Market Trends of Asia Pacific Venture Capital Industry
This section covers the major market trends shaping the APAC Venture Capital Market according to our research experts:
Asia’s booming Internet & Fintech economy
The current pandemic is leading to increased access to (and need for) digital banking services. As many as 50% of APAC's consumers are unbanked; 70% are either underbanked or unbanked. 70% of SME merchants accept only cash in 2019. The Covid-19 outbreak has drastically accelerated APAC's shift to a cashless world, with unprecedented growth in the number of e-payment transactions amid a sharp decrease in cash withdrawals and deposits. Banking, digital payments and loan-financing services greatly propelled the economic wheel forward throughout the lockdown. Since many fintech firms are startups, their agility to pivot their operations to provide specialized services as customers needed them strengthened the industry.
Despite the pandemic-induced disruptions, venture capital funds pumped $2.7 billion into domestic fintech companies in 2020, the second-highest fund infusion into the sector since 2019 when it had peaked at $3.5 billion. Payments remained the hottest area of investment, followed by tech-driven insurance firms and tech-driven wealth managers. Competition in the insurance space started to heat up as incumbent insurers enhanced their digital focus due to the pandemic and niche payments players worked to expand into insurance. In addition to payments and platform models, B2B solutions, including embedded finance and 'buy now, pay later' solutions, will likely be a hot investment area in 2021. That apart blockchain is also expected to gain traction as blockchain-based solutions and digital asset offerings become more mainstream.
India’s Growing VC Investments
The year 2020 was truly extraordinary for India, with the significant impact of Covid-19 on the economy and healthcare systems in the country. Covid-19 played an important role in accelerating digital trends across sectors dramatically, which is reflected in venture capital (VC) money flows and emergence of new, digitally founded business models across sectors. 2020 saw a strong deal flow, with close to $10 billion in VC investments-higher than in all previous years except 2019.
Significant fundraising activity with $3 billion raised by India-focused funds in 2020, 40% higher than in 2019-marquee funds including Sequoia, Elevation Partners, Falcon Edge, and Lightspeed, all closed new funds for India investments in 2020, despite the pandemic. In terms of key sectors receiving investments, consumer tech, SaaS, and fintech continued to lead the way, accounting for 75% of VC investments in 2020. Key subsectors receiving investments included edtech, foodtech, gaming, and media and entertainment in consumer tech; verticalised solutions within SaaS; and payments within fintech.
In total, 22 start-ups raised over $100 million in 2020 from VC and growth equity investors, with the majority concentrated in consumer tech. Outlook for VC investments looks strong going forward with investment activity recovering to pre-Covid levels in the second half of the year, after a ~60% drop in deal value during April through June compared to January through March 2020.
