China's IPO shift after DiDi debacle
Venture capital is about playing the long game, and that strategy may soon pay off in China.
Driving the news: China's government last week suggested it will loosen some of its restrictions on overseas listings by local companies, which began last summer with the DiDi debacle.
- Some of this is still amorphous, with China just pledging more "predictable regulation."
- China also says that it's working with the U.S. on a cooperation plan that clear a path for the sorts of security audits that D.C. demands and that Beijing detests.
- In short, China wants to reverse its tech sector's flagging fortunes, and also to stabilize Hong Kong. This may even apply to DiDi, whose stock soared nearly 60% on Friday (albeit from a ridiculously low base).
When China began its crackdown, we noted that it was a stark reminder of the risks investors take when backing companies that live under authoritarian rule. But venture capitalists chose to accelerate instead of yield.
- VCs invested nearly $114 billion into Chinese companies in 2021, per PitchBook.
- That's well above the 2019 or 2020 totals, and just shy of the 2018 record.
Look ahead: The big question now is what happens to the big backlog of Chinese companies that postponed IPOs originally planned for late 2021. The macroenvironment has changed a lot in the intervening months, which means Chinese regulators may have caused some companies to miss their opportunity.
- Well, at least for now. As a venture capitalist might advise: "Just wait a bit longer, because the winds will shift again."