Over the past year, China has seen a boom in its startup scene, thanks to plenty of capital flowing into the sector.
But some investors and entrepreneurs say that could be changing as Beijing struggles to restore confidence in its economy and faltering stock market.
In Shenzhen, hundreds of entrepreneurs and investors gathered on Sunday at an event called Big Salad, where local startups talked about their business ideas, including high-tech underwear and affordable smart glasses. Everyone was full of enthusiasm and the mood was upbeat throughout, but some of them were also bracing for tougher times.
“Raising new money is difficult now,” said Mosso Lau, vice president of Shenzhen-based Firebird Institution, which runs funds that invest in early-stage startups while also serving as an incubator that helps startups develop their business ideas.
Firebird set up its last investment fund two years ago by collecting 12 million yuan ($1.9 million) from local businesses and wealthy individuals. It invested that money in tech startups such as mobile apps for food delivery and massage services.
As Firebird is now preparing to set up a new fund for next year, Mr. Lau expects it will be a lot harder to collect money this time, because potential investors have been hit by the recent stock market turmoil. “From last year until this June, there was so much money in venture investment. It was unusual,” he said.
Last year, venture-capital investments in China’s tech sector more than doubled to $6 billion from $2.8 billion in 2013, according to Hong Kong-based AVCJ Research, with both foreign and domestic funds putting in more money than the prior year. Total early-stage funding for Chinese tech startups surged to nearly $2 billion last year from $313 million in 2012 as deals increased to 299 from 172, according to AVCJ.
In January, when Jerry Dai founded a startup in Shenzhen that operates a crowdfunding platform similar to Kickstarter, there was nothing but optimism.
Entrepreneurs around him who had already raised capital told Mr. Dai that fundraising for his new venture wouldn’t be a problem because angel investors — individuals or funds that provide capital for early-stage startups before formal investment rounds — were financing just about any business idea.
But now, just as his startup is trying to find an angel investor, things are looking tougher.
“There are still many angel investors, but they are getting more selective,” he said. “Some investors think there is a bubble in China that may break in one or two years.”
Mr. Dai said he expects the process of securing funds to take longer than it would have several months ago.
“Last year was crazy. There was so much money in China,” said Heatherm Huang, a cofounder of MailTime, which makes emails easier to use on smartphones. Even though his startup is based in San Francisco, it raised much of its early funds from Chinese investors. “In some ways, things are going back to normal now.”
via Are the Best Days Over for China Tech Startups? – China Real Time Report – WSJ.
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