Investors all over the world have invested a lot of money in Chinese venture capital firms and this has helped in funding many tech start-ups. But now all the pension funds, sovereign bond funds are pulling back from China as they are worried about Chinese government’s crack downs on tech startups, more COVID lockdowns and even sanctions.
As a result, Chinese VCs are scrambling for cash. Industry experts are saying that most of the smaller and the middle sized funds are facing difficulties. As China became the premier investment destination, the number of funds that were created to invest in Chinese startups and businesses increased exponentially from 100 to 3000 last year.
But now there is starting to be fallout as a result of over spending. Even though, the super star Venture Capital firms are doing fine such as Sequoia China, the arm of Silicon Valley giant Sequoia Capital. This month Sequoia China raised $9 billion to fund start-ups. Foreign funding has become a key factor in the Chinese technology start up ecosystem. However, the broader loss of funding for Venture Capital firms still hurts Chinese technology start-ups as they raise dollars from their investors and they go list in New York or Hong Kong. So their investors could cash out their investments outside China. However, due to new financial reforms, China has made it a lot harder for foreign investors to cash out which has made it more difficult to invest in China also. There are many Chinese startups that were planning to IPO this year and haven’t been able to due to the new reforms.