Chinese startups were already struggling to gather money. The coronavirus may be the last straw

Chinese startups were already struggling to gather money. The coronavirus may be the last straw

so far this year, venture-capital-investments in Start-UPS in the whole of China — including the mainland and Hong Kong — has plummeted more than 65% compared to the same period a year ago, according to data-provider PitchBook.
This is bad news for many companies already struggling to find funding during what came to be known, in the past year as the “capital of the winter.” companies in the region a collective $ 54 billion is raised in venture capital in the year 2019, about half of what they collected in the year 2018.
“Covid-19 was a further challenge, under a series of setbacks for China’s venture capital landscape,” said Alex Friedrich, a venture capital analyst in the pitch book.

A bad situation worse

Start-UPS are important to China’s long-term economic ambitions. The country has leapfrogged the United States to become the world’s largest hub for unicorns, or billion-dollar company. Venture capitalists are, pay special attention to technology companies, which could help bolster Beijing’s aim to be the worldwide market leader in the field of artificial intelligence, electric cars and other fields.
WeWork's demise shows how ridiculously overrated so many Start-UPS are
But many Chinese startups struggled to court investors in the last year. Economic activity in China has slowed, as the country struggled with the slowdown in the domestic demand and a trade war with the United States.
problems of high-profile startups in the meantime, cautionary tales have become for many investors. US office space provider WeWork IPO, for example, was notoriously shelved last year, while the Chinese electric-car maker Nio (NIO) has seen its shares crater by 44% a year ago to less than $3 per share, as the company is bleeding money.
The Corona-Virus was now able to deliver a fatal blow to companies which are not strong enough to weather the economic turmoil. Friedrich said there is no perfect comparison to what Start-UPS now face, but he notes that the environment is similar to what enterprises in the face of during the Great recession, more than a decade ago.
“During the last recession, start-UPS financed during the crises, do you have a longer period of time step-ups strongly decreased spaces between the financing and valuation,” the analyst added. “The efforts to contain the coronavirus have led to an economic downturn, and the uncertainty around the severity and length of the downturn likely to exacerbate economic volatility.”
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Spooked investors

the darkness, caused by the sudden economic shock was felt when the businessmen and investors, while the impact of the Corona-Virus-pandemic feels inevitable, according to interviews CNN-business with more than a half-dozen people, the active in growing new businesses.
The continuous period between the start of the Lunar New Year holiday and the summer break is usually the time of year, the Start-UPS use to lock the handle, said Oscar Ramos, General Manager of China ccelerator, a startup incubator based in Shanghai.
Not this year. Instead, entrepreneurs, the prioritization of more important themes: lowering cost. Design of an emergency plan. Reconsider expensive growth ambitions.
Before the outbreak, Hong Kong-based fintech startup MioTech had worked to expand in Singapore, said CEO Jason Tu. Now, it’s set to keep these rules.
Tu said CNN Business, that his team was trying “every penny saved”, as his colleagues in the startup community struggled to survive.
“I include quite a good number of startup friends that are in the process of their doors,” he said. “Something that relies heavily on the supply chain, delivery, or offline presence, are all busting now.”
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Also, companies that have managed to hook you large amounts of capital in the last few months, re-evaluation of your priorities.
Xpeng motors, an electric car manufacturer supported by Alibaba (BABA), raised $to demand 400 million last November, is one of the largest rounds of financing in China, in the quarter, according to PitchBook.
The company was on the lookout for ways expenditure prior to the outbreak, said Brian Gu, President of the Guangzhou-based startup. But the health crisis is forcing us to dig him even deeper, he said, adding that Xpeng motors is looking to the plans to bring it to the back burner. It is also received via other routes to the capital, such as bank loans or the continuation of state subsidies.
plans for a meeting in person with potential investors were also thrown out of the window because of travel restrictions and a city-or nationwide lock feature.
The travel industry is suffering from its worst shock since 9/11, since the coronavirus
“of course it is slower because I can’t meet anyone,” said Edith Yeung, managing partner at Silicon Valley venture firm evidence of capital and Advisor in the incubator 500 Startups. She usually spends about half the year in China, and was not able to return to the Land, since the outbreak began in.
Abel Zhao, CEO and co-founder of Hong Kong-based AI software company TravelFlan, he said, to complications experience while trying to get financing. His company — to increase customer service for airlines, hotels and other providers-is in talks $12 million from venture capitalists in Beijing, but find it hard to seal the agreement.
“the Two investors from China are basically saying, ‘you need to fly to Beijing to meet us, before we were actually in the issue, the term sheet,'” Zhao said. “So I think, you know, I should just go to and then just stay there until everything is over?”

