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More start-ups in China succeed in getting funding, but investors are becoming choosy

A report finds that a third of start-ups found investors in the first half of this year, up from a quarter a year ago, but venture capitalists were more selective when it came to funding bigger amounts

PUBLISHED : Wednesday, 20 September, 2017, 4:36pm
UPDATED : Wednesday, 20 September, 2017, 11:19pm

Almost one-third of Chinese start-up companies succeeded in getting funding in the first half of this year, compared with a quarter in the same period last year, pointing to a pickup in interest among venture capital firms, a report showed on Wednesday.

The report, jointly produced by Tencent Technology and internet business research firm ITjuzi, showed that 31.7 per cent of start-ups found funding in the first six months 2017, up 5.1 percentage points from the 26.6 per cent in the same period last year.

However, the number of start-ups established in the period fell 74 per cent from the previous year to 230, while investors were more selective about larger funding deals, the report noted.

Industry participants said the decline in the number of start-ups and the level of success in getting big funds could be attributed to a more measured approached on the part of both entrepreneurs and venture capitalists.

“Now, people are more rational about establishing start-ups compared with the situation two years ago, when entrepreneurs were strongly supported by national policies and favoured by venture capital firms,” said Sam Liang, founder of three-year old education company Debai.

“And investors are also cautious in selecting projects now as most of the promising projects such as bike-sharing service providers have already been flooded with money,” added Wang. “There are less deals worthy of a big bet.”

Of the 230 new companies, 48, or 21 per cent, were in the corporate services business, mainly artificial intelligence, big data and cloud computing, an area traditionally favoured by venture capitalists. They were followed by culture and entertainment firms, which made up 15 per cent, and e-commerce and education companies, which accounted for 8 per cent each.

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In terms of the overall funding for e-business companies, not just start-ups, in the period, there were 1,519 deals, with the transport industry attracting the lion’s share of the money, taking 90.5 billion yuan (US$13.7 billion) or 37 per cent of the total.

That was due largely to sharing service providers including bicycle-sharing services Ofo and Mobike, while Didi Chuxing, China’s ride-hailing service giant, raised US$5.5 billion in April this year.

“Entrepreneurial opportunities have been reducing in the transport industry and medical and property services now that these industries have entered a period of rapid development,” said Zheng Kejun, the main author of the report.

“Education and agriculture, however, still provide many entrepreneurial opportunities as their development is in a very early stage.”

Innoangel Fund was the most active Chinese investor, being involved in 54 out of the 1,519 funding deals, followed by IDG Capital with 53 and Matrix Partners China with 39, the report said.

China’s three internet giants also took part in the funding, with Tencent, investing in 38 funding deals, e-commerce giant Alibaba – the owner of the South China Morning Post – investing in 23 and search engine Baidu in 6.

Overall, investors were cautious about funding deals of over 100 million yuan, with only 192 such cases in the first half of this year, the report said. In the first half 2014 there had been 390 such investments.