<article>The party isn’t quite over for China’s technology startups, but the dance floor’s thinning out.</article>

The party isn’t quite over for China’s technology startups, but the dance floor’s thinning out.
Judging by the cash that investors are preparing to deploy, the euphoria that catapulted the country’s startup financing to a record 2015 may be starting to wane. Venture-capital fundraising by Chinese firms dropped to just $400 million in the second quarter, its lowest in almost three years, according to London consultancy Preqin Ltd. The number of deals done involving Chinese companies fell 12 percent.
Years of red-hot economic growth and the emergence of a private entrepreneurial class created some of the biggest names in technology, from ride-hailing service Didi Chuxing to the company behind DJI drones. But startups hoping to follow in their footsteps are hurting as the economy sputters: Goldman Sachs Group Inc. estimates the jobless rate will climb to 6.5 percent this year. Prominent investors, including China eCapital Corp. founder Wang Ran, warn of leaner times ahead in viral posts. And the investors that once chased the latest Chinese internet fads are growing cautious as valuations keep rising.
“We’re seeing some distress for startups especially among the smaller, younger unicorns,” said Jarod Ji, an analyst at Zero2IPO, an influential Beijing-based research firm that tracks the VC and private-equity industries. “Most of these companies aren’t profitable, and investors are getting increasingly wary of their burn rates.”
In some ways, China’s catching up to the rest of the world. Erstwhile high-fliers like Jawbone Inc. and WeWork Cos. are laying off staff. Flipkart Ltd. and Snapchat Inc. have seen their valuations lowered. The situation in China is less clear, but analysts like Ji point to how reports about austerity measures have begun to make the rounds. Chinese grocery deliverer Beequick for instance plans to slash about 30 percent of its employees, the China Business Journal reported in July. A representative for the Sequoia Capital-backed company declined to comment to Bloomberg News about the report.
To be sure, no one’s predicting the spigot will dry up overnight. Just this month, IDG Capital Partners and Silicon Valley outfit Breyer Capital raised a $1 billion fund, though they stressed their long-term horizon. The Chinese government is now angling to become a major technology investor in its own right, backed by public pensions.
But the tide may be turning. Chinese-based VCs raised $1.3 billion in the first two quarters, about half that of the same period in 2015 and close to a fifth of year before, according to Preqin. In the June quarter, they managed to scare up $400 million &#8212; down two-thirds from a year earlier.
Entrepreneurs must brace for a “sea change” as the economy embarks on a downward spiral, boutique investment bank eCapital’s founder Wang wrote in a column. Be prepared to reassess assets, rewrite valuations, slash costs, cut people and &#8212; above all else &#8212; clinch funding immediately, he wrote in the influential business magazine Caixin.
“I urge every investor and entrepreneur to contemplate one question this summer: what can you do to survive and even thrive if, over the next five to 10 years, you face an environment marked by low growth rates, negative yields, a depreciating yuan and rising levels of bad loans held by Chinese banks,” he said.
The years-long boom in marquee investments in leaders such as Didi and Ant Financial however leaves smaller operators facing a squeeze, with industry executives and investors fearing a looming shakeout particularly in &#8220;O2O&#8221; or on-demand services, as copycat apps lay on the subsidies to attract users to everything from manicures and grocery deliveries to online financing.
The worst is yet to come, Wang added. The country’s stock market watchdog is tightening rules governing one of the more popular get-rich-quick investor schemes in recent memory, namely U.S.-listed companies delisting in order to go public back home in China at much loftier valuations. That clampdown means investors who borrowed to bet on potential delistings will need to unload their shares, further depressing valuations, he wrote.
For now, the pain should be confined mostly to smaller startups. China’s home to the largest herd of unicorns or billion-dollar startups outside of the U.S., with at least 79 private companies worth more than $1 billion, according to Shanghai-based IResearch. The U.S. in comparison has about 96, according to CB Insights.
“There’s a greater emphasis on revenue and profitability among startups that they are focusing much more on top line and cost control,” said Andy Mok, managing director of Beijing-based headhunting firm Red Pagoda Resources LLC. “It’s shifted from growth at any cost to more scrutiny of traditional business metrics and they’re looking much more carefully at headcount.”
<h4>Bloomberg</h4>

Venture capital fundraising by Chinese firms dropped to just $400 million in the second quarter, its lowest in almost three years, according to Preqin. 

Venture capital funding in China drops to three-year low at $400m in Q2

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Venture capital funding in China drops to three-year low at $400m in Q2

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