Capital Favors Later Stage Investments
The trend of investing more capital but in fewer deals is further supported
by the return of "mega rounds", often exceeding $100 million, as competition for
investing in successful, high-growth companies intensifies. This is particularly
noticeable during later stages of investment (i.e. Series C and beyond) where
VCs are fighting to maintain ownership while often facing additional pressure
from larger and less valuation-sensitive investors, such as private equity, large
family offices, sovereign wealth funds and strategic or corporate investors.
Mega-deals are prevalent in all regions, but Asia has seen a particularly
sharp increase in related invested capital. Asia's top 10 deals in 2017 accounted
for almost one-third of the total VC funding in the region, with half of the deals
coming from China alone. The second quarter of 2017 saw two $1 billion+ mega-
rounds, including $5.5 billion in financing for ride hailing platform Didi Chuxing
– the world's largest tech funding round ever – and a $1 billion funding round to
news aggregator Toutiao.
3
In the third quarter of 2017, three companies raised
$1 billion+ funding rounds, including US-based property manager WeWorks' $3
billion round, another $2 billion for China-based Toutiao, and a $1.6 billion round
from China-owner electric vehicles manufacturer, BAIC BJEV. These significant
mega rounds and the continuing decline in deal volume reinforce the disciplined
path VC investors are taking by placing fewer bets on angel and seed round
opportunities and deploying higher amounts of capital into a more select group of
companies.
Recent quarters indicate that the decline in aggregate VC deal flow mirrors
a decline in early stage investing, particularly at the Seed and Series A stages.
Through Q3 of 2017, early stage investments represented less than 50% of all
completed deals for the first time since 2012.
4
This trend however, may also be
3
"Venture Pulse Q2 2017." KPMG Enterprise, 31 July 2017
4
"Venture Pulse Q3 2017." KPMG Enterprise, 11 Oct. 2017
37
Taiwan Economic Forum
Volume 15, Number 4
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