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The value of deals due in the second quarter of 2023 marked the fourth consecutive quarter of decline, highlighting the long-lasting nature of the recession.
recently report PitchBook showed that venture capital firms in China invested $26.7 billion in 3,072 transactions during this period. Although this data looks great at first glance, closer examination reveals a significant shift in the dynamics of China’s VC ecosystem.
Chinese venture capital is experiencing a significant decline
On an annual basis, the data indicates a 31.4% decline in venture capital investment compared to 2022 levels. If this decline continues, it will be on track in 2023 to fall below levels seen in 2016, a year that many consider a benchmark for industry growth in China.
A major trend in the Chinese venture capital landscape is the prevalence of smaller investments. According to PitchBook, the annual value of mega-deals, which exceed $100 million, was on pace to reach its lowest point since 2015.
The value of deals due in the second quarter of 2023 marked the fourth consecutive quarter of decline, highlighting the long-lasting nature of the recession. This decline is not an isolated incident, but an ongoing trend that has raised concerns among both domestic and international investors.
The report highlights the convergence of multiple factors, including slowing economic growth, rising geopolitical tensions and regulatory changes, that are collectively reducing the prospects of Chinese startups and their access to venture capital.
Decline in foreign investor participation
PitchBook’s report reveals a significant decline in foreign investor participation in the Chinese startup ecosystem. In 2018, about 16% of deals involved the investor base outside Greater China. In contrast, the number has fallen to a record low of 10% in the first half of 2023.
The report also highlights that only three funds denominated in US dollars closed in the first half of the year. This suggests that interest in China-focused funds among international investors has waned. The combination of regulatory hurdles and geopolitical uncertainties has made some US investors cautious about putting their capital into Chinese enterprises.
Despite the challenges, the report shows that the growth of yuan-denominated funds and mid-sized funds has helped boost overall fundraising activity in Greater China. Still, while fundraising activity is on pace to surpass 2022 levels, this represents a significant slowdown compared to the record $131.4 billion raised in 2018.
Meanwhile, market sentiment initial public offerings IPOs in both Hong Kong and the US remain subdued. The number of exits dropped from 177 in the first half of 2023 to 130 in the second half of 2022.
Similarly, the exit value fell from $100.2 billion to $77.5 billion. This indicates that startups are facing difficulties at the end of the venture capital investment process, as they struggle to access the public markets.
Benjamin Godfrey is a blockchain enthusiast and journalist who loves writing about real-life applications of blockchain technology and innovations to promote general acceptance and worldwide integration of the emerging technology. His desire to educate people about cryptocurrencies drives his contributions to well-known blockchain media and sites.
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