China startup funding on pace to smash records in 2018

Lujiazui, Shanghai. Photo credit: dibrova / 123RF.

Chinese tech startups raised a whopping US$43.4 billion in funding in the first half of 2018, according to Tech in Asia’s database. That sum puts China on pace to absolutely smash its fundraising record this year.

China’s tech startup industry has broken its own funding record for at least five consecutive years now, and 2018 now looks highly likely to continue that trend. Chinese tech companies raised US$58.8 billion in 2017.

Amazingly, the H1 2018 number doesn’t include Ant Financial’s landmark US$14 billion funding round. The Alibaba spin-off is more of an established corporate entity than a startup, so it doesn’t get factored into our startup numbers. But if you did include it, it would push the total above US$57 billion, nearly as much as the 2017 figure.

Thanks, Donald Trump?

One reason for the boost in domestic startup investment may be US President Donald Trump. Amidst the sabre-rattling talk of trade wars and Trump’s promise to curb Chinese tech investment in the US, Chinese investors have been taking themselves out of the mix in the US voluntarily. Overall, Chinese investment in the US dropped an astonishing 92 percent year-on-year in the first five months of 2018. A big part of the reason is increased scrutiny from CFIUS, a US government body that vets foreign investment deals. CFIUS scrutiny has led to the scrapping of a number of high-profile Chinese tech investments, like Ant Financial’s attempted acquisition of MoneyGram.

As all of that money that once flowed to US investments returns to China, it’s likely that a good deal of it is being re-invested into domestic projects, and that may account for some of the boom that Chinese startups have seen raising funds over the first half of 2018.

Investment trends

Digging deeper into the numbers, it’s clear that Chinese investors continue to prefer funneling the most money into young-but-somewhat-established startups raising rounds like series A, B, and C. Together, investments in those funding stages accounted for around 44 percent of all the money invested in first-half 2018.

Chinese investors were comparatively uninterested in participating in later rounds, with series D, E, and “late-stage” rounds accounting for around 25 percent of the total. And they definitely were wary of handing out too much cash in the early stage of the startup lifecycle, with early and seed-round investments accounting for a paltry 0.3 percent of the total.

Perhaps unsurprisingly, ecommerce was the hottest sector for investment in terms of overall deals completed, with Chinese investors backing well over a hundred different firms in the sector, including various boutique online retailers and a plethora of SaaS services catering to ecommerce clientele. Another unsurprising big winner was financial services, which saw around a hundred total deals, including a growing number of cryptocurrency-related financial services apps and platforms.

More interesting is the rise of both robotics and artificial intelligence, which saw nearly as much investment in H1 2018 as fintech. That’s a surprise because neither robotics nor AI even made the top five among last year’s hottest investment sectors.. Big investments in the sector this half included an US$820 million series C round for UBTECH Robotics, a home robot and robotic education company, and a US$21 million series B for Cowa Robot, which is focused on self-driving AI and robotics control technology.

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