Date
17 October 2017
Chinese investor Bao Fan said the market rout has made it clear to investors that capital won’t always be available. Photo: Bloomberg
Chinese investor Bao Fan said the market rout has made it clear to investors that capital won’t always be available. Photo: Bloomberg

Asia tech start-ups shrug off Chinese market turmoil

Despite the recent stock market sell-off in China, Asian technology start-ups continue to enjoy strong investor demand.

Nonetheless, the market slump, which has wiped out nearly one-third of the value of the Shanghai stock exchange since early June, serves as a wake-up call to the industry, which depends on capital to achieve critical mass, the Wall Street Journal reported.

Chinese start-ups are “spending tons of money on burning cash [and] subsidies”, Chinese banker and investor Bao Fan said at Converge, a technology conference co-hosted by the Wall Street Journal and Founders in Hong Kong.

“That model depends on a sustainable supply of capital.”

Bao, chief executive of investment bank China Renaissance, said the stock market decline made it clear to investors that capital won’t always be available.

“Within a span of two weeks all the liquidity disappeared,” he said.

The value of Chinese tech firms on the local stock market for start-ups jumped 2.7 times this year to June 4.  

Venture capital investments rose to US$6 billion last year from US$2.8 billion in 2013, the report said, citing data from Hong Kong-based AVCJ Research.

Meanwhile, Chinese tech firms that went public at home saw their valuations surge after authorities halted new IPOs in a bid to stem the recent market plunge.

Kai-Fu Lee, chief executive of startup incubator Innovation Works, said there are only a few public tech firms in China, prompting investors to chase those few stocks, “driving their valuations crazy”.

So far, investors see little evidence of funds drying up, the report said.

Start-up investment in China for the three weeks that ended July 24 totaled US$137.3 million, declining from US$430.7 million in the previous three weeks, said AVCJ research.

However, investors believe one large deal can boost those numbers.

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