The venture capital industry across the Asia region is expanding rapidly, with double-digit percentage growth rates in the amount of money being put into finding future business stars.

The venture capital industry across the Asia region is expanding rapidly, with double-digit percentage growth rates in the amount of money being put into finding potential Alibabas, according to data from Preqin Research.
 
VC investment in Asia has so far reached $10.5 billion throughout 2014 year-to-date, up from $6.3 billion a year before, the organisation said.

As the wealth management industry digests the implications of the $25 billion-plus IPO last Friday of e-commerce giant Alibaba, a business that can rival some of the Silicon Valley behemoths of recent years such as Amazon, the chase to find the next Big Thing seems to be energising VC in Asia.

“After a number of years of slower fundraising and investment activity across the  continent, venture capital deal flow across Asia, particularly in more emerging economies such as those in Northeast and South Asia, has increased significantly,” it said.

A rise in venture capital – albeit with some variations – is also suggestive that improved equity market sentiment makes fledgling entrepreneurs more confident of eventually exiting an investment through an IPO. The background environment for share floats has been arguably improved by moves from Mainland China and Hong Kong to link the Hong Kong and Shanghai stock markets through the Mutual Market Access Programme, or “through train”. Greater international use of the Chinese renminbi may also have boosted this process. Even so, the VC sector in Asia is a small fraction of the industry in North America, where this model of investing has helped drive some of the leading names in the tech economy over the past 20 years.

When this publication asked family offices and other advisors to the wealthy about VC, most said that it was not a significant asset class, given the risk characteristics. That may be changing slowly. In Asia, the arguably more buccaneering style of investment market, and the desire for high returns, could see the asset class surpass what happens in Europe.

Variations

The figures reveal some sharp differences across Asia, however.  The report said VC activity across Northeast Asia saw the amount of capital invested increasing year-on-year since 2010, and since the start of January this year, a rise of over 60 per cent more capital invested in deals compared to all capital invested last year. Following 2013 which saw $921 million invested in 104 venture capital deals across ASEAN nations, deal activity so far this year has fallen to 44 deals which have received $131 million in capital. In South Asia, some $2.7 billion was invested in 231 venture capital deals in 2014 YTD, up from $1.7 billion invested in 346 deals throughout 2013.

 “Over the last decade, Asia has traditionally been looked upon as a region for diversification by institutional investors and a region for countless opportunities in deal making by fund managers. Despite sluggish Asia-focused figures in the past year, private equity investment – particularly in the venture capital space – has been strong. There are a number of possible influences for the reinvigoration and resurgence of Asian private equity activity, such as the accelerated integration of ASEAN nations and the re-opening of China’s IPO market, both of which have been notable drivers of the Asian economy,” Christopher Elvin, head of private equity products at Preqin, said.

“While it be must be noted that the actual number of deals taking place across both the venture capital and private equity-backed buyout spaces are slightly deflated compared to recent years, the level of capital being invested across the continent is a clear sign that Asian private equity will continue to grow and mature,” he said.