Venture capital

Why SEAsian & Indian VC deals are outpacing China's

China's venture capital investments got off to a weak start this year, but those in Southeast Asia and India seem to be bucking that trend, getting more attention than ever.

Venture capital investment has developed rapidly in Southeast Asia and India in the past four to five years. This growing ecosphere is also attracting more investors from within and outside the region.

Even Chinese investors, who used to invest aggressively only in China, are actively visiting India and Southeast Asia seeking new opportunities.

“We don’t see many innovative projects in China now,” an unnamed manager from Tencent investment department told FinanceAsia. “Indian and Southeast Asian startups are more promising. We already travel to the region so many times this year.”

Contrary to a cold Chinese venture capital market, India and Southeast Asia were hot in the past few months. While it was hard to see big fundraising coming from Chinese startups in the first quarter this year, Singapore-based Grab and Zilingo raised $4.5 billion and $226 million respectively. In Hong Kong, Lalamove also raised $300 million at the beginning of 2019. Thanks to these investments, Southeast Asia had quite a promising start in venture capital investment this year.

India also saw some solid venture capital activity this year. Its private equity and venture capital investments grew by 27% in the first half of 2019, according to data from EY. The pace of this growth is exceptional, especially when compared to a 50% year-on-year drop in China's venture capital investments in first half of 2019. However, China still surpassed Southeast Asia and India in terms of total fundraising amount, but clearly, the momentum is no longer in China. 

Southeast Asia and India are also benefiting from the current trade war between China and the US. As investors try to protect their portfolio companies being affected, opportunities outside of China are looking more attractive, and Southeast Asia and India easily stand out with their vibrant ecospheres.

“Southeast Asian and Indian companies are evolving, and this is a change that we welcome,” Tong Hsien-Hui, head of venture investing in SGInnovate told FinanceAsia. SGInnovate is a venture capital firm backed by the Singaporean government.

“The price for Chinese startups are getting too high,” Tong added. “There is so much inflation there so that is why we don’t invest in Chinese companies.”

Strong government support in Southeast Asia and India is helping to attract more well-educated talents to set up companies in the region. As an investor, Tong saw more tech startups moved to India and Singapore from the US or Europe in the past two years. “India has a growing mobile phone population and Singapore is valued as an intellectual property centre,” Tong said. “Such an environment is benefiting tech startups.”

The venture capital investment for tech startups in the region has only emerged in the past few years. “The ecosystem was not well-developed four or five years ago,” Vishal Harnal, partner of venture firm 500 Startups told FinanceAsia, last month. “But more capitals are coming, and more later-stage investments happened in the past year.”

Compared to India, Southeast Asia had larger funds in terms of assets under management. ASEAN-based private equity assets under management topped about $70 billion, as of September 2018, with approximately 12% year-on-year growth. In comparison, Indian-based private equity assets under management were relatively small, only about $28 billion, until September last year, according Preqin data.

“We’ve seen a diverse range of companies emerging in Southeast Asia and India in the past one to two years,” Harnal said. “Now we have home-grown unicorns such as Grab or OYO. And because of the whole atmosphere, these companies are targeting the international market since day one.”

Having a global vision is a unique characteristic of most Southeast Asian startups. As there are so many countries in the region with small domestic markets, a startup founded in Southeast Asia cannot target only one country. It will always aim for international expansion and adapt faster to each different environment. Interestingly, there are more Indian-Asians starting their own businesses in Southeast Asia, and who are aiming to compete, and catch venture capitalists attention, in the global market.


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