Asian Venture Capital: Not yet bubble territory

This is especially true in China, where the industry is feeling optimistic with the renewed appetite for Chinese tech IPOs in the US and the current acquisitiveness of the incumbent tech giants - Baidu, Alibaba Group and Tencent Holdings. The situation is also similar in India, although at a much slower rate. Even Singapore, a comparatively smaller market, is experiencing the VC fever with a few successful trade sales. For the first time in a while, Asian VCs are performing well and returns this year seem to be excellent.

Some say that the current environment is reminiscent of the dotcom boom at the turn of the last century, when I first joined AVCJ. I recall during that time everybody in Asian private equity called themselves a venture capitalist - whether they were focusing on early-stage tech start-ups, running growth capital shops or even among those working for the handful of control-oriented firms.

The VC moniker became even "cooler" as venture capital firms, usually Silicon Valley partnerships, made huge paper profits by listing lost-making internet companies at lofty valuations. Asia didn't have too many real Silicon Valley-type firms at the time, although it was full of opportunistic investors looking to boost stock prices or private market valuations by adding the letter ‘i' in lower case in front of company names and rolling out thin but overly optimistic online strategies.

This bubble economy did not end well and while, the VC community briefly found salvation in the Chinese technology boom of the mid-2000s, the global industry has largely been quiet. This naturally raises the question of whether another tech bubble is currently being inflated. I would argue that although the average size of Asian VC funds is getting bigger, it is too early to say definitively that this is a bubble.

To illustrate the point, AVCJ Research's records show that 58 VC-focused funds have raised $7.1 billion between them this year - that's an average of more than $120 million per fund, or roughly triple the 2013 average. Yet average deal sizes are only up $400,000 to $5.94 million per VC round.

This can in part be explained by the changing role of VC funds and the emergence of seed-stage angel funds (as well as other early stage financing such as crowd funding). The more established players like GGV Capital, IDG Capital Partners and Sequoia India - each of which raised at least $500 million for its latest fund in 2014 - is to help scale companies and give them a shot at becoming the next Xiaomi or Flipkart of Asia. Pension funds showing renewed interest in venture capital may also factor into the fund size increase.

However, compared with 15 years ago, the world has changed a lot and technology has changed even more. The internet is fully integrated into our daily lives, with more than 2.4 billion users, while smart phone users are predicted to break the 1.75 billion mark. Add then the wider use of social media - increasing the speed of adoption of good businesses - means the opportunity to scale companies has never been better.

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• Topics
• Early-stage
• Venture
• Technology
• Greater China
• Baidu
• Alibaba Group
• Tencent
• Technology
• China