The ongoing coronavirus outbreak has caused capital flows into mainland China's startups to plunge 60 percent year-to-date.
Year-to-date, Chinese startup fundraising registered $1.79 billion from a 6-year low of 168 deals – a major plunge from last year’s $4.18 billion and 440 deals in the same period, according to alternatives data provider Preqin. Venture capitalists have only closed six funds thus far, raising $300 million.
The capital slowdown will likely drag the broader outlook for private equity in the region. Within Asia Pacific, China accounted for around half of all private equity investments and 80 percent of the nearly 3,000 country-specific deals Preqin tracked since 2016.
Liquidity Crunch
A partner at major Chinese venture capital firm SB China Capital, Zhao Chenxi, warned startups to brace for the potential of receiving no venture capital for all of 2020 in his social media account. Wu Shichun, founding partner of Plum Ventures, called the current period a test of the «hell model» for small and medium-sized enterprises that continue to bleed costs with no income.
Despite assurances from Beijing and regulators about providing financial buffers, data signals a bleaker reality. A report by Tsinghua University and Peking University said that 85 percent of the 1,506 SMEs surveyed in early February expect to run out of cash within three months with one-third of respondents expecting a more than 50 percent cut to annual revenue.
Late Stage Resilience
More mature startups have been the exception to the rule thus far as fundraising activities were relatively less affected. This is especially the case for businesses with strong digital capabilities to navigate around an outbreak that has created a market of 50 million homebound consumers in Hubei province.
According to a China TH Capital survey, over 81 percent of the 40 late stage private equity and venture capitalists saw no impact with the remainder seeking to cutback on investments plans for the year ahead.
