Venture capital firms in China deployed $26.7 billion across 3,072 investments during the first six months of 2023, according to PitchBook. This translates to an annualized 31.4% decrease compared to 2022, which could put the figure below that of 2016. Moreover, the data revealed that only three US dollar-denominated funds concluded any commitments during the first half of the year.
The Chinese startup scene which previously produced unicorns such as ByteDance and Didi is enduring the aftereffects of China's economic slowdown combined with geopolitical struggles, according to a study done by PitchBook on Monday. The country's economic revival from the pandemic has weakened, and American-Chinese conflicts have affected financial markets, leaving sentiment on the quiet side. Additionally, Chinese legislation over the past two years has made it more difficult for businesses to go public overseas.PitchBook discovered that venture capitalists in China had made investments worth $26.7 billion across 3,072 deals in the initial half of 2023. This indicates an annualized decrease of 31.4% from 2022 numbers, which is set to fall below 2016 levels. Most of the investments were smaller in scale, and the annualized value of mega-deals (worth $100 million or more) is forecasted to reach its least level since 2015, as per the report.
China's economy has started to improve in the last few weeks, however, the decrease in early investment is significant and difficult to get back. In the second quarter, the value of deals was down for the fourth consecutive quarter, per PitchBook. This was attributed to a reduction in foreign involvement. Prior to that, investors in the growing, yet still small, space of early-stage investments in China had successfully attained billions of dollars from foreign organizations to back local start-ups, some of which would later be listed in the United States.
The proportion of deals backed by a non-Greater China investor hit a new low of 10%, a significant decrease from the 16% recorded in 2018, according to PitchBook. The data revealed that only three funds of US denominated currency closed during the first half of the year. PitchBook's report also addressed the diminishing US investment in China, attributing it to various causes such as geopolitical tensions, the economic slump in the country, and tightened regulations on technology companies. potential
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Fundraising activity in Greater China rose to $28 billion, on par to exceed 2022 levels according to PitchBook. Despite this, it's still the slowest rate of growth since 2018, when $131.4 billion was raised. IPO markets in both Hong Kong and the United States were not active, which compounded the difficulty of venture capital investing. Consequently, the amount of exits in the first half of the year decreased to 130, and the value of those exits dropped to $77.5 billion from $100.2 billion during the same period the previous year.
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