Funding for Chinese startups is more likely to hit a decade-long low as early-stage financing in the country continues to say no sharply.
Total startup funding in China hit an all-time low in the latest quarter, at just $7.4 billion. That’s a staggering 42% drop from the first quarter’s $12.8 billion in funding and the lowest since the third quarter of 2014, in line with Crunchbase.
The country is on track for its weakest yr for enterprise capital funding since 2014, when just over $20 billion was invested.
These stark numbers underscore why Asian funding recently saw its worst quarter for enterprise capital funding since the final quarter of 2015 — Asian startups raised just $14.6 billion — and perhaps the real cost to Chinese startups of rising U.S.-Red Dragon tensions.
Early financing is at risk
Perhaps the biggest blow to China’s enterprise capital ecosystem in recent times has been the significant decline in early-stage funding.
In Q2, such funding reached just $2.5 billion—again, the lowest amount of early-stage funding in at least a decade. That number also represented a staggering 67% drop from Q1, when early-stage funding saw a nice increase to $7.6 billion.
This is the lowest amount of funding the scene has received since the second quarter of 2014.
The decline in early-stage investing also means there could also be fewer corporations ultimately in search of large growth rounds, which is where the big money is to be found in enterprise capital investing.
Big rounds
As for large growth rounds, they have not completely collapsed, but they are not sustaining the large numbers they did in the later stages of last yr.
Growth rounds—a combination of late-stage and technology growth rounds—totaled $3.9 billion in Q2. That’s down just 13% but well below the $10 billion raised in Q3 and $7.8 billion in Q4 last yr.
Big rounds in Q2 included Hozonelectric vehicle startup locking in $690 million, manufacturing startup MiniMax raising $600 million in Series B funding and a semiconductor company Unisociation raising funds value roughly $552 million.
However, even these results pale in comparison to some of the large funding rounds raised in the first quarter.
Artificial intelligence does not save the situation
Of course, it’s easiest to think that artificial intelligence will save the day — similar to it is happening in the US financial market.
But even the AI market is not exactly booming. While it has been growing steadily quarter-on-quarter in most cases — reaching $2.4 billion in Q1 because of the aforementioned moonshot round — it fell back to $1.5 billion in Q2 and has remained at a similar level this quarter.
What’s next?
So if AI is not the answer, what is?
That’s a good query. There’s little doubt at this point that U.S.-China tensions have scared some investor money away from the region.
China’s regulatory policies regarding enterprise capital and IPOs have not helped matters either. Although they were signs officials willing to vary this state of affairs in order to stimulate the market in crisis has not helped so far and who knows if it is going to help at all?
There is also a larger query: what does this mean for the Asian region overall?
China is a proxy for this market—the country is the economic engine of the region. If the Chinese enterprise market declines, other countries’ markets could possibly be severely affected, and some technological innovation could grind to a halt.
The past quarter—and the current quarter so far—may simply be aberrations for China and Asia as a whole. But founders and enterprise capitalists should actually start asking themselves what if they aren’t?
Methodology
The data in this report comes directly from Crunchbase and is based on reported data. Reported data is as of August 20, 2024.
It is necessary to do not forget that data lags are most noticeable in the earliest stages of a enterprise’s life, and seed funding amounts increase significantly after the end of the quarter/yr.
Please note that every one funding values are reported in US dollars unless otherwise noted. Crunchbase converts foreign currency echange to US dollars at the prevailing spot rate from the date that funding rounds, acquisitions, IPOs, and other financing events are reported. Even if these events are added to Crunchbase well after the event is announced, foreign currency transactions are converted at the historical spot price.
Glossary of financing terms
As of January 2023, we have made a change to how we account for corporate funding rounds in our reporting. Corporate rounds are only included if the company has raised seed equity funding through a series enterprise funding round.
Seed and angel consist of seed, pre-seed, and angel rounds. Crunchbase also includes undisclosed enterprise rounds, equity crowdfunding, and convertible bonds of $3 million (USD or USD equivalent after conversion) or less.
Early stage includes Series A and Series B rounds, in addition to other kinds of rounds. Crunchbase includes unspecified enterprise, corporate enterprise, and other rounds above $3 million and those lower than or equal to $15 million.
Late stage includes Series C, Series D, Series E and later enterprise rounds after “Series [Letter]” naming convention. Also included are enterprise rounds of unknown series, corporate ventures, and other rounds above $15 million.
Technology Development is a round of personal capital raised by a company that has previously raised funds in a enterprise round. (Basically any round from the previously defined stages.)