Asia sees VC deals decline in fourth quarter, 2019, finds KPMG analysis

Hong Kong saw interest from venture capital (VC) investors during Q4’19, led by a USD 180 million funding raised by data centre construction and engineering company Chayora. Life sciences and TMT sectors remain of interest for VC investors in Hong Kong, according to KPMG’s Venture Pulse Q4’2019 analysis.

The VC market in Asia remained soft in Q4’19. Despite two USD 1 billion deals in the final quarter of the year, deal volume dropped from 1,232 deals in Q3 to 1,021 deals in Q4. On a quarterly basis, VC investment rose slightly to USD 18.7 billion in Q4’19. Year-on-year, the region’s total annual VC investment in 2019 was less than the USD 126 billion seen in 2018.

Egidio Zarrella, Partner and Head of Clients and Innovation, KPMG China, said, “Over the next few months, the word that will characterize the VC market the most will likely be ‘caution’. There’s still a lot of uncertainty in the market. Both companies and VC investors are getting quite fatigued with some of this uncertainty and that could easily impact short-term investment decisions.”

China’s overall VC investment was relatively steady quarter-over-quarter, led by a Q4′19 USD 1 billion funding raised by online housing platform Beike, followed by a USD 400 million funding raised by automotive company Xpeng and a USD 224 million funding raised by fintech WTOIP international.

In Q4’19, B2B companies were of particular interest to VC investors in China, with interest spanning across sectors such as fintech and logistics to companies focused on cloud-based technologies. Alibaba has been particularly active in the B2B cloud space, while Baidu and Tencent have started to make their own inroads, the analysis finds.

B2B services are expected to grow in 2020, particularly in areas such as financial services. VC investors in China are expected to continue to prioritize late-stage deals with a focus on companies with strong business fundamentals.

Philip Ng, Head of Technology, KPMG China, said “Both Chinese companies and VC investors in China are beginning to look globally to achieve growth. Southeast Asia and Europe were two prominent areas where China-based investors set their sights in 2019 — a trend expected to continue heading into Q1’20. Investment appetite has also changed from burning money to acquire market to deep tech innovation in China.”

Hong Kong IPO bourse secured the top position in terms of total funds raised in 2019 driven by Alibaba’s mega secondary listing in Hong Kong raising USD 12.9 billion in Q4.

Irene Chu, Partner, Head of New Economy and Life Sciences, Hong Kong, KPMG China, said, “While IPO sizes in general were down besides the mega transactions, they reflected much of the trends seen elsewhere in the world. While deal sizes may have fallen somewhat over the course of the year, TMT as well as health/life sciences continued to be a strong focus of VC investors in China.”

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SOURCE KPMG China