Venture Capital Investment in China Surged Amidst Global Slowdown

By Staff Writer

Apr 11, 2016 10:04 AM EDT

Venture capital investment in Chinese tech companies reached a huge boost in the first quarter. The country's startups received $12.2 billion investment, but most of them are granted to the large startups.

Ride hailing app Didi Kuadi, Homelink online property service and Alipay, the Alibaba payment service, are a few of the startups which attracted venture capital firms around the world. However, The huge amount of money poured in China's large startups signaled the lack of new startups which appease the investor's appetite. An analyst at Beijing-based research firm, Zero2IPO, Jarod Ji, told Bloomberg, "China's VC market is becoming very polarized. There's not a lack of money in the market, but investors do feel that there's a lack of good projects and that's why companies like Didi are getting so much money."

In the Zero2IPO data showed for 2015, Chinese venture capital firms have raised $21.6 billion of investment, a more than double compare to previous year. In 2016, London-based consultancy Preqin Ltd. also reported that venture capital investment in China surged by 50% in the first quarter, reaching $12.2 billion.

The number of venture capital investment in China is increasing despite slowdown in the global venture deals. Business Times quoted the comment from head of venture vapital at Pregin Ltd., Felice Egidio, regarding the global venture deal, "The industry is sitting on a lot of dry powder, so we expect deal volume to pick up."

The money have been invested in the large and well-known startups. Didi Kuaidi, the largest ride-hailing service in China have raised more than $1.5 billion, while Homelink Real Estate Brokerage Co. targeted a $1 billion investment. Another startup, Alipay, aimed at more than $3.5 billion in one round of financing.

The upsurge in the first quarter in China's startups also raised a concern of bubble in tech investment. It is because the global venture deals in the fourth quarter last year had decreased dramatically, while investors wrote down valuations in some high-profile startups, such as Snapchat Inc.

While according to Tech in Asia, the total number of venture capital investment for China's startups in the first quarter is actually higher. Based on its data, investors have ploughed $14.5 billion into Chinese tech startups and firms of all sizes in the first three months of 2016. From January to March, there are 352 total number of disclosed investments, compared to 308 in the same period of 2015

The investments were also encouraged by the Chinese government. Zero2IPO data showed that the government-backed venture funds have tripled to a total of 2.2 trillion yuan ($340 billion). The fund, a government guidance funds, is managed by local and central government agencies.

Chinese tech companies reached a 50% surge of the venture capital investment in the first quarter. However, many of the investment, are spent in the big startups.

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