The new normal

have found Some companies, remedies, avoidance of activity from grinding to a complete halt.
China ccelerator Ramos, whose company also runs a venture Fund focused on early-stage startups, said his team of more than 10 investments since the beginning of the virus outbreak had Packed, in the amount of approximately $ 2.1 million. He said several transactions were already in the works before the outbreak, while the other offers the result of personal recommendations.
entrepreneurs pitching investors via video-conferencing-platform Zoom (ZM), with some even with virtual “happy hour” were meeting to get a beer and talk shop, Ramos added.
Zhao said he has taken to calling investors to Zoom a week, in the attempt of preserving the face-to-face contact. “I need to make sure your interest remains high,” he said.
drones. Disinfection of robots. Supercomputer. The Corona-Virus outbreak is a test for China's tech industry
But there is a limit to how much can be done online, when millions of dollars are at stake.
“you can’t see build a relationship without each other,” said Yeung, the venture company-a partner in the Silicon Valley. “No matter how many Zoom calls you to do. It’s just not the same.”
The due diligence process, what is the shareholders call, in General, the final review of the background, close before a deal is usually done in person.
But this is hard to do now, said Yeung, to assess the stage often visit companies in person, the management culture and the review of financial statements.
Ramos confirmed the difficulty of the offers, but said his company was able to work around it so far. “Travel restrictions [and] office access restrictions are the limitation of the due diligence,” he said. “But that does not mean that investments take place.”
the things And expecting Bouncing back: experts, including Frederick, the PitchBook analysts expect a revival when the eruption ends, is the prediction that the investors to keep their capital and resume as normal as the conditions improve.

Survival of the fittest

Even if there was a possible rebound, entrepreneurs are likely to have to endure considerable hardness that to happen. Frederick pointed out that venture capitalists invest during the Great recession questions the finances of the Start-UPS before taking the plunge.
“to rely Unprofitable startups that VC funding fared the worst, as the funding dried up for those with the high rates of burn-and the unclear paths to profitability,” he said. “Those startups that are already profitable or have a low burn rates, and clear paths to profitability it was for the best.”
the Other say the outbreak is to test how strong the line is, in many Start-UPS.
” If you don’t prepare yourself for at least three to six months more cash flow, and have increase, now, since you ‘ re running out of cash, I really shouldn’t invest to begin with,” said Yeung, the Silicon Valley venture firm partner.
These Start-UPS that raised billions, and then sacked thousands. The employees are shocked and frustrated
For companies such as TravelFlan, the 2019 crisis was a Wake-up call. Zhao acknowledged that he and his co-founder were forced to waive salaries for more than a year, while other employees went without pay for several months.
In the light of these problems, he said, TravelFlan decided to rethink their entire business model by expanding its radius of action about travel to other lifestyle service providers and key partners from other sectors, including Samsung and China Mobile. Finally, it was able to secure an investment of several venture companies, the awareness-raising of $ 7 million at a valuation of $27 million.
TravelFlan employees in Shanghai. The Hong Kong-based startup that struggled to make ends meet last year, before they change their strategy and attract new investment.
Zhao said that the experience of the team in a better position to weather the uncertainty now.
“If I don’t have to go through all of them, I would probably still be in operation, the company the same way,” he added. “So all of these things happened, force me, force my partner to look into the company rather than to the outside view, what were the investors.”
Silicon Valley investment firm, Sequoia Capital, summed up the situation more rigid in an open letter to the founder of this month.
“In some ways, business is a mirror of the biology,” wrote the company. “As Darwin surmised, those who it is not the strongest or the most intelligent, but the are most ready to change.'”

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