“Starting in March, deal activity has come back. Our Beijing office has resumed a normal work schedule already,” said Zhang. These are cheering signs for start-ups and investors in the US and Europe, who are now seeing investment activity begin to slide.

Other China-focused venture capitalists are also quietly amassing capital to hunt for bargains. IDG Capital is raising US$3 billion, and ByteDance Venture Fund is targeting 10 billion yuan (US$1.4 billion) for deals in China.

China was the first country to get hit by the coronavirus and is the first country to bring the outbreak under firm control, gradually giving investors of all stripes the confidence to tiptoe cautiously back into markets.

“China should also be the first country whose economy starts to improve and where life returns to something more closely resembling normality,” said Wenli Zheng, Asia ex-Japan portfolio manager at investment manager T. Rowe Price.

Venture capital in Greater China was hit the hardest globally by the coronavirus outbreak, according to data released by alternative markets data firm Preqin on Thursday. The number of deals completed in the first three months of the year slumped 39 per cent to 495 transactions from the previous quarter, versus a drop of 27 per cent in North America and 12 per cent in Europe.

“Investors will need to decide which companies to save,” said Leung. Qiming invested earlier this year in a start-up at the same valuation as 2-½ years ago, a deal that would have been unimaginable in recent years as prices have skyrocketed.

Chinese start-ups scramble for cash as venture capital funds freeze

Fear of missing out has given way to a more hard-nosed approach to investing. Venture capitalists are now less willing to blindly back perpetually loss-making start-ups in the hopes they will become fabled unicorns, as privately owned companies valued at over US$1 billion have come to be known. They want founders to articulate a path to profitability clearly.

“There were a number of warning signs regarding Luckin Coffee’s business practices, including by short-sellers, which appear to have been overlooked by regulatory bodies,” said Stuart Witchell, a managing director at risk consultancy firm Berkeley Research Group. His firm has recently been contacted by foreign firms with investments in China to undertake a forensic assessment and investigation of several companies once the coronavirus abates.

Companies are even swallowing so-called down-rounds, where they accept a lower valuation than the previous one, said venture capital investors.

“You need to face reality, accommodate the terms investors are prepared to give you and prove you can weather the storm,” said Zhang speaking about founders of loss-making start-ups over the short term.

Venture capital firms have plenty of firepower to pick off bargains as they appear. Globally, venture capitalists had around US$188.7 billion as of mid last year, according to PitchBook, that works out to more than two-and-a-half years of capital on hand.

Qiming said on Thursday that its US$1.1 billion fundraising for Qiming Venture Partners Fund VII was on time and on target. It raised capital from endowments, foundations, family offices, and private pensions.

The private equity investment firm scrambled to amass its funds despite a climbing number of coronavirus cases and citywide lockdowns around the world. It even moved meetings from Shanghai to San Francisco, New York and Boston mid-February to discuss the opportunity for bargains in China.

Qiming is scouring the biopharma, medtech, diagnostics, health care services, information technology, artificial intelligence, enterprise services, consumer internet and e-commerce for deals.