Venture capital firms backing startups in Southeast Asia and India are raising record sums for new funds as investors leave China.
Venture capital funds focused on Southeast Asia and India have raised $3.1 billion so far in 2022, already approaching the $3.5 billion they have raised in the past of the whole of last year, according to data from research firm Preqin. By comparison, fundraising by China-focused venture capital firms has fallen sharply, from $27.2 billion in 2021 to just $2.1 billion.
“Fifty percent of the investors we spoke to are trying to diversify out of China,” said Amit Anand, co-founder of Singapore-based Jungle Ventures, which recently raised $600 million for new funds to invest. in startups in Southeast Asia and India. “They’ve had quite a bit of success there, but are aware of the headwinds, and therefore wanted to invest more money in Southeast Asia and India.”
Jungle Ventures plans to make “concentrated” investments in 15 to 18 companies with an equal split between the two regions, Anand said.
Earlier this month, Singapore-based East Ventures said it had raised $550 million to invest in startups in Southeast Asia, bringing assets under management to more than $1 billion. In April, India’s Elevation Capital said it had raised its biggest fund ever with $670 million.
Wavemaker Partners, a Singapore-based VC, launched a $136 million fund in March, 22% more than its predecessor. Managing partner Paul Santos said he noticed a change in mood when he approached potential investors in the U.S. “Those who were underweight [in China] looks like we will stay here. Those who were overweight would say that we may need to rebalance the portfolio.
Venture capital funds raise funds from investors ranging from pension funds and university endowments to wealthy tycoons. Southeast Asia and India have emerged as attractive markets due to the rapid growth of startups in both regions in recent years, culminating last year with a series of hit lists from the company. Indian food delivery company Zomato and Singaporean super app Grab.
At the same time, there has been what observers call a sea change in policy on the part of the Chinese government. Beijing banned for-profit tutoring last year, crippling the business models of online education firms, many of which were backed by foreign venture capital firms. That led to major paper losses: SoftBank Group cut its $700 million investment in Zuoyebang, the developer of an app that helped students with homework, to $100 million in March.
China has also introduced tougher rules on big tech platforms, including measures to promote competition and regulations on how they must handle user data. The moves led to a sharp drop in the shares of large publicly traded companies like Alibaba Group Holding and Tencent Holdings.
Beijing recently sent signals that its crackdown was over. The Communist Party of China’s Politburo vowed last month to “promote the healthy development of the platform economy”, but at the same time, tight COVID-19 restrictions in Shanghai and Beijing have rattled the Chinese economy. and further alarmed investors.
“Some investors are starting to feel the risk to the Chinese state system,” said an executive at a Japanese asset management firm that invests in VCs. “As a result, when they try to gain exposure to Asia, there is a transfer of capital from China to other regions. In the past, the allocation to Asia was almost equal to the allocation to China In the current environment, more and more investors are considering a diversified allocation.
The executive added that funds focused on India and Southeast Asia are quickly oversubscribed as the size of the venture capital market is still much smaller than in China.
The influx of capital may be a tailwind for startups in these areas and a counterpoint to the global selloff of publicly traded tech companies that has fueled concerns about startup valuations. Grab, its Singaporean counterpart Sea and Indian payments company Paytm have all seen their share prices fall by more than 50% this year.
Forge, a US private equity trading platform, said that in the first quarter the shares traded at a 24% premium to the price in their last funding round. That’s down sharply from a 58% premium in the fourth quarter of last year.
Despite the expansion of VCs focused on Southeast Asia and India, these are still small compared to the larger players who are shrinking their business. SoftBank, which manages the $98.6 billion Vision Fund and the $56 billion Vision Fund 2, will cut its investments by half or more after posting a record quarterly loss, chairman and chief executive Masayoshi Son said. early this month. Fund managers said the selloff in public markets will likely hit valuations further.
“Valuations in the tech sector have really outpaced value creation in our markets,” said Jungle Ventures’ Anand. “It is time for valuation and value creation to go hand in hand.
The China-focused venture capital firms that successfully raised new funds this year were in areas that appear less affected by Beijing’s crackdown. Lyfe Capital, which invests in health-related companies, announced in April the launch of a new $935 million fund, its fourth. He recently led an investment in Starna Therapeutics, a startup developing drugs based on mRNA technology.
Nio Capital, led by electric vehicle billionaire William Li, said in March it had raised $400 million for its second fund, double its first. He is the funder of self-driving startups Momenta and Pony.ai.
This article first appeared on Nikkei Asia. It was reposted here as part of the ongoing 36Kr partnership with Nikkei.