BY Fraser Tennant
Venture capital (VC) activity in Greater China dropped significantly in the first half of 2022, continuing a slowdown since late last year, according to a new report by the Apex Group.
In the ‘Greater China Venture Report H1 2022’, the Apex Group reveals that VCs invested only $28.6bn in the region in H1 – below the Q3 2021 figure – a figure which reflects the many hurdles the region has faced over the past year, including regulatory headwinds, supply chain issues and macroeconomic challenges.
“It has been a challenging period for (VC) in China, with activity in the market slowing significantly in early 2022 as the macroeconomic environment became less favourable for venture investors,” said Debbie Lee, managing director, China at the Apex Group. “Restrictions relating to technology and the coronavirus (COVID-19) pandemic, coupled with ongoing geopolitical risks, have exacerbated the challenges facing many investors.”
Drilling down, the report shows that only 56 mega-rounds of $100m or more were completed in the first six months of 2022, off pace from 2021’s regional record of 261, while exit value totalled just $40.6bn across 64 deals – a significant year-over-year slowdown, especially for initial public offerings (IPOs).
The report also notes that fundraising continued to fall in H1 2022, with the region’s dry powder ebbing to $122.7bn, raising concerns about long-term capital availability, especially if investors outside the region face more hurdles to entering the market.
“The current VC market landscape in China is seeing a slowdown in fundraising activity due to a fundamental change in the market landscape,” said Ms Lee. “In the last decade, the VC community has found opportunities created by the mobile internet increasing efficiency and disrupting traditional business models. Investors are becoming more cautious and need real returns on investment instead of just buying into the digitalisation narrative. Meanwhile, private equity (PE) managers are more inclined to find earlier-stage projects, thus creating more competition for VC investors.”
In another trend noted by the report, there has been a further expansion of the scope and depth of Chinese investment markets for foreign investors in 2022.
“The trend of continuous inflows of foreign capital in 2022 will continue, and we expect to see more international VC managers investing in Chinese businesses under the QFLP scheme,” added Ms Lee. “As a result, international service providers for financial services and talent in the China market will continue to be in demand.”