China VC deals plunge, on track for worst pace in more than seven years

cnbc.com:

BEIJING — Slowing growth and geopolitical tensions are stifling the Chinese startup world that once spawned unicorns such as ByteDance and Didi, according to a PitchBook report Monday.

China's economic rebound from the pandemic has slowed. U.S.-China tensions have spilled over to finance, dampening already subdued market sentiment. Chinese regulation in the last two years has also made it harder for companies to go public overseas.

Venture capital firms in China invested $26.7 billion in 3,072 deals in the first half of 2023, PitchBook said.

On an annualized basis, that indicates a 31.4% drop from 2022 levels — on pace to fall below that of 2016, the report said.

Most investments were also small.

The annualized value of mega-deals — $100 million or larger — were on pace for their lowest level since 2015, PitchBook said.

While China's economy showed signs of picking up in the last several weeks, the slowdown in early-stage investing is a steep one to recover from.

Second-quarter deals marked the fourth-consecutive quarter of declines in deal value, according to PitchBook.

A drop in foreign participation was a factor.

The niche but once-burgeoning world of early-stage investors in China had seen firms raise billions of dollars from overseas institutions to invest in domestic startups, which would then hold an initial public offering in the U.S.

A record low of 10% of deals included an investor based outside of Greater China, down from about 16% in 2018, PitchBook said. On the fundraising front, the report said only three funds denominated in U.S. dollars closed in the first half of the year.

«Anecdotally, we've heard that some US investors have pulled back from allocating to China mainly due to geopolitical concerns and