Chinese venture fundraising at 3-year low

The party isn't quite over for China's technology startups, but the dance floor's thinning out. Judging by the cash that investors are preparing to deploy, the euphoria that catapulted the country's startup financing to a record 2015 may be starting to wane. Venturecapital fundraising by Chinese firms dropped to just $400 million in the second quarter, its lowest in almost three years, according to London consultan- cy Preqin Ltd. The number of deals done involving Chinese companies fell 12 percent.

Years of red-hot economic growth and the emergence of a private entrepreneurial class created some of the biggest names in technology, from ridehailing service Didi Chuxing to the company behind DJI drones. But startups hoping to follow in their footsteps are hurting as the economy sputters: Goldman Sachs Group Inc. estimates the jobless rate will climb to 6.5 percent this year. Prominent investors, including China eCapital Corp. founder Wang Ran, warn of leaner times ahead in viral posts. And the investors that once chased the latest Chinese internet fads are growing cautious as valuations keep rising.

"We're seeing some distress for startups especially among the smaller, younger unicorns," said Jarod Ji, an analyst at Zero2IPO, an influential Beijing-based research firm that tracks the VC and private-equity industries. "Most of these companies aren't profitable, and investors are getting increasing- ly wary of their burn rates."

In some ways, China's catching up to the rest of the world. Erstwhile high-fliers like Jawbone Inc. and WeWork Cos. are laying off staff. Flipkart Ltd. and Snapchat Inc. have seen their valuations lowered. The situation in China is less clear, but analysts like Ji point to how reports about austerity measures have begun to make the rounds. Chinese grocery deliverer Beequick for instance plans to slash about 30 percent of its employees, the China Business Journal reported in July.

A representative for the Sequoia Capital- backed company declined to comment to Bloomberg News about the report.

To be sure, no one's predicting the spigot will dry up overnight. Just this month, IDG Capital Partners and Silicon Valley outfit Breyer Capital raised a $1 billion fund, though they stressed their long-term horizon.

The Chinese government is now angling to become a major technology investor in its own right, backed by pub- lic pensions.

But the tide may be turning. Chinese-based VCs raised $1.3 billion in the first two quarters, about half that of the same period in 2015 and close to a fifth of year before, according to Preqin. In the June quarter, they managed to scare up $400 million -- down twothirds from a year earlier.

Entrepreneurs must brace for a "sea change" as the economy embarks on a downward spiral, boutique investment bank eCapital's founder Wang wrote in a column.