VC Investment trends in Southeast Asia Q1’20

According to the KPMG publication, Venture Pulse, Q1’20 saw China’s lockdown towards the end of January resulting in a slowdown in VC deals activity in the country.  As COVID-19 evovled throughout the Southeast Asian region, VC investors hit the pause button, particularly those with interests in China.However, while deal volume decreased over Asia, three were a number of megarounds during Q1’20, including $3 billion raised by Southeast Asian ride hailing, Gojek.  Singapore based Grab, Gojek’s regional competitor raised $886 million in Q1’20. This massive raise provides an indication of the scale for the fight for the Southeast Asian ride hailing market, says KPMG.  Yuanfudao raised $1 billion on last day of Q1’20 suggesting the rise in interest in educational platforms, exacerbated by the COVID-19 lockdown environment.

The Chinese video sharing app, Kuaishou, raised $3 billion.  This deal, lead by Tencent was first announced in December 2019, suggesting it was close to completion even as COVID-19 began to unravel the markets.

As countries around the world experience a domino impact of the pandemic resulting in the unprecedented implementation of lockdown, KPMG reports that despite the fact that there is a large volume of dry powder in the global VC market, Q2 ’20 is expected to be a rough quarter for VC investment around the globe.  This is because VCs are waiting to see the ramifications of the pandemic.  KPMG reports that VC deals which do occur will be follow-on funding to companies within the existing portfolios of VC investors or those companies with a clear value proposition.

China, which was dealing with COVID-19 induced lockdown for the main part of Q1’20 saw a drop in total VC investment to a twelve quarter low and a drop in the number of VC deals to a level not seen since Q4’14, reports KPMG.  While majority of the sectors saw downward VC investment trends, edtech, life sciences and biotech, and logistics companies which whose services were in demand in the lockdown environment saw continued investment interest in their businesses.

While the economy in China started to see signs of recovery at the end of Q1’20, expectation is that it will take considerable time for consumption in China to recover.  China’s central government is currently implementing strategies to stimulate the economy.

Q1’20  Investment trends in India

India’s record VC investment of Q4’19 was followed by a less robust investment scenario in Q1’20 as deals fell sharply, partly as a result of economic and political uncertainty.  Despite these challenges, KPMG reports that Q1’20 saw a number of good-sized deals in the country.

Edtech was a firm favourite with Byju and Unacadmy raising $400 million and $110 million, respectively.  Additionally, Aakash Educational announced its acquisition of Meritnation.  There was also interest in mobility with $150 million invested in the bike rental start-up, Bounce.

Investment concerns relating to the pandemic only became visible in the last part of the first quarter, partly due to the fact that India VC investment is in a large part from international VC firms and corporates.

KPMG reports that VC deals have been deferred as investors wait to see the impact of COVID-19 on the business sector, saying that while the pipeline for deals is expected to remain relatively robust in India, deal flow is expected to become slow, particularly in Q2’20.

Drivers of investment trends in Hong Kong

Hong Kong Stock Exchange experienced a similar impact from COVID-19 as with other markets around the world. While the uncertainty is likely to continue given the global challenges and uncertainty associated with the virus.

Given the fact that there is still enormous liquidity in Hong Kong, KPMG says that VC and private equity investments in the region will improve in the upcoming quarters, particularly for technology, cloud communication solutions, health tech and life sciences sectors.

Changes in consumer behaviour could also impact on investment trends.  While consumers have embraced online shopping in response to COVID-19, this behaviour may well persist in a post pandemic environment.  Change in consumption behaviours in favour of the convenience and safety of online shopping could, according to KPMG, drive much stronger in vestment in these spaces and more sustainable business models.


Anticipated Investment trends in Asia

While KPMG anticipates a subdued investment environment for Q2’20, given the impact of the virus and the potential threat of reinfection, it is expected that a number of areas could start to see renewed investment activity.   Areas which could contribute potentially contribute to disease prevention could see investment interest.  This includes AI, an area which has always attracted investor attention in the region, using AI applicability for monitoring and tracking population health and disease spread.

All eyes will be on China, given its position as the first country to recover from the pandemic – to see possible trends for other countries around the world once he COVID-19 crisis has abated.

KPMG has an optimistic view of VC activity in India, seeing a challenging short-term investment environment, with expectations for the environment to remain robust over the longer-term.  Areas where VC investment is anticipated include edtech, autotech and healthtech related to fitness as well as the gaming industry.

As opposed to nearly every other region examined in the report, the Asia-Pacific ecosystem experienced more of the full effects of the pandemic than any other areas during Q1’20.  However, KPMG reports that VC investments remained robust relative to historical norms, despite a plunge in volume, boding well for future investments in the region.

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