VC Funding Rebounds In China As COVID-19 Lockdown Ends

Venture capital funding is starting to bounce back in China after the coronavirus triggered a slowdown in what was already a stagnant climate for startups, according to a report in the Financial Times on Monday (April 13).

Data from the Asian Venture Capital Journal showed increased funding activity in March, with investors seeking discounted deals among Chinese startups. Over $2.5 billion was raised in March by new companies and tech firms, up from $410 million in February.

“Valuations are a lot more reasonable now,” said Zhao Chen, managing partner at startup accelerator Plug and Play China. “It’s a good time to find strong teams who can power through this period.”

Chen said that seed funding was still hard to come by, and noted that some of the March fundraisings had been previously scheduled but were sidelined by the pandemic.

The March boost was driven by $1 billion in funding led by Tencent for Yuanfudao, a digital education startup. Even without that funding, startup deals were six times higher in March than in February, according to AVCJ data.

Despite the pandemic, Tencent funded 17 companies even as competitors like Alibaba slowed down, ITjuzi data showed, as reported by FT. Health and technology startups notched $1.1 billion from Qiming Ventures Partners.

“Meetings are happening, some term sheets are coming through, but what matters is cash in the bank, and we are only seeing that with startups that got a boost from COVID-19” such as eCommerce, educational technology and esports, said SOSV Investments Partner William Bao Bean.

Overall VC funding in China is still way off when compared to the startup boom in 2018 that went bust in 2019 due to a fall-off in returns.

A “capital winter” – a significant funding slowdown and drop in fundraising activities – started bearing down on China before the coronavirus hit. Numerous unicorns were among the hundreds of Chinese tech firms that toppled in 2019 as the economy soured and startups went through piles of cash.