China sees tech funding drop amid ‘crazy’ valuations

What do China’s tech industry and a popular kind of tea have in common? They’re full of bubbles.

That’s seen in figures from the Tech in Asia Database, showing US$27.8 billion invested in Chinese tech firms in the first six months of the year, down from US$35.2 billion the same period last year.

2016 saw record funding – US$56.1 billion – for China’s booming tech sector, though the latter half of the year already indicated 2017 would see a slowdown as investors began to balk at sky-high valuations.

“There will always be ups and downs for everything,” says Edith Yeung, a VC – for “certain verticals or categories” as well as the entire tech sector.

Yeung, partner at Silicon Valley-based 500 Startups and boss of its greater China wing, says mainland China tech valuations are “still crazy” right now.

“My gut feel is still at least 30 to 40 percent higher than Silicon Valley in terms of valuation,” she says of Chinese tech firms. That makes it an inopportune time to invest.

There’s no shortage of venture capital cash to go around, however. VC funds in China have more than doubled to 1,216 at the end of October 2016, up from 552 at the beginning of 2015, according to data from the Asset Management Association of China (AMAC).

Edith Yeung onstage. Photo credit: Yiying Lu’s Facebook.

Despite the jitters, Yeung believes bike-sharing – arguably the hottest new app trend in the country – “will continue to attract funding for the rest of the year.” So will other startups in hotspots with strong consumer demand, such as education, entertainment, healthcare, real estate, and travel.

Looking ahead, Yeung anticipates subdued funding activity in 2018 – just like this year.

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