Venture Capital: Chinese Startups On The Rocks As Funds Dry Up Following Virus

February 14, 2020 | News, Venture Capital

The coronavirus outbreak has dealt a severe blow to the Chinese startup industry.

The flow of funds to Chinese startups has been severely constricted after the coronavirus outbreak. Venture capitalists rely on mutual contacts, conferences and field visits to monitor progress at startups they finance. The virus has put paid to all that, with executives staying put at home, working remotely, or video-conferencing. (Bloomberg)

Consider this: The aggregate VC funding for Chinese startups has fallen 60% year-on-year in January. Further, the number of deals has similarly plunged 61% in the same month, according to data from Preqin.

“This hasn’t been the start to the year of the rat that China was hoping for,” said Ee Fai Kam, head of Preqin Asian operations to Bloomberg.

Chinese startups get a one-two punch

The blow from the virus only compounded the troubles Chinese startups faced all through 2019. The US-China trade wars, a slowing Chinese economy and the fallout from the WeWork fiasco all queered the pitch for them. In 2019, the ‘music stopped’ for the seemingly endless stream of skyrocketing valuations and the burgeoning number of unicorns in the industry.

Further, the US led an offensive against Chinese tech giants such as Huawei and others. That only vitiated the normally ebullient atmosphere surrounding VC in China.

The quarantine measures in force across China to fight the virus are also affecting operations at startups. Business shutdowns, flight cancellations, and a forced Chinese New Year holiday extension for employees are hampering the functioning of their businesses. Meanwhile, malls, roads and office blocks are empty while the casualty figure from the virus mounts steadily.

Virus: VCs warn of the worst

Will Wang, managing director of Bertelsmann Asia Investments, told startups last month to rely on their own cash flow for at least a couple of quarters as financing activities would be delayed.

Unfortunately, Zhao Chenxi, a partner of SB China Capital, went further. He warned that startups need to prepare for a doomsday scenario. There could be no venture capital fund available for all of 2020.

However, Neil Shen, the founding partner of Sequoia Capital China, and a prominent tech investor, offered moral support.

“As an entrepreneur who went through SARS in 2003, I fully understand the challenges entrepreneurs face,” he said in a statement. “We will fully stand by to provide help and support to the companies we backed in any way possible.”

Related Story:  Sequoia’s $3.4B Fund Raise: US-China Politics Take a Back Seat to Opportunity                                                 

Free Industry News

Subscribe to our free newsletter for updates and news about alternatives investments.

  • This field is for validation purposes and should be left unchanged.


Latest Alternative Investment News
Digital Assets: Mike Novogratz Hits Out At Sam Bankman-Fried, Calls For His Prosecution
December 2, 2022     Digital Assets, News

Mike Novogratz, the billionaire CEO of Galaxy Digital (TSE: GLXY), was unequivocally critical about Sam Bankman-Fried’s virtual New York Times (NYT) Dealbook Summit interview. “I’m hoping that the authorities get…
FinTech: Monzo To Turn Profitable In 2023, Says CEO
December 2, 2022     FinTech, News

“We will be profitable in the next financial year,” TS Anil said at the summit on Thursday, though Monzo reported pre-tax losses of £119mn for the 12 months to the…
Artificial Intelligence: OpenAI Launches ChatGPT, A New Conversational AI System
December 2, 2022     Artificial Intelligence, News

OpenAI has unveiled ChatGPT, a new AI system that interacts in a conversational way. As part of a dialogue format, ChatGPT answers followup questions, admits its mistakes, challenges incorrect premises,…
Artificial Intelligence: Monarch’s Electric, Driver-Optional, Smart Tractor Now In Commercial Production

Monarch Tractor has rolled out the first production model of the MK-V tractor that combines electrification, automation, and data analysis to help farmers reduce their carbon footprint, improve field safety,…