Mariana Kou discusses the startup ecosystem in Greater China, highlighting the short-term investor concerns and the long-term potential and upside for founders and investors.
Mariana Kou was a guest editor of the World Class Startup magazine’s special edition for the Global Fundraising Stage of the World Congress of Angel Investors, WBAF 2022. Angel Investor Review now shares her article with its subscribers online. She is a Chairperson and CEO of Cinese International Group; Senator for China, WBAF.
With a total population of 1.4 billion, Greater China is a huge market with tremendous growth potential. It accounted for 18% of the world’s GDP in 2020 and is set to grab an even larger share as it continues to outgrow the rest of the world. Greater China should be on the radar screen of all global investors.
Market snapshot
The venture capital market has remained robust in Greater China, with the total deal value expanding from US$51billion in 2015 to US$114billion in 2021, according to data compiled by the Pitchbook, while the deal size per count has more than doubled to US$20million during this period (Pitchbook, 2021). Early-stage VC accounted for 54% of the deal counts in 2021, with 37% in late-stage and the rest in angel and seed rounds. The key sectors for VC deals in 2021 were software, consumer goods, commercial products, and IT hardware. Pitchbook data showed that there were 3,711 unique VC investors in Greater China as of Dec 2021.
Innovation to drive growth . . .
Innovation is a key theme in the five-year plan that Beijing crafted for the country for 2021-2025. Technological advancements in various areas from energy to hardware to environment to aviation are all strategic industries mentioned. The government aims to increase investments in technology innovation, build more labs, groom local talents, attract foreign experts, and enhance its intellectual property protection laws. The five-year plan also highlighted local consumption, import-export, rural development, and environmental protection as areas of focus, which point to more investment and innovation opportunities.
Healthily and sustainably
However, the government has recently introduced new regulations on edtech, fintech, and other TMT players which have affected investor appetite in this huge market. These should be perceived as continuous enhancements of the regulatory framework. These new regulations create more visibility in the potential growth of the new industry disrupters in the longer term. More order and transparency also provide a healthier environment for the sustainable development of young startups and growth companies.
Global volatility across investment spectrum
The global market volatility and the ongoing China-US discussions around IPOs of Chinese company in the United States has started affecting the VC market in the region since the second half of 2021. It has weighed on both the exit strategy and valuation of startup investments, as well as the fundraising efforts of new VC funds, which are trickling down to the startup levels. Even though the VC market in Greater China still managed to score a total exit value of US$239billion on a full-year basis, or a 62% increase compared to 2020; VC fundraising showed weaknesses in 2021, with US$37billion raised only, shrinking by almost 40% year-on-year (Pitchbook, 2021).WS
