- ORIGINAL NEWS
China’s VC playbook is undergoing a sea change as U.S. IPO exits get tougher
- SUMMARY
In China, venture capital funds are shifting their strategies due to geopolitical tensions, slower growth, and stricter regulations.
They now face challenges in raising funds from traditional sources like US university endowments and pension funds, leading them to explore alternative sources such as the Middle East and government-linked funds.
The share of US dollars in total venture capital funds raised in China has dropped significantly, and funds are increasingly denominated in Chinese yuan.
US investors are scrutinizing investments in China due to increased regulatory hurdles for Chinese companies seeking US listings.
Chinese authorities are emphasizing support for industrial development and hard tech companies, rather than consumer-facing sectors.
This shift requires more capital, resulting in larger median deal sizes for venture capital investments.
The change away from internet apps towards hard tech requires more capital, shifting the focus of venture capital funds towards government-backed hard tech companies typically aiming for domestic exits rather than US listings.
The shift could lead to a more state-directed and concentrated venture capital landscape in China.
- NEWS SENTIMENT CHECK
- Overall sentiment:
negative
Positive
“That’s far smaller than the median deal size of $280 million in 2019, and a fraction of the median of $804 million per transaction in 2023 for the same category of investments, the analysis showed.”
“Many of those deals were led by local government-backed funds or state-owned companies, in contrast to a decade earlier when VC names such as GGV Capital and internet tech companies were more prominent investors, according to the data.”
Negative
“Beijing’s focus for policy support also means VCs need to look at industrial, rather than consumer, sectors — deals that require far more capital.”
“The shift toward domestic channels also means a change in currency.”
“The median deal size in 2013 among those 20 largest China VC transactions was $80 million, according to CNBC calculations based off PitchBook data.”