Startups in Asia, which already went through a relatively tough 2019 as funding remained sluggish throughout the year, might be staring at another rough patch ahead.
Startups in Asia, which already went through a relatively tough 2019 as funding remained sluggish throughout the year, might be staring at another rough patch ahead for at least next couple of months. So far, it has been largely due to the US-China trade tension, increased investors scrutiny before investing in startups (which applies to startups globally as well) with visible paths to profitability, a slowdown in China’s economy etc. “Asia remained the primary weak spot in the VC market globally…Compared to 2018 results, VC investments in Asia dropped more than 42 per cent, in part due to the lack of massive mega-deals in China in 2019,” KPMG said its Q4 2019 on VC investments.
However, what might take a toll on the existing sluggishness is the outbreak of novel Coronavirus that was declared as a Public Health Emergency last week by the World Health Organization (WHO). Taking a cue from outbreaks of deadly viruses in the past and how they have thwarted VC funding in startups, the Coronavirus outbreak might also hinder investments in the region’s startups. Although China’s Wuhan city, currently locked down, is the reported epicentre of the deadly virus, 28 countries globally have reported 28,348 confirmed cases and caused 565 deaths — 99 per cent of which (both cases and deaths) have been in China, according to Worldometer.
Back in November 2002, the SARS (Severe Acute Respiratory Syndrome) outbreak appeared in Southern China’s Guangdong province that spread to more than 12 dozen countries. Total cases reported were around 8,100 and the death toll stood at around 774. This was until May 2004 when WHO announced that the outbreak has been contained. During this period, which was 2003 and 2004, private investments in Asia stood at 27 per cent and 29 per cent respectively below 2002 levels, according to CB Insights. The recovery was visible in Q3 2004. A year later, the Asian investments in private businesses hit a new high including Alibaba’s $1 billion funding from Yahoo.
“There will be some impact of around 10-20 per cent but it won’t be as high as 50 per cent because I expect they will contain it in two-three months. There may be a slowdown specifically in China but cannot say the same for other Asian countries. It is hard to comment but we can say something might happen if we take a cue from previous similar outbreaks,” Abhishek Goyal, Founder, Tracxn — a global startups tracker — told Financial Express Online.
China is a different beast today than it was in 2002 or 2003. Today, a lot of concentration of capital in China for investment is already from domestic investors. So, Chinese VC funds are all funded by LPs including country’s banks, insurance companies, technology companies. So the question of Coronavirus impact on investment comes when there is capital flight,” Brij Bhasin, General Partner at Asia-focused early-stage venture capital fund Rebright Partners told Financial Express Online.
The private investment market in technology and startups once again squeezed during the 2015-16 Zika virus outbreak in Brazil and the rest of South America particularly. The public health emergency was declared in February 2016 but was lifted in November 2016 itself. However, as of July 2019, WHO in a Zika virus update said 87 countries had evidence of the virus which was “primarily transmitted by the bite of an infected mosquito from the Aedes genus, mainly Aedes aegypti, in tropical and subtropical regions,” according to WHO. The investment activity in 2016 went down by 50 per cent vis-a-vis 2015, only to bounce back at a whopping 404 per cent in 2017, data from CB Insights showed.
“There might be some temporary slowdown particularly in China due to this (Coronavirus) but it won’t be the reason if investment activity remained soft this year as well in the region,” an industry expert told Financial Express Online. Chinese venture capital has been on a steady decline since Q2 2018 when it peaked to nearly $35 billion to around $4 billion in Q4 2019, as per Crunchbase data. The volume too had plunged from around 975 deals in Q3 2018 to around 150 deals in Q4 2019.