The VC market in Asia remained soft in Q4’19. Despite two $1 billion deals in the final quarter of the year, the region’s total annual VC investment in 2019 was less than half of the $124 billion seen in 2018. While it was a tough year for Asia’s VC market, there were some perceived positive outcomes – including the market self-correcting before it became too big of a bubble.
There has been a very clear shift in the focus of VC investors across most of Asia during Q4’19, with investors moving away from companies that need to burn significant capital in order to drive traffic or increase their user base and focusing their attention on startups with stronger business models and innovation offerings. In particular, China is seeing less interest in platform companies and increasing investor interest in companies focused on deep technology, 5G, B2B services, and artificial intelligence. India has also experienced the same shift, with India-based investors focusing more on ensuring that any companies they invest in have a strong path to profitability.
Looking forward, VC investment in Asia is expected to remain relatively steady compared to 2019 – with VC investors focused firmly on companies able to grow sustainably.
In China, B2B services are expected to grow, particularly in areas like financial services. VC investors in China are expected to continue to prioritize late stage deals with a focus on companies with strong business fundamentals. One area that might buck this trend is deep technology innovation – which is seen as a very hot area of investment in China; it is well positioned to attract significant funding rounds even at early stage deal levels in 2020.
Heading into 2020, companies in India looking to attract attention from VC investors are expected to put more emphasis on reducing their cash flow and providing clear paths to profitability. Investors are likely to focus their investments on companies with a strong and sustainable global growth model. Logistics, education, and ecommerce are all expected to remain hot areas of growth.