China VCs have a big problem — and it’s not just a drop in U.S. investor appetite

cnbc.com:

BEIJING — In the years since Alibaba's U.S. listing in 2014, early-stage investing has drawn tens of billions of dollars into China with relatively little to show for it.

Among China-focused investment firms, only four U.S. dollar-denominated venture capital funds established between 2015 and 2020 have at least returned investors all the money they put in.

That's according to a new report «China's Private Capital Landscape» from Preqin, an alternative assets research firm. Alternative assets include venture capital, but not publicly traded stocks and bonds.

Preqin looked at an industry metric called distributed paid-in capital (DPI) and listed the 10 funds in the category with the highest DPI.

The other six have yet to give investors back all their money, not to mention any excess returns, the report showed. Preqin doesn't track every single China VC fund, and only included those with data as of the end of last year or more recently.

While those funds may have a few more years to go before they really need to show performance, their difficulties so far reflect a lack of IPOs — even before the latest market slump.

«The most important trend is the switch of the investment cycle,» Reuben Lai, vice president, private capital, Greater China at Preqin, told CNBC in a phone interview earlier this month.

From around 2015 to 2018, fundraising in China «flourished,“ he said. Now, „people are focusing more on investment itself and exiting, the returns.“

In the world of early-stage investing, „limited partners“ (typically institutions) give money to „general partners“ (venture capital funds) to invest into startups. Once the startups go public or get acquired, it allows the funds to „exit“ — and make a return they can share with the