Chinese start-ups scramble for cash as venture capital investments freeze amid coronavirus outbreak

As China venture capital-backed deals drop to a six-year low, venture capitalists are advising start-ups to go into “hibernation”

As the Chinese economy slows, some venture cap see fewer deal opportunities in 2020

Reading Time:5 minutes

A woman wears a protective face mask inside the Shanghai Hongqiao railway station on the last day of the Spring Festival travel rush, as the country is hit by the novel coronavirus outbreak, in Shanghai, China February 18, 2020. REUTERS

Published: 8:00pm, 21 Feb 2020Updated: 3:42pm, 24 Feb 2020

China’s once frothy venture capital market has seen its slowest start to the year since 2013, as fast-growing start-ups struggle to keep their research on track and secure vital funds amid the spread of a deadly coronavirus.

Travel restrictions aimed at blocking the spread of the viral epidemic, which causes the disease known as Covid-19, have had the unintended consequence of derailing investors’ plans to meet with China’s cash-hungry companies.

The coronavirus is also likely to drag down the 2020 growth pace of the world’s second-largest economy, with the knock-on effect of slashing the price tags of start-ups, prolonging their financing negotiations. Ultimately, fewer deals are likely to be signed this year, adding to the chill that has befallen the industry, venture capitalists said.

As the coronavirus epidemic worsens, the consumption slump will lead to a slowdown in the overall economy, which spills over to investments in hi-tech industries, the bedrock of the “Made in China 2025” industrial master plan. Funds from venture capitalists are the lifeblood of such industries as they finance entrepreneurs with cutting-edge ideas even when banks and public market investors deem them too young and risky to back.

A teller counts yuan banknotes at a China Merchants Bank branch in Hefei, Anhui province. Photo: Reuters

“There will be fewer investment opportunities this year, and fewer new funds will be able to complete their fundraising,” said Wayne Shiong, a partner at the venture capital firm China Growth Capital, in an interview with South China Morning Post.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x