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Startups

Asian investors hungry for Europe tech startups, equity expert says

Chinese tech giants and SoftBank look to continent as valuations soar elsewhere

Chinese ride-hailing company Didi Chuxing invested in Estonia-based Taxify ahead of a funding round by European investors.   © Reuters

TOKYO -- Asian investors are joining the race to invest in European technology startups, according to an industry group executive, a sign of growing competition as valuations rise in the U.S. and China.

"Tech funds [in Europe] are competing with Asian strategic investors who are looking to buy into that early-growth-stage tech company," said Michael Collins, CEO of Invest Europe, an association of private equity and venture capital companies, during a recent interview in Tokyo. "There are Asian companies that are competing to buy the assets in the first place."

Chinese tech giants and the $100-billion SoftBank Vision Fund have emerged as major investors in startups. While the majority of their investments are concentrated in the U.S. and China, soaring valuations are prompting some to venture into other markets.

Interest in the European startup scene has grown with a string of high-profile exits, such as the initial public offering of Swedish music streaming company Spotify this year.

Chinese e-commerce operator JD.com last year invested nearly $400 million in Farfetch, a London-based luxury fashion site that went public in September. Chinese ride-hailing giant Didi Chuxing invested in Taxify, an Estonia-based peer in 2017, ahead of a funding round led by Daimler in May this year. SoftBank Vision Fund poured 460 million euros ($522 million) into Auto1 Group, a German used-car sales portal, in January.

The emerging Asian presence in early-stage deals poses a challenge for European funds, which have amassed bumper cash piles in recent years. European private equity and venture capital fundraising hit an 11-year high of 91.9 billion euros in 2017, and has remained high at 45.6 billion euros for the first half of this year.

Michael Collins, CEO of Invest Europe, during an interview with the Nikkei Asian Review in Tokyo on Dec 6 (Photo by Wataru Suzuki)

Collins said more Asian institutions are putting more money into European funds. Asia accounted for almost 15% of private European equity fundraising last year, while the proportion for venture capital fundraising stood at 4%. The majority of investors are from within Europe.

"Given the size of the Asian economy and the amount of capital that is in Asia ... we think that should be increasing," the CEO said.

While the majority of the investment is in private equity, the increase in the number of venture capital funds over $100 million is expected to draw interest from large institutions, he added.

Asian companies are also key buyers of mature companies. In the tech sector, Chinese online travel agent Ctrip acquired Scotland-based Skyscanner for $1.7 billion in late 2016. Many deals are strategic in nature, and support the exit market during a downturn in IPOs, Collins said.

"One of the things that we see with some of the Chinese investors is that they are buying for strategic purposes," Collins said. "So the fall in tech stocks does not really change the price that they will attach to an asset."

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