Venture capital (VC) investment in China startups tripled in Q2 2017 driven by an uptick in mega-deals, finds 'Venture Pulse', KPMG’s quarterly global report on VC trends.
The number of VC deals in China were relatively stable at 79 in Q2 (86 deals in Q1), however VC investment in startups hit US$10.7 billion, compared to USD3.5 billion the previous quarter.
The strong performance was largely bolstered by two megarounds, including ridesharing platform Didi Chuxing which raised US$5.5 billion - the largest private venture funding round to-date for a technology company, and a USD1 billion VC investment raised by news aggregator Toutiao.
“The total number of deals continues to decline, but the large size of some of these deals means that in terms of the total deal value, it was a pretty solid quarter,” says Egidio Zarrella, Partner and Head of Clients and Innovation, KPMG China. “The market remains very focused on fintech. Artificial intelligence (AI) and robotics continue to be a hot topic in China and healthcare is going from strength to strength each quarter.”
Globally, VC funding in Q2 totaled US$40.1 billion, 55.3 percent higher than Q1, due to the global resurgence in mega-deals and a robust performance in China. The number of deals continued to decline for a fifth straight quarter to 2,985, however the biotech and autotech sectors saw continued interest.
These technologies, together with AI, analytics, virtual reality technologies and blockchain are expected to remain on investors’ radars in Q3.
A different investment focus
The Asian region saw a different investment focus; the hottest areas were AI, robotics, fintech, edtech and healthtech, although cloud and infrastructure services saw increased interest.
The report highlights that venture capital activity in Asia is poised to remain strong, with deep tech, autotech and healthtech continuing to be major sectors of interest, while China is expected to see the momentum continue in Q3.
Philip Ng, Partner and Head of Technology, KPMG China, says: “Increasingly, the government backed funds in China are stepping into the space of traditional VCs and making investments that support the national priorities in innovation, the priority areas include industrial automation, next generation vehicles, and new technologies in healthcare. There are also many government innovation initiatives being launched over the last three quarters and we do not anticipate the pace slowing down in the near future.”
In addition, the report highlights that fintech remains a key area of interest for Mainland China and Hong Kong investors, despite a dip in funding in Q2.
Capital is being deployed in the region to develop technologies to improve front office and customer experience, in order to stimulate growth. This is unique compared to other regions such as the US and Europe, where fintech investment often focuses on achieving back office efficiencies, primarily to drive cost savings.
Lyndon Fung, Partner, US Capital Markets Group, KPMG China, says: “Enhancing the overall customer experience is becoming a key driver as more developed businesses refine their business models to boost their path to profitability. Apps like food delivery and ride-share are starting to heavily invest in training staff.”