how much of this will be deployed in India and
We see a lot of similar trends across Southeast over what time?
Asia (SEA) and India, particularly in internet and Nothing is fixed so it will depend on the
fintech businesses. For example, Validus is an SME opportunities we see. We will invest the fund over
digital lending platform across SEA that we invested the next three years and expect to stay in most
in. We had seen similar businesses in India and investments for a 5-7 year timeframe. Compared to
were therefore able to evaluate Validus effectively. Fund I and Fund II, this fund will be much more active
Moreover, SEA is generally the first port of call for in India. We now have a team on the ground in India
Indian companies looking to expand overseas. So to source and support investments here. However,
we are able to open a lot of doors for our Indian we made several investments from Fund I and Fund
companies in SEA. The most efficient way to do this II which have scaled extremely well. For example,
is from Singapore. we invested in FirstCry which has grown to be the
clear market leader in its category. We invested in
We also see many cross-border companies that are HouseJoy from Fund II, along with Amazon.
headquartered in Singapore but have the majority
of operations in India, and the founding team split Have recent policy initiatives helped with
between the two countries. InstaRem is one such deal flow? Any domestic industries that are
example. particularly exciting?
The start-up momentum in India is so strong right
We have invested about $68mn in start-ups in India now that there is not a whole lot needed from the
since 2010. In the next few years, we expect our third government. I do think, however, that the state
SEA & India fund to be very active in India to ride governments need to find ways to encourage
these underlying trends. We are looking to invest entrepreneurs in sectors that may not attract
in early-stage and mid-stage ventures in enterprise overseas venture capital but would have a high
technology, consumer internet/mobile and fintech. impact domestically. For example, business in areas
We like to invest in companies where we can bring like agritech and telehealth could be addressing
more to the table beyond just capital. For example, a large rural Indian market but will have longer
companies that are looking for an SEA expansion gestation periods than most venture capital funds
where we can leverage our significant network in the would look for.
region.
There is no shortage of entrepreneurs in India,
The fund will continue with the same investment and today, the venture capital ecosystem is well
thesis across SEA and India, which primarily means established. The Indian Government should look
Series A deals with follow-on, and some capital to Singapore as a model for how the government
deployed first at Series B stage. In India, we will should encourage entrepreneurship without being
continue to invest across three main themes: interfering. Rather than investing on its own, the
a. Increasing consumer consumption over the government should sponsor venture capital funds
mobile internet; that have a focus on these priority sectors and allow
b. The rapid transition of financial services onto these investors to find the right entrepreneurs to
the digital IndiaStack; back.
c. Cutting-edge enterprise technology being built
in India for the global market.
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That said, India’s government has 56 active policies With mobile broadband user growth, we expect a
that target and support the start-up ecosystem. significant rise in the use of e-commerce services
The “Startup India” initiative that provides funding offered by local startups. There are 1,700+ start-
of $1.5bn over four years to aid start-up funding, ups, having raised $1.1bn in H1 2017.The three
industry academia partnership (e.g. Atal Innovation key players are Walmart-Flipkart, Snapdeal and
Mission) and policy simplification. Shopclues. Vertical aggregators (e.g. Swiggy, OYO,
Coverfox) form c.70% of the deals by funding value
At the same time, there are increasing corporate and number of deals.
initiatives, both Indian and global, focused on
nurturing the start-up ecosystem (e.g. Microsoft and Government initiatives like “Make in India”
Apple have accelerators in Bangalore). have incentivized companies to build top-notch
businesses in India. It is also geared towards
Then there is the Digital India initiative that has improvements in the country’s infrastructure and
helped grow India’s internet population to over increased domestic consumption. Logistics start-
450 million connected citizens and growing in ups gained their foothold with the advent of the
the mid-teens. The low smartphone penetration e-commerce industry. Even players like Flipkart,
remains a major attraction for all device vendors. PayTM and Amazon use third-party logistics services
They are now making serious attempts to address in addition to in-house ones. A number of start-ups
the problem of affordability in India with more have begun tapping other areas to support the
affordable products, resulting in initiatives such as existing supply chain solutions or to fill the gaps in
Android Oreo ‘Go edition’, telco bundling with low- the otherwise fragmented and unorganized Indian
cost 4G smartphones and even the 4G feature phone logistics industry.
JioPhone.
