China's venture capital collapse
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Chinese President Xi Jinping talks a good game about balancing private and state-owned enterprise, but the scoreboard is telling a different story.
The big picture: Venture capital investment in Chinese startups has collapsed, as first detailed last week by the Financial Times.
- Not only foreign investment from the U.S. and other western countries, but also from domestic, RMB-denominated funds.
- "I knew things were bad," says a U.S. venture capitalist who used to invest in China, "but I didn't know it was this bad."
By the numbers: Chinese startups have raised just $26 billion so far in 2024, according to data provided to Axios by PitchBook. That's more than an 82% decline from the 2021 peak, and less than 50% of any year over the past decade.
- And this isn't only about decreasing valuations. Deal counts are halved from just last year.
- Much of the fall is indeed due to foreign investment drying up — a meager 19% of the money into 6.9% of the deals so far in 2024 — but that doesn't account for nearly all of the decline.
- Also worth noting that the FT's data, sourced via Preqin and ITjuzi, was even more dire.
Zoom out: Most of the blame is being pointed at Xi, including his capricious crackdowns on homegrown tech giants and IPOs (both at home and overseas) that eviscerated business certainty.
- Moreover, Xi's removal of presidential term limits has led many investors and founders to conclude that his policies will supersede normal economic cycles.
- And it doesn't help that China-focused VC funds, denominated in both dollars and renminbi, have long had redemption clauses. Historically they've been extended when needed, but that's changed amid the global lack of VC liquidity events.
Yes, but: The U.S. government also has played a role, discouraging or outright banning investment in certain Chinese sectors.
- If a Silicon Valley venture capitalist doesn't know the next sector to be deemed vital to national security, let alone a social media app like TikTok, how does that VC place bets?
- In short, it doesn't. And if it had a Chinese affiliate fund, it's probably spun it off into a new firm that's spending more time investing in Asian countries other than China.
The bottom line: This isn't just about decoupling. It's about dying.
