What should come as no surprise, a report by VC research and analysis firm Preqin (via Bloomberg) has concluded that China is leading the world in global slowdown of venture capital deals.
According the report by Preqin, China saw a total $24.7 Billion worth of venture deals in the first four months of 2022, declining by 44%. This is almost double the decline faced by US and four times the global average.
While there is a very apparent financial slowdown across the world, especially in tech, China has additional factors as well, which may have directly impacted the investing climate. Perhaps the most obvious of those is the administration’s continous cracking down on tech companies via their regulatory bodies, not sparing even the biggest of US tech. Additionally, COVID-19 lockdowns in key cities like Shanghai also hasn’t helped the situation.
Tech startups have had a dream run over the past decade, with sky high valuations and highly competitive VC deals. China, despite government policy, managed to get $130 billion in venture deals in 2021, 50% higher than 2020. But, due to multiple reasons like Russia-Ukraine war, COVID-19 and the subsequent Chip Shortage creating the perfect storm, the Venture capital pool appears to have dried up just a bit.
Yo Zheng, partner at Zoo capital, maintained an optimistic stance in a statement, saying “Investors and LPs may not be as desperate as the data showed. They are still investing in China but at a different pace and in different ways in the current economic cycle.”
The Chinese communist party has been playing favourites with certain sectors like renewable energy, electric vehicles, semi conductors and artificial intelligence. This year’s most splurging VC deals included an $800 million Series B round for a supply chain technology unit of JD.com Inc. driven by Hillhouse Capital and Warburg Pincus. Another one was the 5 billion yuan ($750 million) bet on chipmaker Guangdong Fenghua Advanced Technology Holding Co. from investors including UBS and China Merchants Capital, according to Preqin.
On the other hand, consumer tech industry has gotten the government’s cold shoulder, being the hardest hit sector of all. VC deals in information technology, healthcare and consumer discretionary industries of China saw a dip of 55% in the first four months of 2022, after surging by 190% in the previous year, according to the report.
China has led the world in total Kilowatts of energy produced by renewable methods, by a rather healthy margin. Hence, investors have not completed turned away from the country, as some of them do see promise in their choice of key industries.
Global Startup investment on a record decline
Venture capital budgets have been on the decline, and even more so is their willingness to make risky moves on startups. The infamous Y-Combinator warning letter of advisory to the founders backed by them, in times of economic downturn already talked in detail about the declining startup investing climate. VCs tend to not just reduce the amount they are willing to invest, but also ration a part of it out for their trusted bets that have already provided successful returns.
Another VC giant, Sequoia Capital, also advised founders to prepare for tough times, and to “Focus on profitability, growth at all costs is no longer rewarded.”