China's Venture Capital Boom Shows Signs of Turning Into a Bust

 

    Value of venture deals in the country plummets 77% in quarter

    Deals had surged to almost the same level as the U.S. in 2018

 

By Peter Elstrom, Bloomberg 

July 7, 2019

 

China went through a five-year surge in venture capital investment that fostered a new generation of startups from ride-hailing giant Didi Chuxing to TikTok-parent Bytedance Ltd. Now the boom may be over.

 

Venture deals in China plummeted in the second quarter as investors pulled back amid unpredictable trade talks and growing concerns about startup valuations. The value of investments in the country tumbled 77% to $9.4 billion in the second quarter from a year earlier, while the number of deals roughly halved to 692, according to the market research firm Preqin.

 

The second quarter of 2018 marked the peak for China venture deals with a total of $41.3 billion invested. That included a $14 billion round for digital payments giant Ant Financial, $3 billion for e-commerce upstart Pinduoduo Inc. and $1.9 billion for truck-sharing service Manbang Group (known also as Full Truck Alliance Group). By comparison, the largest venture deal in the second quarter of 2019 was a $1 billion investment in JD Health, the health care affiliate of e-commerce provider JD.com Inc.

 

China has never been through a widespread bust like the U.S. did after the dotcom boom, in part because the country’s venture market is so new. Years of steady growth in tech investments resulted in predictable -- and enormous -- profits. Whether the current downturn becomes a painful crash depends in large part on how VCs, entrepreneurs and regulators navigate terrain they’ve never seen before.

 

“We’re seeing real stress in the system for the first time,” said Gary Rieschel, a founding partner at Qiming Venture Partners who has worked in China and the U.S. “We have never seen a downturn in the China market. For 20 years, it’s been pretty much up and to the right.”

 

China’s venture boom...

 

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