China VC investment hit record high of USD 70.5 billion in 2018, KPMG analysis finds

Artificial intelligence, healthcare, life sciences and education will continue to attract investments in Asia

China, 30 January 2019 – Venture capital (VC) investment in China reached a record high of USD 70.5 billion in 2018, an increase of 52.9 percent from USD 46.1 billion in 2017, finds Venture Pulse, KPMG’s quarterly analysis of VC trends.

China’s robust performance was largely due to the USD14 billion raised by Ant Financial in Q2 2018 and a number of significant deals throughout the year, overall deal volumes in 2018 remain relatively stable at 813, comparing to 799 a year earlier. In comparison, deal volumes in Asia and globally both decreased by around 10 percent, while deal value increased by more than 40 percent to a record USD 93.5 billion and USD 254.7 billion, respectively.

Egidio Zarrella, Partner and Head of Clients and Innovation, KPMG China, says: “There’s no end in sight for massive deals in Asia. That is because of the significant size and scale of this market. While these deals are big compared to those done elsewhere, they are increasingly typical of companies looking to dominate the regional market.”

While China dominated VC investment in Asia during 2018, Q4 2018 highlighted the growing maturity of startups across Asia and the widespread VC activity in the region as a whole, according to KPMG’s analysis. Three out of the four billion-dollar deals in Q4 were conducted outside China, including Singapore’s ride-hailing platform Grab (USD 2.8 billion), Indonesia’s e-commerce company Tokopedia (USD1.1 billion) and food ordering and delivery company Swiggy in India (USD 1 billion). India-based food search and delivery company Zomato raised USD 360 million and food delivery app operator Woowa Brothers in Seoul raised USD 320 million. These giant deals reflect a widespread trend toward late-stage deals in Asia, with investors making bets on a smaller number of bigger deals in the region.

In terms of sector, investment in artificial intelligence (AI) and machine learning grew significantly in 2018 in Asia, with VC investors drawn by a variety of solutions applicable across multiple industries. Facial recognition was a particularly hot technology of interest, in addition to motion detection and natural language processing.

Philip Ng, Partner and Head of Technology, KPMG China, adds: “In China, corporate VC is growing rapidly. More companies have VC arms and they are actively looking for disruptive technologies that can enhance their core business. AI for manufacturing defects detection, IoT sensors to monitor environmental factors, robots for customer interaction – corporate investors are interested in anything that will enhance the user experience or help them innovate on products and services.”

As for 2019, the total level of investment will be tough to match that in 2018 given the extraordinarily strong performance, including the two largest VC deals in history.

However, the momentum of VC investment is expected to continue globally, particularly in late-stage deals. This will result in an increased average deal size while deal volume either remains steady or drops further. In Asia, industries such as healthcare, life sciences and education, as well as AI and other highly innovative technologies with broad applicability are expected to continue to attract significant funding.

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