Fintech is another. Foundations are already in place
Since 2014, the cost of a smartphone has dropped for a digitally inclusive economy including the [1]
and this caused internet growth to cross the tipping financial inclusion of non-banked individuals (Jan
point, leading to a lot of capital going into consumer Dhan); [2] unique, universal digital identity for all
internet. Most Indians access the internet via mobile (Aadhaar); [3] smartphone and internet connectivity
devices. The rising use of mobile broadband is (Mobile). There are 736 million Aadhaar-linked bank
speeding up the penetration rate. The cost of data accounts, 1.2 billion Aadhaar numbers registered
has been going down. Jio began charging data fees and 450+ million internet users in India.
for as little as 309 rupees ($5) for 1 GB per day for
three months in April 2017. It now accounts for a India is moving towards a digital age powered by
leading 39% of all broadband subscribers, covering smartphones and the nearly ‘free’ cost of internet
over 80% of the country’s population. connections offered by telcos. Government efforts to
promote a “cashless economy” have shown positive
By 2022, the number of Indian internet users is signs; with the implementation of Universal Payment
expected to double to 850 million with a 90% Interface (UPI) for fund transfers and transactions,
mobile phone penetration. Most of this growth the demonetization move made millions experience
in smartphone usage is from rural areas, where digital payments.
companies are now finding the job of accessing
previously untapped markets much easier and Combined, these moves have contributed to a
extremely promising. marked shift in consumer behaviour – Indians are
| 19ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY
There is no shortage of entrepreneurs in India, and today, the venture
capital ecosystem is well established. The Indian Government should
look to Singapore as a model for how the government should encourage
entrepreneurship without being interfering.
purchasing goods from e-commerce websites, enterprise, we look for companies that have a global
hailing cabs via aggregators, transferring money via opportunity. The founders need to be capable of
PayTM or Google Tez and using their smartphones to selling the product globally and competing against
control more elements of their lives. There has also competitors outside India. Moreover, we should be
been an effort to make digital payments simpler and in a position to help them with our global network.
easier using Quick Response Codes, as introduced by For consumer and fintech, we look for India-oriented
Bharat QR code payments. business models but they need to have good
unit economics. By this we mean low customer
Today, there are over 360 fintech start-ups and acquisition costs, high gross margins and high repeat
this number is growing at c.31%. Key sub-verticals rates.
include P2P lending, wealth management, SME
lending, consumer credit, insurance tech and digital Can you give us examples of investments within
payments. A case in point is Kissht, a financial these sectors?
technology platform which enables instant, seamless We invested in HouseJoy a couple of years ago, along
credit for consumers to make purchases at digital with Amazon. This is a home services marketplace
points of sale. where the consumer is able to use the app to book
services like beauty care, appliance repair, home
Enterprise is another promising segment with 480+ cleaning, AC maintenance etc. They are able to get
start-ups. The cloud has made software flat and gross margins of 30-40% for their services. Moreover,
Indian developers are doing a great job in building the average consumer repeats 4-5 times per year
products that have global relevance. Importantly, because a household constantly has a need for these
a large number of Indian founders are developing service offerings.
skills that enable a global sales mindset. We are
seeing more and more companies that originated On the enterprise front, we invested in CloudCherry
as Indian companies, but have evolved into global (SaaS for Customer Experience Management) earlier
enterprise technology companies. this year. We recognized that the largest opportunity
for the company was in the US. Today, the company
These are in areas as diverse as AI, IOT, DevOps, has moved from an India-centric revenue model to a
digital marketing and CRM. Data analytics/AI is the US- and SEA-centric revenue model. Similarly, Flutura
largest segment and artificial intelligence (AI) is (Industrial IOT Analytics) has built technology where
viewed as one of the most exciting and profitable it can take on GE on a deal and still win. We recently
ventures in the fintech space in India. AI applications announced an investment in Hansel, a mobile-
in data analytics and customer service create first personalization and reconfiguration platform
opportunities for more personalized customer focusing on the user experience (UX) stack. Their
experiences, significantly better insights and technology enables business teams to orchestrate
automation of back-end workflows. A key reason personalized user experiences with enormous speed,
why we invested in Active.AI. at scale, without disrupting tech roadmap, and they
have already got the who’s who of the mobile app
Which kind of tech start-ups are you looking to world in India as their customers.
invest in?
