When the bosses of U.S. video messaging app Tango were on the lookout for a strategic partner, they turned in the direction of Hangzhou, China – home of ecommerce company Alibaba.
Within weeks, Tango's founders met Alibaba's executive vice-chairman Joe Tsai, before selling a quarter of the company for $215 million.
Deals like this, where Asian capital goes into a young tech company from another part of the globe, are becoming increasingly common. The region is emerging as a key source of funding for the sector, putting Hong Kong and Singapore firmly on the map for tech start-ups seeking cash.
Asian capital has historically flowed into tech investments through western private equity or venture capital funds. But Asian investors – both corporate and financial – are now more sophisticated, have bigger programs, and are leading direct investments, says Daniel Wetstein, TMT banker for Morgan Stanley in Asia.
Temasek, Horizons Ventures, Alibaba, and Tencent – four of the main participants – have joined in private equity and venture capital deals worth $2.4 billion so far this year, up from $1.7 billion last year and just $186 million in 2012, according to data compiled by Crunchbase.
While still much smaller than Silicon Valley, that chimes with a broader tech sector M&A theme. Non-Japanese Asian acquirers have completed 678 deals this year worth more than $31 billion, according to Dealogic, up from 554 deals worth $12 billion over the same period last year. At 24 per cent of the global total, Asian groups are also taking their largest ever slice of the pie.
Two of the biggest beasts, Chinese rivals Alibaba and Tencent, been aggressively taking stakes in companies around the world as soaring valuations give them freer access to financing. Tencent's market capitalization has risen from $60 billion to $140 billion in the past 18 months, while Alibaba's initial public offering, set for later this year, could be the largest ever and value the company at more than $150 billion.
Tencent's recent deals include a $450 million equity stake in Sogou, a Chinese search engine, along with investments in Plain Vanilla, an Icelandic games company, and US web platform Weebly.
Alibaba too has become more active, investing in search engine Quixey, as well as Tango and taxi app Lyft. Both companies now have global acquisition teams staffed by former sector analysts and bankers.
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But the spending spree is not just industry groups buying stakes in companies for strategic reasons. Financial investors such as sovereign-backed funds have also stepped up a gear, wooed by the market performance of listed tech companies and the global race to find the next Facebook.
Temasek, Singapore's state investment agency, is the most established player. Though active in investing in technology companies for a number of years, it has been building expertise in the sector as it eyes deals ranging from start-ups to public companies.