China’s cash-starved unicorns face a bleak winter, as slumping equity markets give venture capital investors the chills
- Disappointing IPO valuations, dismal share prices are hurting venture capital investors’ returns – and their interest in making mega funding rounds in private companies
- Investors focused on late-stage companies have slowed mega-sized funding to Chinese tech companies, by as much as 89 per cent during first half
Chinese unicorns are facing a bleak winter, with fewer attracting investment of more than US$100 million in the first half of the year, as slumping initial public offerings (IPOs) and poor market sentiment gave investors a collective case of cold feet.
Based on the top 10 global deals sized at more than US$100 million, the venture capital deal value raised this year has also fallen off a cliff, down 89 per cent to US$2.5 billion from US$21.9 billion a year ago. The number of mega-sized rounds dropped to just two, from four a year ago, data from Preqin shows.
Last year, Chinese unicorns – private companies valued at above US$1 billion – drew in more venture capital than their US counterparts for the first time on record.
The slowdown has mainly been felt by the so-called late-stage companies, private companies that have a proven business concept, are approaching break-even and are close to an IPO. This is partly because corporate investors, such as technology behemoths Tencent Holdings and South China Morning Post parent Alibaba Group Holding, which are often active investors in late-stage companies, have been more cautious this year in deploying their capital, industry players said.
“Strategic investors, such as Tencent and Alibaba, have been a big driver of late-stage investing. But that has slowed down quite a bit, as equity value in the public market has decreased,” said Jason Tan, partner and chief investment officer at Jeneration Capital, which makes private-equity investments in technology companies in Asia-Pacific. Tan was speaking at a panel at the SuperReturn Asia conference in Hong Kong this week.
Late-stage investors are not earning good returns from their IPO exits of late, and that has led them to cut back, said Ron Cao, founder and partner at Sky9 Capital, a Shanghai-based venture capital firm that focuses on consumer internet and enterprise markets.