We are actively looking at three sectors: enterprise, In fintech, we invested in Active.AI, which builds
consumer and fintech. However, our criteria AI technology for conversational banking and
to evaluate each of these is very different. For Virtual Personal Assistants for financial consumers
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predominantly in the retail banking and wealth While sentiment was clearly overdone post-2015’s
management spaces. Its solution is in production euphoria, India is developing rapidly and will be a
with several banks in India and SEA. The three good market over the longer term (e.g. Walmart’s
founders have deep domain expertise in banking $16bn acquisition of Flipkart). That said, there are
and are able to impress potential customers instantly challenges for India which will be resolved over
in the first meeting. time – this is not different from China over a decade
ago. Many people today compare China with Silicon
What similarities/differences have you seen Valley – it has so many start-ups, lots of companies
between founding teams in India in the last with unique models. Perhaps the same can be said
decade? of India’s start-up ecosystem evolution in the decade
When I first moved to India over 10 years ago, most ahead.
entrepreneurs came from business families and you
had to deal with a father-son founding team. Today, Today, there are entrepreneurs doing exciting
most founding teams are first-time entrepreneurs things around sectors such as digital lending, IoT
typically in their thirties. Most of them have already (Internet of Things) and enterprise SaaS (software as
had some work experience which they can leverage a service). New sectors will continue to emerge while
for their start-ups. The founders of Flutura, for other sectors will mature. We are already seeing
example, each spent 10 years at MindTree and are many successful companies come out of India that
leveraging the customer relationships they built are fast becoming global leaders in their categories.
there. One notable exception to this is Ashwin Globallogic, MuSigma, Zoho and Freshdesk for
Ramesh from Synup who is in his mid-twenties and example. The level of technology talent in India is so
started the company almost immediately out of tremendous, it is inevitable that we will eventually
college. He has built an incredible SaaS business with produce world leaders.
50,000 customers in the US, with his entire team in
India.
Some firms feel that quality deals are few and
far between in Asia. Does Vertex share the same
sentiment and can the same be said for the
Indian market?
With regards to quality deals, India always has huge
potential given its market size. The main challenge
for us in India is to figure out what companies to
invest in and at sensible valuations. Most times,
valuations are excessive.
| 21ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY
Comparison of Vertex Ventures SEA & India Funds vs. *ASEAN- and *South Asia-Focused Venture Capital Funds (Vintage
2007-2015)
35 32.5
30
Top Quartile: 26.9
25 23.7
Net IRR (%)
20
Median: 15.5
15
10 Bottom Quartile: 8.2
5
0
Vertex Ventures SEA & India I (2010 Vintage) Vertex Ventures SEA & India II (2014 Vintage)
Source: Preqin Pro
*Funds that have a focus on either ASEAN or South Asia, mutually exclusive, excluding Vertex Ventures SEA & India I and II which focus on
both ASEAN and India.
ABOUT THE AUTHOR
Mr. Ben Mathias is Managing Partner of Vertex Ventures Southeast Asia & India, having joined Vertex in 2015.
While his key focus is in India, he is part of the Vertex team covering India and Southeast Asia. Prior to Vertex,
Ben was a partner at New Enterprise Associates (NEA).He held senior positions at E2open and i2 Technologies.
Previously, Ben spent a number of years at PwC Consulting. In his early career, he was at Open Environment
Corporation. Ben received his Master of Science in Engineering Sciences from Dartmouth College and his
Bachelor of Technology from the Indian Institute of Technology, Madras.
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IN FOCUS: SOUTH ASIA
Bangladesh, India, Nepal, Pakistan and Sri Lanka
Fig. 11: Annual South Asia-Based Venture Capital Fundraising, 2010 - 2018 YTD (As at July 2018)
25 1.6
1.3
Aggregate Capital Raised ($bn)
1.4
20
1.2
No. of Funds Closed
1.0
15 0.7 1.0
0.7 0.8
0.7 0.8
10 0.6
0.6
0.3 0.4 16
14 14 23 13 0.4
5 9 9
8 10 0.2
0 0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD
No. of Funds Closed Aggregate Capital Raised ($bn)
Source: Preqin Pro
Fig. 12: 10 Largest South Asia-Based Venture Capital Fund Managers by Aggregate Capital Raised in the Last 10 Years
(As at July 2018)
Firm Headquarters Total Funds Raised in Last 10 Years ($bn)
Nexus Venture Partners Mumbai, India 1.2
Kalaari Capital Bangalore, India 0.6
IDG Ventures India Bangalore, India 0.5
SIDBI Venture Capital Mumbai, India 0.4
Matrix Partners India Bangalore, India 0.4
Vertex Ventures Southeast Asia & India Singapore 0.4
Duke Industries New Delhi, India 0.3
Aavishkaar Venture Management Services Mumbai, India 0.3
Eight Roads Ventures India Mumbai, India 0.3
Ventureast Hyderabad, India 0.2
Source: Preqin Pro
| 23ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY
ASIAN VENTURE CAPITAL
FUND MANAGER ACTIVITY
A
sia-focused venture capital assets under Fig. 13: Number of Asia-Based Venture Capital Fund
management have increased eight-fold Managers by Sub-Region
in 10 years, reaching a record $221bn in
December 2017 (Fig. 14), highlighting the 1,134
sheer impact of technological advancement
and innovation in Asia. Venture capital managers
based in China make up 67% of all Asia-based fund 194
140 109
managers (Fig. 13).
