Shifting regulations targeting specific sectors like edtech and fintech in China could drive venture capital investments in other parts of Asia and India would have a lot to gain going forward in the October to December (Q4) quarter of 2021, as VC investment is likely to remain slow in a number of sectors in China, UNI news agency said.

“In Asia VC investment flows could shift somehow heading into Q4 particularly in the edtech space. While edtech has been a major area of investment across Asia over the past year, investment in China will likely dry up considerably moving forward due to new rules for tutoring companies introduced in Q3 21. The change could see VC investment in the space focusing even more on India where edtech is already a red-hot area of investment,” as projected by Venture Pulse - a quarterly report published by KPMG private enterprise on global VC trends -- in its Q3 edition.

Globally, as per the report, Global VC investment rose from $166 billion across 9,217 deals in Q2'21 to a record $171.7 bn across 8,682 deals in Q3'21. During the quarter, large mega deals continue to dominate activity with USD 1 bn-plus deals remaining very prolific particularly when combined with the sizeable number of USD 100 mn funding rounds. The Asia-Pacific region saw $48.1 bn in VC investment across 2,616 deals in Q3'21. 

China attracted close to half of this total with $23.7 bn raise.

According to the report, VC investment in China slowed somewhat in Q3’21, in part due to evolving government policies and regulations targeting specific sectors like edtech and fintech. During this quarter, China's central government introduced new rules for tutoring companies and banned all cryptocurrency transactions. China saw USD 1.58 bn raise by energy storage company Svolt, USD $700 mn raise by life sciences firm AbogenBio and $569 mn raise by 5G tech company CICT Mobile. Allen Lu, Partner and Head of TMT Audit, KPMG China is quoted in the report as saying, “VC investors in China are quite cautious at the moment because of the different regulatory changes occurring in the market, particularly in areas related to fintech, tutoring and overseas public listing.”

The KPMG report highlights India’s massive increase in VC investment in Q3 21 reaching a quarterly record in excess of USD 14 bn, bucking global trends and driven by edtech which was a particularly active sector led by $1.7 bn raise by Byju, USD 440 mn raise by Unacademy and USD 250 mn raise by Simplilearn. Fintech continued to attract significant investment and attention from investors in India, led by BharatPe raising USD 396 mn during Q3 21. In addition to Flipkart and BYJU, PharmEasy and Ola raised USD 500 mn funding rounds in Q3 21. Investors outside traditional VC firms took part in a number of deals in Q3 21 including traditional PE firms which have not historically been active in consumer tech deals in India. The country saw nine new unicorns created during the quarter including fintech BharatPe and CoinDCX and edtechs Upgrad and Eridutus Executive Education.

In India, VC investment could grow even further in Q421 particularly given the euphoria around investments in consumer tech, D2C companies, fintech and edtech and social commerce could also see growing attention from VC investors in India over the next few quarters. China would however, likely to see continuity in robust investment in companies focused on healthtech, the new consumer market and hardware. While VC investment in China slowed in Q3 21, hardware and consumer market companies continued to raise large VC rounds, including Hey Tea with USD 500 mn raise and ESWIN Material with USD 462 mn. Egidio Zarrella, Partner, Clients and Innovation, KPMG China states in the report that hardware focused startups have been gaining a lot of attention from VC investors in China given the Government’s identified long term strategic priorities. In the first half of 2021, hardware startups attracted over USD 5.5 bn investment and Q3’21 saw that number grow even further with all indications suggesting investment will remain strong into Q4’21, points out Zarrella.

(SAM)