The newly-signed audit pact between Beijing and Washington could have little influence over the future listings of Chinese technology startups amid the country’s shifting venture landscape, according to a Hong Kong-based venture capitalist.
It is “not going to make a difference” for many in China’s sensitive, hard-technology sectors where homegrown startups have never considered an overseas listing as part of their plans, said Chibo Tang, managing partner of Gobi Partners during a virtual fireside chat at the Asia PE-VC Summit 2022.
However, he added, the audit pact is “a sign that the US and China are still willing to do business together.”
Chinese and American officials took a major step on August 26 towards ending a dispute that had once threatened to kick some 160 Chinese companies off the US stock exchanges starting in 2024. The two parties announced last month an agreement to allow US regulators to vet accounting firms in mainland China and Hong Kong as a way to access the long-shielded finances of their US-listed Chinese clients that collectively account for $1.3 trillion of market value.
The move is widely viewed as an attempt to retain China’s big tech giants such as Alibaba Group and Baidu in the world’s largest market for attracting global investment. But startups and investors in China’s venture world, especially those early-stage players in the hard technology areas, may find it bring limited impact amidst a growing shift to RMB-denominated fundraising and investment around Beijing’s much-touted industries from semiconductor and advanced manufacturing to renewable energy and carbon neutrality.
Industries like consumer internet that previously enjoyed high multiples from US dollar investors and Wall Street listings are saturating, let alone China’s regulatory crackdown that, at one point, wiped out over $1.5 trillion in value from Chinese tech stocks.
“Without a doubt, consumer internet is no longer the darling of China-focused investors – and probably rightfully so. There have been a lot of innovations. Traffic and consumers are really expensive to come by these days,” said Tang. “Fund managers who have built their track records and expertise based on consumer internet opportunities are probably not going to have a lot to do over the next few years in China.”
Based in Hong Kong, Tang leads Gobi’s dealmaking efforts across China’s Greater Bay Area (GBA). He manages portfolio companies such as Animoca Brands, Airwallex, WeLab, and Prenetics, which Gobi has invested in through two Alibaba-backed VC funds.
The first AEF Greater Bay Area Fund (AEF GBA Fund) raised HK$1 billion ($127.4 million) in 2016 with Alibaba’s not-for-profit foundation Alibaba Hong Kong Entrepreneurs Fund (AEF) as the sole investor.
Gobi is now raising the second AEF GBA Fund with an initial target of HK$2 billion ($254.8 million). Tang said that Fund II is already oversubscribed and could hit the final closing in the next three to four months.