VC and PE in­vestors fac­ing chal­lenges

Prob­lems for play­ers in­clude dy­ing deals as well as dif­fi­cul­ties cash­ing out of in­vest­ments

China Daily (USA) - - BUSINESS - By CAI XIAO caix­iao@chi­nadaily.com.cn

China’s ven­ture cap­i­tal and pri­vate eq­uity in­vestors are fac­ing chal­lenges due to dy­ing deals and dif­fi­cul­ties in cash­ing out, ac­cord­ing to the chief of Zero2IPO Group.

Ni Zheng­dong, chair­man of lead­ing ven­ture cap­i­tal and pri­vate eq­uity re­search com­pany Zero2IPO, said there were many dy­ing startup com­pa­nies that were in­dus­try lead­ers — or those burn­ing cash af­ter hav­ing com­pleted sev­eral rounds of fi­nanc­ing from VC and PE in­vestors.

“Chi­nese ven­ture cap­i­tal and pri­vate eq­uity in­vestors madein­vest­ments too quickly in the past three years and the star­tups they in­vested in used up their money and failed to fin­ish the next round of fi­nanc­ing,” said Ni.

Me­tao, a Chi­nese cross-bor­der e-com­merce provider that started in Oc­to­ber 2013, for ex­am­ple, failed to fin­ish its se­ries C fund­ing and closed down at the be­gin­ning of this year. It re­ceived se­ries B fund­ing of $30 mil­lion in 2014 from VC and PE in­sti­tu­tions Ver­tex Ven­ture Hold­ings and Ma­trix Part­ners.

The Zero2IPO head said an­other chal­lenge was that it re­mained dif­fi­cult for ven­ture cap­i­tal and pri­vate eq­uity in­vestors to cash out— asChina aban­doned the plan of cre­at­ing a strate­gic emerg­ing in­dus­tries board on the Shang­hai Stock Ex­change and de­layed car­ry­ing out the reg­is­tra­tion-based ini­tial pub­lic of­fer­ing sys­tem.

As of June 30 there was a back­log of 894 com­pa­nies Ni Zheng­dong, wait­ing for IPOs on the A-share mar­ket, ac­cord­ing to data from the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion.

There were only 162 ex­its of VC and PE in­vestors in the first half, mainly through IPOs and merg­ers and ac­qui­si­tions, Zero2IPO said.

Ni added that pop­u­lar sec­tors among VC and PE in­vestors such as online to off­line, peer-to-peer lend­ing and smart hard­ware were cool­ing down be­cause many com­pa­nies in these sec­tors died.

There were 99 newin­ter­net lend­ing plat­forms in China which ex­pe­ri­enced prob­lem or closed in Au­gust, with the to­tal num­ber reach­ing 1,978, ac­cord­ing to web por­tal Wang­daizhi­jia, which tracks the online fi­nanc­ing in­dus­try.

Ac­cord­ing to Ni, China’s ven­ture cap­i­tal and pri­vate eq­uity in­vestors need to con­trol the pace of their in­vest­ments and think care­fully when in­vest­ing in deals.

Hurst Lin, gen­eral part­ner of DCM Ven­tures, said his firm pro­cessed in­vest­ments more slowly and cau­tiously than its peers and closely fo­cused on ev­ery in­vest­ment un­til the day it went pub­lic.

Lin said it was look­ing closely at com­pa­nies in the mo­bile in­ter­net and con­sumer sec­tors due to China’s huge mar­ket and the in­creas­ing size of the mid­dle class.

Chi­nese ven­ture cap­i­tal and pri­vate eq­uity in­vestors made in­vest­ments too quickly...” chair­man of Zero2IPO Group

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