Greater China South Asia ASEAN Northeast Asia
Source: Preqin Pro
Fig. 14: Asia-Focused Venture Capital Assets under Management, 2005 - 2017
250
Assets under Management ($bn)
200
150 149.8
100 109.6
82.4
50 38.6 51.8 64.4
13.5 17.0 33.1 29.8 71.1
6.0 8.2 12.5 29.4 44.3
0 5.7 9.1 15.1 17.6 16.3 17.3 24.1 25.3 23.6 23.7
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dry Powder ($bn) Unrealized Value ($bn)
Source: Preqin Pro
Fig. 15: Venture Capital Fund Managers by Number of Funds Raised Previously and Location
100% 5%
11% 9%
9%
8% 10% 6 or More Funds Raised Previously
80%
34%
Proportion of Firms
26% 32%
60% 4-5 Funds Raised Previously
40% 2-3 Funds Raised Previously
54% 49% 52%
20% 1 Fund Raised Previously
0%
Asia North America Europe
Fund Manager Location
Source: Preqin Pro
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Fig. 16: 10 Largest Asia-Based Venture Capital Fund Managers by Aggregate Capital Raised in the Last 10 Years
(As at August 2018)
Firm Headquarters Total Funds Raised in Last 10 Years ($bn)
SINO-IC Capital Beijing, China 22.6
China Reform Fund Management Beijing, China 20.2
CCT Fund Management Beijing, China 19.6
Inventis Investment Holdings (China) Hong Kong, Hong Kong 12.2
China Merchants Capital Shenzhen, China 12.0
YF Capital Shanghai, China 10.0
CCCC lndustrial Fund Management Beijing, China 9.3
CMB International Capital Management Hong Kong, Hong Kong 8.6
CITIC Private Equity Funds Management Beijing, China 8.5
CDH Investments Beijing, China 7.9
Source: Preqin Pro
Fig. 17: 10 Largest Asia-Based Venture Capital Fund Managers by Estimated Dry Powder (As at August 2018)
Firm Headquarters Estimated Dry Powder ($bn)
CCT Fund Management Beijing, China 10.6
China Reform Fund Management Beijing, China 9.2
China Merchants Capital Shenzhen, China 8.2
CMB International Capital Management Hong Kong, Hong Kong 5.7
SINO-IC Capital Beijing, China 5.1
YF Capital Shanghai, China 4.8
Inventis Investment Holdings (China) Hong Kong, Hong Kong 4.3
CCCC lndustrial Fund Management Beijing, China 4.0
Shandong Hi-speed Investment Fund Management Shandong, China 3.4
China Ministry of Finance Beijing, China 3.3
Source: Preqin Pro
| 25ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY
CAN SOUTHEAST ASIA
EMULATE CHINA?
How have market conditions in Southeast Asia
changed over the years and how has Vertex
adapted to this changing environment?
Over the past decade, there have been three
buzzwords rocking the world: start-up, disruption
and innovation. Everyone wants to be Silicon Valley.
Southeast Asia has also become a hipster – but to
think we want to be like the Bay Area is misguided.
There is another model ecosystem closer to home.
In California’s shadow, China has slowly risen thanks CHUA JOO HOCK
to the grand powers of Baidu, Alibaba and Tencent,
with the fledgling powers of Xiaomi, Didi, Ctrip and Managing Partner, Vertex Ventures
more in tow. And in China’s shadow is Southeast Southeast Asia & India
Asia. With this juxtaposition, it is no wonder the
founders and investors of the region are hoping young investors are chasing after deals rooted in
Southeast Asia will be the next China. overwatched trends and founders are inflating their
prices because there are too many hot investors.
