The venture capital business in Asia is beginning to rival that in North America, home to Silicon Valley and birthplace of the modern VC model.
Investments in China and India, where most of the big deals are taking place, more than tripled to $16.9 billion in the third quarter, just less than the $17.5 billion invested in North America as of Oct. 1, according to Preqin Ltd., a London-based consultancy. That doesn’t include venture deals in countries such as Japan, meaning Asia’s total is higher. Nine of the ten biggest venture investments were in the region, including separate funding rounds by Chinese ride-hailing service Didi Kuaidi that totaled $3 billion.
The money flowing into Beijing and Bangalore shows the rising competition for Silicon Valley, which has dominated the technology industry from Fairchild Semiconductor International Inc. and Hewlett-Packard Co. to Apple Inc., Google Inc. and Facebook Inc. The largest initial public offering ever was by China’s Alibaba Group Holding Ltd. last year. Venture investors looking for similar success pushed the number of deals in China this year to 1,016, more than in all of 2014.
“I’m very optimistic about the long-term opportunities,” said Kai-Fu Lee, founder of the early-stage investor Innovation Works in Beijing. “It’s been driven by the increase in mobile users and the spread of mobile payments, which help businesses and consumers.”
Total venture capital investment in China and India for the first nine months of the year was $36.2 billion, compared with $19.9 billion for all of last year. China accounted for $28.6 billion of the funding, while India claimed the remainder. North American venture investments totaled $53.5 billion through the first three quarters.
Chinese food delivery company ele.me raised $630 million, with backing from investors including Sequoia Capital and Gopher Asset Management. Didi Kuaidi attracted funds from SoftBank Group Corp., Ping An Insurance (Group) Co. and China Investment Corp., people familiar with the matter have said.
That’s happening despite a slew of grim numbers from China. The country’s economy is forecast to grow this year at the slowest pace in a quarter century and the stock market has lost $5 trillion in value from its June 12 peak.
Government figures released Monday show the show the service sector is propping up growth. That’s good news for companies like 58.com Inc., China’s answer to Craigslist, which said Oct. 12 itraised $300 million from investors including Alibaba and KKR.
“VC has a fairly long investment horizon, so by definition it’s unconnected to public markets,” Ee Fai Kam, a manager at Preqin, said in an e-mail. “The growth in appetite and number of opportunities in recent years are thus not greatly affected by recent turmoil.”
There has been a slowdown in venture financing in certain sectors on concern that too many startups have been funded. Two popular sectors that have grown more challenging recently are peer-to-peer finance and online-to-offline ventures.
“There is overcapacity and over competition. A lot of capital flowed into some low quality startups, ” said Mingchen Xia, a Hong Kong-based principal at Hamilton Lane Advisors LLC., a private equity firm from Pennsylvania. “Those low-quality startups won’t survive if winter comes.”
India also has had strong growth. Companies there have raised $13 billion so far this year, nearly as much as all of last year. Flipkart, an e-commerce player similar to Alibaba, has received more than $2 billion since July 2014 from investors including Tiger Global Management and Accel Partners.
As for venture firms drawing money from investors, more money is being raised for Asia but at a slower pace than last year. China-focused funds closed on $1.6 billion so far this year, compared with last year’s pace when $6.8 billion was raised for the market, according to Preqin data.
“Silicon Valley is still the leader in the world’s innovation,” said Lee. “China has yet to prove it can create the next Google. But I’m optimistic.”