Venture Funding To China-Based Startups Dries Up聽

Venture funding to Chinese startups seems almost certain to hit its lowest point in a decade as early-stage funding to the country continues to plummet.

Total funding to startups in China bottomed out last quarter when it hit only $7.4 billion 鈥� a stunning 42% decline from Q1, which saw $12.8 billion invested, and the lowest since Q3 2014, per SA国际传媒 data.

The country is on pace to see its weakest year of venture funding since 2014 鈥� when it saw just more than $20 billion invested.

The stark numbers give a clear indication why funding in Asia recently suffered its worst quarter for venture funding since the final quarter of 2015 鈥� with Asia-based startups raising only $14.6 billion 鈥� and perhaps the true cost to Chinese startups regarding the rising tensions between the U.S. and the Red Dragon.

Early-stage funding takes a hit

Perhaps the biggest blow to the China venture ecosystem recently has been a significant pullback in early-stage funding.

In Q2, such funding hit only $2.5 billion 鈥� again the lowest amount early-stage funding has reached in at least a decade. The number also represented a staggering 67% drop from Q1 when early-stage funding saw a nice uptick to $7.6 billion.

It is the lowest amount of funding the stage has realized since Q2 2014.

The decline in dollars for early stage also means there could be fewer companies eventually seeking large growth rounds 鈥� which is where the big money is in venture.

Big rounds

Speaking of large growth rounds, they have not completely collapsed but are no longer holding up the overall numbers as they did in the later stages of last year.

Growth rounds 鈥� a combination of late-stage and technology-growth rounds 鈥� totaled $3.9 billion in Q2. That鈥檚 only a 13% decline, but well off the $10 billion raised in Q3 and $7.8 billion in Q4 last year.

Big rounds in Q2 included , an electric-vehicle startup, locking up $690 million, manufacturing startup raising a $600 million Series B, and semiconductor company raising a round worth approximately $552 million.

However, even those pale in comparison to some of the large growth rounds raised in Q1.

In March, semiconductor firm raised a venture round worth approximately $1.5 billion.
Also in March, China-based , a developer and manufacturer of electric vehicles, raised a $1.1 billion Series B.
In February, China鈥檚 artificial intelligence startup raised more than $1 billion in a funding round led by and HongShan, formerly .

AI not saving the day

Of course the easy thing to think is that AI will save the day 鈥� not dissimilar to what is happening to the U.S. funding market.

However, even the AI market is not booming. While it has steadily increased quarterly for the most part 鈥� hitting $2.4 billion in Q1 thanks to the previously mentioned Moonshot round 鈥� it dropped back down to $1.5 billion in Q2 and is on a similar pace this quarter.

What鈥檚 next?

So, if AI is not the answer, what is?

That鈥檚 a good question. At this point, there seems little question the tensions between the U.S. and China have driven some investor money away from the region.

China鈥檚 regulatory policies around venture and IPOs also have not helped the situation. While there have been of officials willing to change that to jump-start the declining market, it hasn鈥檛 helped yet and who knows if it will at all?

There is also a bigger question at play: What does this mean for the Asia region in general?

China is the bellwether for that market 鈥� with the country being the economic engine for the region. If the Chinese venture market declines, other countries鈥� markets could be affected greatly and some tech innovation could stall out.

The past quarter 鈥� and the current quarter so far 鈥� could just be aberrations for China and Asia as a whole. But founders and venture capitalists should certainly start asking themselves, what if it鈥檚 not?

Methodology

The data contained in this report comes directly from SA国际传媒, and is based on reported data. Data reported is as of Aug. 20, 2024.

Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter/year.

Please note that all funding values are given in U.S. dollars unless otherwise noted. SA国际传媒 converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to SA国际传媒 long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of funding terms

We have made a change to how we include corporate funding rounds in our reporting as of January 2023. Corporate rounds are only included if a company has raised an equity funding at seed through a venture series funding round.

Seed and angel consists of seed, pre-seed and angel rounds. SA国际传媒 also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.

Early-stage consists of Series A and Series B rounds, as well as other round types. SA国际传媒 includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.

Late-stage consists of Series C, Series D, Series E and later-lettered venture rounds following the 鈥淪eries [Letter]鈥� naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.

Technology growth is a private-equity round raised by a company that has previously raised a 鈥渧enture鈥� round. (So basically, any round from the previously defined stages.)