Apr 1, 2023 - Economy

China's venture investing had a rough 2022

Illustration of money in the shape of downward pointing arrows.

Illustration: Shoshana Gordon/Axios

China’s venture activity in 2022 had a noticeable decline, during a year when geopolitical tensions with the world's second-largest economy hit a crescendo.

Why it matters: Over the last decade, China’s startup boom stoked concerns that it was surpassing American-style capitalism. But ongoing pandemic restrictions and macro trends put a damper on the last year, which also coincided with growing worries about Chinese tech companies like ByteDance, whose TikTok app could be banned in the U.S.

  • In fact, next week Rep. Mike Gallagher (R-Wis.), chair of the new House China select committee, will travel to California to meet with venture capitalists Marc Andreessen and Vinod Khosla (along with other business leaders), a source close to the committee tells Axios' Sophia Cai.

By the numbers: Total venture dollars invested in China in 2022 were $69.5 billion, across 6,186 deals, per PitchBook data.

  • That’s down from $136.2 billion across 7,486 deals in 2021.
  • Last year saw the lowest annual deal value since 2017.

Between the lines: One big reason for the drop is the decrease in mega-rounds ($100 million and over), which also saw their lowest dollar value and deal count since 2017.

Zoom in: Venture rounds with participation from investors outside of China declined as a portion of total rounds, underscoring investors’ recent concerns and pullback in dollars.

  • Last year, only 15.1% of all China VC deals included investors from abroad — the lowest level since 2017.
  • Deals denominated in Chinese yuan (RMB) and in U.S. dollars both decreased last year, though the latter shrunk significantly more. Deals in dollars plunged by 67.6% to $18 billion, while deals in RMB fell by 36.3% to $51.3 billion.

Meanwhile: Venture fundraising also sharply dropped last year, with Chinese VCs raising $44.5 billion, just under half of 2021's fundraising.

  • And of that total, $11.8 billion went to a single fund, the Shanghai Zhangkeherun Biomedical RMB Fund.
  • Capital commitments were concentrated, with 54.1% going into 13 funds that are $500 million or larger (down from 35 such funds being raised in 2021). Eight of those were denominated in yuan, further underscoring the pullback from foreign investment.
  • Funds of $100 million or less raised $6.7 billion across 189 funds last year, a drop of 66.6% and 65.5% in value and fund count, respectively.

Yes, but: China's relaxing of pandemic restrictions at the beginning of this year could mean a pickup in venture deal activity for 2023.

The bottom line: Even China hasn't been immune to the weirdness of the market in the past year.

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