China’s venture capital funding rallies after coronavirus lockdown

April 15, 2020


By Jamie Green

Venture capital funding in China rebounded in March, new figures showed, as investors hunted for bargains among start-ups after the coronavirus outbreak.

Chinese start-ups and technology companies raised more than $2.5bn during the month, marking a record sixfold rise from just $410m in February, according to data from the Asian Venture Capital Journal.

The rise in activity suggested that funds had taken advantage of lower valuations resulting from the pandemic to invest in sectors including biotechnology and online education. Authorities began reopening the Chinese economy in March after managing largely to contain the country’s coronavirus outbreak.

However, venture capital financing still fell by more than half to $3.8bn in the first quarter compared with the same period in 2019 as the virus brought the world’s second-largest economy to a virtual standstill.

“Valuations are a lot more reasonable now,” said Zhao Chen, managing partner at start-up accelerator Plug and Play China. “It’s a good time to find strong teams who can power through this period.”One key driver of March’s increase was a $1bn financing round for online education start-up Yuanfudao, led by investors including Chinese technology company Tencent.

The gaming and social media group has continued to pour capital into Chinese start- ups in the first quarter, financing 17 companies, according to ITjuzi data, even as rivals such as Alibaba slowed their dealmaking pace.

Even without the Yuanfudao financing, overall deal value in March for growth funding by large Chinese technology companies into start-ups was six times higher than in February, AVCJ figures showed.

Professional funds have also demonstrated a willingness to deploy capital despite the impact of coronavirus. One large Chinese venture capital group, Qiming Ventures Partners, last week announced the closure of a $1.1bn fund to invest in health and other technology start-ups.

William Bao Bean, a partner at SOSV Investments in Shanghai, said there was “definitely capital out there”, but only for companies whose business models haveproved robust in the face of widescale quarantine measures in China.

“Meetings are happening, some term sheets are coming through, but what matters is cash in the bank, and we are only seeing that with start-ups that got a boost from Covid-19”, such as ecommerce, educational technology and esports, he added.

Plug and Play China’s Mr Zhao attributed part of the rise in March to fundraisings that had been delayed in previous months by the outbreak. In a sign that the start- up slowdown might linger, Mr Zhao said, seed financing for newly formed companies remained tight.

Many would-be entrepreneurs are also staying put in “lower-risk” stable jobs because of the uncertain economic environment, while university research labs that are known for spinning off start-ups were closed because of the outbreak, Mr Zhao said.

Fundraising in China remains significantly below the record levels seen in 2018, when a start-up boom peaked. That turned to a bust last year as returns languished and many investment companies went out of business.

The recent pick-up in venture funding has not been matched in other markets that have been beneficiaries of Chinese capital, such as India and south-east Asia. Chinese venture capital investment in both fell to a two-year low in March, according to Refinitiv data.