The venture capital (VC) 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 US$16.9 billion in the third quarter, just less than the US$17.5 billion invested in North America as of Oct. 1, London-based consultancy Preqin Ltd said.
That does not include venture deals in countries such as Japan, meaning Asia’s total is higher.
Nine of the 10 biggest venture investments were in the region, including separate funding rounds by Chinese ride-hailing service Didi Kuaidi (滴滴快的) that totaled US$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 (阿里巴巴) 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 last year.
“I’m very optimistic about the long-term opportunities,” said Lee Kai-fu (李開復), founder of Innovation Works (創新工場) 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 US$36.2 billion, compared with US$19.9 billion for all of last year. China accounted for US$28.6 billion of the funding, while India claimed the remainder. North American venture investments totaled US$53.5 billion through the first three quarters.
Chinese food delivery company ele.me raised US$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 (中國平安保險集團) and China Investment Corp (中國投資公司), people familiar with the matter have said.
That is 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 US$5 trillion in value from its June 12 peak.
“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 start-ups 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 start-ups, ” said Mingchen Xia, a Hong Kong-based principal at Hamilton Lane Advisors LLC, a private equity firm from Pennsylvania. “Those low-quality start-ups won’t survive if winter comes.”
India also has had strong growth. Companies there have raised US$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 US$2 billion since July last year 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 US$1.6 billion so far this year, compared with last year’s pace, when US$6.8 billion was raised for the market, according to Preqin data.
“Silicon Valley is still the leader in the world’s innovation,” Lee said. “China has yet to prove it can create the next Google, but I’m optimistic.”
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