Venture capital market

When it comes to raising money, investors prefer traditional VC and PE fundraising over ICOs

Respondents at a recent private equity and venture forum said cryptocurrencies offered in initial coin offerings are unlikely to erode traditional capital

PUBLISHED : Tuesday, 28 November, 2017, 6:15pm
UPDATED : Tuesday, 03 July, 2018, 9:07pm

A majority of private equity and venture capital investors believe that investors’ allocation to the sector will rise in 2018, and that these funds will be invested through traditional PE capital and VC fundraising rather than initial coin offerings (ICO).

About 1,100 participants from 34 counties were surveyed at the annual AVCJ Private Equity and Venture Forum held earlier this month on their outlook towards the industry in Asia.

About 83 per cent of the respondents believed that allocations to private equity will continue to rise.

Some 79 per cent said digital tokens that were offered under an ICO – which has become an alternative, albeit controversial means of start-up fundraising – will not overtake traditional capital raised by PEs and VCs.

As reported by the South China Morning Post earlier this month, industry players at the same event pointed out that in China, some founders of start-ups have been using legal structure that would allow funding raising through an ICO. This has come amid Beijing’s move to clamp down on all forms of ICOs and trading of cryptocurrencies for fear of fraud and systemic risks.

Investors in Chinese start-ups still eye exits through digital currency offerings

Industry players believed that some start-up shareholders might view ICOs favourably because ICO was regulated less heavily and this in turn meant a shorter cut to raising funds quickly – compared to traditional share sale through an initial public offering, or venture capital fundraising.

“There is still a lot of risks in ICOs because of a lack of regulations … but the question we need to reflect on is how [the VC and PE industry] could be overly regulated,” said a senior manager for a Pan-Asia VC firm based in Singapore.

Investors believe allocations to private equity will continue to rise

Today, regulators have no consensus in their approach in regulating ICOs – ranging from a complete ban in China and South Korea – to a more regulated approach. For example, in Hong Kong the securities regulator said it would regulate ICOs that sell cryptocurrencies that were akin to securities defined under its securities law.

For the first nine months this year, fundraising in Asia stood at US$73.1 billion; while investment announced was at US$140.8 billion. AVCJ, which provides this data from its own research, said the latter amount was likely to surpass the $144 billion investments made in 2016.

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In 2016, fundraising reached an all-time high of US$127 billion, driven to a large extent by a resurgence in yuan-denominated funds, AVCJ said.

For the nine months, US$53.4 billion PE exits had been realised. In 2016 PE exits amounted to US$72.4 billion, also a record high.

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