Venture capital industry in China recovering after the virus

Venture capital industry in China recovering after the virus

Venture capital industry in China recovering after the virus

Investments in startups and companies are growing again after the slowdown caused by the coronavirus situation.

In the last week of March, Chinese VC funds closed 66 deals, the highest number in 2020 and slightly less than in the same week of the previous year.

This is a positive sign for the VC sector. It shows the world can recover after the end of the restrictive traffic and mobility measures.

According to PitchBook data, during the first six weeks of the year, the number of deals and the amount of total capital raised fell by 60% compared to the same period the previous year.

However, we should not be overwhelmed by optimism, but we should remain vigilant alert for a while longer. If a second wave of contagion were to occur in China, a lockdown would be imposed again, and as a result the investment activity would slow down as before.

The measures designed to slow down the epidemic have had a negative impact on Chinese industry, particularly in manufacturing and logistics. However, the situation has also drawn attention to new opportunities.

Two sectors seeing an increase in investment activity from VC’s funds are advanced manufacturing and edtech, the technology linked to training, in particular that which facilitates distance learning. In fact, software companies have been able to take advantage of this contingency, closing about one third of VC’s agreements in the country.

The regrowth in China is a positive sign for startups and investors in the US and Europe, where investment markets are slowing down. According to PitchBook data, in the last week of March the number of transactions in the United States fell by 26% compared to the weekly average recorded in February. Of course, there is always a time lag between when deals are closed and when they are publicly announced, so the real effects of the pandemic will be revealed after a few weeks.

Despite the current situation, VC funds still have liquidity to invest; globally, venture capitalists had about $188.7 billion available in mid-2019.  Many investors said they were working as usual, and many companies have closed investment rounds in the last month.

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