Will China’s cybersecurity review of IPOs close the door on tech firms raising funds in New York?
- Some Chinese tech firms have postponed or dropped plans for a New York IPO following Beijing’s probe into ride-hailing giant Didi Chuxing
- In the first half of 2021, there were 37 Chinese IPOs in the US, raising a combined US$13.8 billion, more than all of 2020
China’s requirement for a cybersecurity review of virtually all foreign initial public offerings (IPOs) could drastically accelerate the decoupling between American capital and Chinese technology, as the proven path for venture capitalists and private equity investors to cash out is now uncertain, analysts said.
While China is not shutting the door completely on its tech firms going public in New York, as IPO candidates can still proceed if they pass Beijing’s cybersecurity review, the proposed introduction of a new gatekeeper is set to add cost and uncertainty to foreign listing plans.
“For years, the biggest exit path for venture-back companies has been the US,” said William Bao Bean, general partner of New Jersey-based venture capital firm SOSV. “But now that has been closed off.”
Compared to going public overseas, Bean said listing in mainland China poses many more challenges for investors because of the country’s strict regulations in both the tech and capital markets.
“When it comes to an onshore listing, the timing is always uncertain [because] it’s hard to see when one can exit. In terms of both liquidity and the experience required, it is not as easy an exit as if it were in the US,” he added.