Welcome to the other side of the Pacific, where market potential is huge and valuations are even bigger. Venture investments in Asia have baffled the tech world over the past year. Investors and corporations have funneled seemingly limitless amounts of capital into quickly growing private companies. Mainland China once again dominated the investment landscape in the Asia-Pacific region in Q3 2018. In addition to accounting for almost 71 percent of the entire known venture dollar volume of the region, deals toward startups based in Mainland China accounted for more than 66 percent of the known regional total. There is no big secret as to why China dominates in venture funding. It’s an attractive market for companies and investors alike. China’s massive population leaves ample room for market growth and government-supported tech ambitions help bolster experimentation. But how has China’s investment climate fared the past few months as Trump’s trade war, geopolitics, and cybersecurity issues loom over U.S.-China relations? At first glance, this chart can be a little bit misleading. China did experience a 26 percent decrease in total venture capital dollar volume from Q2 to Q3 2018. However, that decrease requires a bit of a more nuanced explanation—a few anti-China Trump tweets didn’t cause a dip that big. In Q2, if you recall, Ant Financial, the fintech affiliate of e-commerce giant Alibaba, was the recipient of a monstrous $14 billion round. If we take a closer look, the 26 percent decrease in dollar volume from Q2 to Q3 can be attributed to that one huge round. Without that Ant Financial round, dollar volume would have grown by 19 percent from Q2 to Q3 2018. Deal volume also rose during the Q2 to Q3 period, coinciding with growth in venture dollars invested, discounting the anomalous Ant Financial round. Deal volume, or the number of individual deals for seed, early, and late-stage companies grew by about 27 percent from Q2 to Q3. Even if we factor out the Ant Financial round, the growth in dollar volume was much slower than deal volume growth as a whole. Therefore, even without the huge drop, it’s clear that the number of seed and early-stage deals increased. That is confirmed by the data, which indicates a nearly 53 and 18 percent growth in seed and early-stage deal volume, respectively. So venture investment in China continues to push its own limits. Those overall investment numbers translated into massive rounds for Chinese companies. Huge Rounds Reign Supreme China was once again the recipient of huge rounds. July was a record month for the global number of capital infusions of $100 million or more (what we call supergiant rounds). Six out of ten of the largest global rounds that month were for Chinese companies, according to Crunchbase News reporting. In Q3 2018, China made off with 54 supergiant rounds. Half of those rounds were for more than $200 million and five totaled more than $1 billion. It’s an impressive cadence of large investments, but it’s actually a touch lower than the 57 supergiant rounds recorded in Q2 2018. Still, China-based supergiant rounds were much less common in Q1, with only 36 rounds bringing in more than $100 million. The prevalence of these huge global rounds over the past year is beginning to change how we define each stage of funding. In China, even Seed investments have reached extraordinary heights as heavy-handed investors make massive bets on young startups. Seed-Stage Investments Seed-stage dollar volume rose by 204 percent from Q2 to Q3 2018. That growth was bolstered by a couple of large deals, including one “Pre-Series A” supergiant round. The largest “Seed” round in China was a $294 billion investment in electric vehicle maker Dearrc. China’s electric vehicle space has experienced a surge of new startups and funding in recent years. Investment in China’s electric vehicle market was bolstered by the national push for new energy vehicles in the country, which began as early as 2010. That push was supported by both government subsidies and tax exemptions, which the country is now beginning to scale back. According to a Bloomberg report, some investors expect just 1 percent of the hundreds of electric vehicle companies in China to survive. Notably, NIO, considered to be China’s answer to Tesla, went public in Q3, raising $1 billion in its debut. However, the company reported just $7 million in sales with losses totaling more than $500 million in the first half of 2018. It had delivered just 481 cars by the time it filed, albeit with thousands of preorders. Early-Stage Investments That same interest in electric vehicles is also prevalent in leading early-stage investments for companies in China. Xiaopeng Motors, founded in 2014, has raised a known total of $1.3 billion from investors including Alibaba, GGV Capital, Morningside, Foxconn, and others. Beyond electric vehicles, JD Finance was the recipient of the largest early-stage round in Q3. The company announced that it was raising nearly $2 billion at a roughly $20 billion post-money valuation in August. The company is another example of a spinoff of a public Chinese company that has managed to attract significant investment. Alibaba’s fintech affiliate Ant Financial and the (now public) Tencent spinoff Tencent Music have both benefited from that affiliation. Its former parent companies’ extensive market reaches are likely drivers of investor confidence in spun-off platforms. China’s Late-Stage Investments China’s largest late-stage deals were driven by corporate partnerships and investments by China’s incumbent heavyweights. The largest investment was directed toward Eleme, an online food delivery service. Alibaba Group previously owned a 43 percent stake in the company and purchased the remaining shares from Baidu for $9.5 billion in February 2018. The $3 billion round, sourced from Softbank and Alibaba, brought the food delivery company’s total raised to $6.3 billion and boosted Alibaba’s foothold in the food delivery market up against Tencent-backed Meituan Dianping. Likewise, Focus Media, an outdoor digital marketing company, received a $2.23 billion investment from Alibaba. Another Alibaba-backed company, online used car marketplace Souche, also scored a $578 million supergiant round. Meanwhile, Alibaba-competitor Dada-JD Daojia scored a $500 million corporate investment from Walmart. Deep-pocketed corporations and investors have clearly displayed their willingness to bet on growing Chinese companies, and they’re likely betting that momentum will carry them into Q4. What’s Next? Though the China-U.S. relationship is on the rocks, the investment climate in China has remained relatively strong. Confidence on the part of investors raising large funds, like Sequoia Capital China and Softbank, indicates that investment in the region will likely not slow down in the near future. And with more early and seed-stage companies joining the mix, that may pave the way for larger, more competitive investments as the market matures.

https://news.crunchbase.com/news/chinas-investors-arent-afraid-to-bet-big-and-early/