Morning Markets: Don’t just listen to us, China’s startup sector is slowing.
The recent Crunchbase News report on the Chinese startup venture capital market detailed a slowdown in the second half of last year, with the fourth quarter posting the country’s lowest reported venture dollar figure in 2018. Compared to the year-ago period, Q4 2018 venture figures in China were down in dollar terms, though deal volume appeared higher.
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On the same theme, a piece in the South China Morning Post out today details similar venture results from data provider Prequin. The article effectively confirms what it calls “[r]umours about tighter hiring practices in China’s tech sector [that] began to swirl at the end of 2018 amid cooling valuations for start-ups [and] a shrinking pool of venture capital funds” by citing the experiences of several workers in the Chinese tech space.
The data and the anecdata don’t look good for the Chinese venture and startup space. And if things got a bit overenthusiastic in the United States over the past few years – recall the boom in supergiant venture rounds – the Chinese market at times seemed to be in a class of its own. The great capital wave that the country saw has led to new, big companies like the ever-expanding Luckin. And anti-successes like the twin misses of Ofo and Mobike, which failed to live up to their hype.
The question is how much of the Chinese (and American) startup scene needs to unwind, and what portion merely needs to reset and drive more profitable revenue through its books. It’s going to be a lot of each. If the Chinese venture slowdown persists into 2019, the ratio could tip towards shutdowns. It’s simply impossible to tell from here what portion of China-based startups are floating enough cash to get market-ready to raise more, and what portion is not.
Adding to the China technology markets current problems was the removal of Bing to the country’s tech market. As China’s regime’s firewall determines which websites and services are Sufficiently Safe to be allowed, having Bing lose that imprimatur—given Microsoft’s efforts to neuter Bing into something censors could tolerate—may signal the coming of an even more closed tech space. Surely that would not be a net-positive for China-based tech.
Top Image Credit: Li-Anne Dias.