Investors Move From China’s Consumer Market to “Hard Tech”

Start-up companies in China enjoyed record fundraising levels last year. But where did that money go?

As The Financial Times reported Monday (Jan. 31), investments in social startups, eCommerce companies and educational technology providers either fell or plateaued, while robotics makers, semiconductor firms and other “hard tech” companies saw an increase in funding.

Huang He, of the investment firm Northern Light Venture Capital, said competition for deals and valuations in the robotics field has never been this intense.

“The nation wants more focus on hard tech and industry. Investors must go in the direction of the country,” he said, noting his firm’s consumer internet team has shifted to investing in backing direct-to-consumer and retail ventures.

Japan’s SoftBank has also begun changing its strategy in China.

Read more: SoftBank Puts ‘Pepper’ Robot On Hold As Bot Biz Does Some Soul-Searching

“We’re not investing so much in consumer or media data-sensitive companies at this moment,” Masayoshi Son, the bank’s chair, said on an earnings call in November, noting there are “many companies that the Chinese government is not showing red flags for” including “robotics, medical and B2B.”

Last year saw SoftBank make some changes in its own robotics operations as the company announced it had suspended production on its service robot/unofficial mascot Pepper and sold robotics firm Boston Dynamics to Hyundai for $1.1 billion.

These moves were seen as signs that the firm was shifting its focus from creating robotic companions and assistants for consumers to more business-centric, practical offerings.

Read more: China to Prohibit Foreign IPOs

This sea change among investors could trace its genesis to July of last year, when China began investigating ride-hailing company Didi Chuxing following its initial public offering.

Within weeks, the government had unveiled rules that had made it more difficult for Chinese companies to list in New York and other foreign markets.

“Consumer internet looks to the U.S. as the prime exit venue. That is questionable now, especially for large platforms,” an investor at a multibillion-dollar China-focused fund that has been cutting back funding in the space told the FT. “Large strategics like Alibaba, Tencent or [private equity] funds usually lead the big growth rounds before IPO, but they are stepping back.”