In the fallout of China’s ‘capital winter’, VC funding plummets in Q1 2019

The market plunge is put in perspective by explosive, exuberant growth in recent years.

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In the fallout of China’s ‘capital winter’, VC funding plummets in Q1 2019

China’s private fundraising sector appears to have fallen off a cliff in Q1 2019, though the numbers are less surprising when taking into account that the market has been in a boom phase over the past few years.

According to a new report by the Chinese Academy of Science and Technology, the number of VC/PE firms participating in fundraising rounds, the number of firms who raised a new fund, and the scale of fundraising, all dropped sharply last quarter.

The report finds 110 VC/PE firms participated in a fundraising round last quarter, down 53% year-on-year, while a total of USD 35.9 billion (RMB 241 billion) was invested, a nearly 87% drop from the year before.

Meanwhile, the number of firms who successfully closed a new fund reached 94, down 59% year-on-year, though one bright spot is that these firms raised a total of USD 29.5 billion (RMB 198 billion), up 16.6% compared with Q1 2018.

The report also notes the relative strength of US-dollar denominated funds, with an average fund-value of USD 1.44 billion (RMB 9.67 billion), whereas the RMB-denominated funds averaged just RMB 1.1 billion (USD 164 million).

Declines in China’s private capital markets are put into perspective by the sector’s explosive and exuberant growth in recent years, which is now followed by a market crunch driven by fears over irrational valuations, a slowing economy, the ongoing US-China trade dispute, along with stricter asset management regulations in China.

From 2015 to the end of September 2018, the number of PE/VC funds registered in China and the amount of capital under management grew eightfold and fivefold, respectively, with the latter figure reaching RMB 8.34 trillion (USD 1.2 trillion).

VC funding in China also eclipsed the US for the first time in the first of half 2018, at USD 56 billion (RMB 376 billion) compared with USD 42 billion, according to Preqin estimates cited by The Economist.

Yet, by then, the capital crunch had already begun. In the first nine months of 2018, funds raised by Chinese PE funds and VC firms dropped 72% year-on-year, ending a five-year growth streak.

Editor: Nadine Freischlad