Although everyone knows we operate in a complex
region – with multiple political and cultural issues In tandem with this is the rise of accelerators, co-
along with economies that are oceans apart – working spaces and corporate innovation programs
everyone is holding out hoping that Southeast Asia that underline a fervour and desperation around
will be the next China. Everyone wants us to produce phraseology like start-up, disruption and innovation.
an Alibaba. And indeed, that is how investors and
founders are subconsciously behaving. Southeast ‘Start-up’ is overheating and it is creating hot air
Asia certainly has potential, but does it have the balloons across the ecosystem. Of course, some of
explosive multibillion-dollar juggernauts incoming the chasing is warranted. Some deals are just so
that justify the inflated valuations? hot and the companies have such strong potential
that it is irresistible. But it is important to stick to the
We are seeing similar exuberance in the start-up fundamentals and be disciplined about investment.
market that we saw 6-7 years ago. Back then, there
was a spike in interest and excitement for start-ups. But these are the basic boom-and-bust cycles of
As a result, valuations grew and promises were venture capital. In every cycle we see the same
made. But Southeast Asia does not operate like pattern repeating – investors rush to invest at high
Silicon Valley, where ballooning valuations lead to valuations, then they get burnt because the market
further ballooning. becomes overheated and valuations plunge. The
younger and less experienced investors have a hard
Inflation inevitably leads to down rounds when start- time staying ‘sane’ when money is pouring into
ups are unable to produce the exits their exuberant deals at inflated valuations and they miss the signs
investors wanted. Once in a while, a resilient start-up pointing to an oncoming bubble.
appears and can make an impressive exit or IPO.
The pattern is repeating itself today. Southeast Asia Unfortunately, it appears that being part of a high
is again going through another hype-cycle in which profile deal (albeit at a potentially inflated valuation)
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Venture Capital Investments as a % of GDP
0.40%
Southeast Asia 0.30%
0.18% 0.18%
0.04%
SEA (2014) SEA (2016) India (2016) China (2016) US (2016)
Source: e-Conomy SEA Spotlight 2017 by Google and Temasek
brings lots of media attention. And some investors of China and India. Imagine Silicon Valley companies
crave the visibility amid all the media frenzy. We read that missed out on China and India looking at where
in the media about which firm has completed the the last big markets are left. And that is right here.
most deals and who are the most active investors. It This is an interesting moment in time for Southeast
is the wrong focus. Asia – essentially because investors are now realizing
that it is the only large market left to grow.
Ultimately, a good VC is able to give real returns in
not one but several investments. Venture capitalism That said, Southeast Asia needs to be looked at in
is not about doing many deals in the quickest conjunction with India. This is central to Vertex SEA
possible time; it is about investing and building great & India Fund’s strategy because there are many
companies that can produce outstanding exits and cross-border collaboration opportunities (e.g. Flutura
returns. offering IoT analytics solution to leading industrial
companies in Southeast Asia). There are also many
Currently, Southeast Asia is around 10 years behind Indian entrepreneurs starting their business in
China. It is facing similar issues China faced a decade Southeast Asia (e.g. Socash – a mobile-first cash
ago like difficulties in finding talent and money, circulation platform in Asia, leveraging an offline
with few players, exits and unicorns. But China is merchant network. Active.AI, Validus and Instarem
advancing quickly and Southeast Asia is now an are other notable Singapore-based fintech start-ups
emerging market at an inflexion point. The region with Indian founders). Today, other VCs are imitating
has raked in cumulative funding of almost $9.5bn the Vertex model (i.e. India-specific VC funds
from 2010 to 2017. For VC investments, Southeast adopting Southeast Asia as part of their strategy or
Asia’s $3bn in 2017 looks similar to China’s in 2006. Southeast Asia & India-focused funds).
The corresponding sum for the US then was $30bn.
Today, China’s investment stands at $40bn vs. $70bn Southeast Asian start-ups, especially those based in
for the US. Singapore, now have the most unicorns in Asia after
China. The region is rising and currently home to
Overall, VC investments in Southeast Asian seven unicorns: Grab, Go-Jek, Lazada, Razer, Sea Ltd.
companies signal a strong confidence in the potential (f.k.a. Garena), Traveloka and Tokopedia. Southeast
of Southeast Asia’s digital economy by global and Asia’s decacorn, Grab, raised the region’s largest
regional investors. These investments stood at 0.18% round in 2017 with a $2bn Series G from SoftBank
of Southeast Asia GDP in 2016, up from 0.04% in Group, Didi Chuxing and Toyota, followed by another
2014. Southeast Asia is now on par with India (0.18% $2bn from Toyota, OppenheimerFunds, Ping An
of GDP in 2016) and narrowing the gap with China Capital and other investors in 2018.
(0.30% of GDP in 2016).
Within Southeast Asia, Singapore and Indonesia
In the next decade, Southeast Asia is going to be one continue to figure prominently on investors’ radar,
of the most exciting regions to invest in. If you think with fintech ($3.2bn) and e-commerce ($2.9bn)
about it, it is kind of situated between the two giants attracting the most investments.
| 27You can also read
