Winter is coming for China’s private equity as market rout slashes start-up firms’ valuations
- Fresh cash raised by PEs and VCs plunge more than 70 per cent in China in the first nine months, as the state cracked down on debt
- Five years of funding frenzy has come to a halt, as froth was squeezed out of the bubbly market
Private equity funds, venture capitalists and angel investors are bracing themselves for a harsh winter as China’s trade stand-off with the US threatens to bring investment in emerging technology start-ups to a standstill, and drag economic growth back to its slowest pace in a decade.
Money raised by Chinese PE funds and VC firms plunged 72 per cent to US$60.2 billion in the first nine months of 2018 from the same period last year, halting five consecutive years of growth, according to the latest data from China Ventures, which compiles data on the industry.
“The froth is being squeezed from a bubbly market,” said Zhou Wei, founder and chief executive officer of a fund that mainly invests its US$510 million of capital in early-stage companies in technology, media and telecommunications. “Many smaller funds or start-ups could die.”
The funding freeze could not have come at a worse time for China’s start-ups, which have languished for the past handful of years as banks’ least preferred – and in most cases, simply unqualified – borrowers.
The froth is being squeezed from a bubbly market. Many smaller funds or start-ups could die
That reluctance had provided fertile ground for PE/VC funds to blossom, unleashing billions of dollars of capital for thousands of start-ups that have fundamentally altered the way Chinese consumers shop, travel, read and spend their leisure time.