The technology industry is facing a fundamental overhaul with rising geopolitical tensions and dwindling investor appetite for money-losing start-ups, a panel of leading venture capital partners said.
“The reset has arrived,” GGV Capital managing partner Jenny Lee (李宏瑋) said.
The venture capitalist said that money is harder to come by for start-ups and valuations have dropped 30 percent to 50 percent in some cases.
Photo: Bloomberg
She said that the “wake-up” has already hit many smaller start-ups, although larger private companies might be able to wait out the painful market turn.
The sentiment was echoed by other investors on the panel at the Bloomberg New Economy Forum. In the past few years, start-up valuations surged to record highs, but many companies have struggled to maintain those levels.
“Valuation became disconnected from fundamentals,” General Atlantic chairman and CEO Bill Ford said. “Capital felt free.”
The mentality of founders used to be “use as much capital as you need to drive top line growth,” but now “there’s a new world,” Ford said
China has been particularly hard hit, especially as Chinese President Xi Jinping’s (習近平) administration cracked down on the private sector.
The value of venture capital deals in the country tumbled 44 percent to US$62.1 billion through last month, compared with the same period last year, research firm Preqin said.
For example, General Atlantic invested in ByteDance Ltd (字節跳動), the parent company of video sensation TikTok.
Ford said that the company now needs to deal with political scrutiny from the Chinese government and from the US authorities.
“I think what that’s meant for all of us is that the level of risk is higher,” he said, adding that investors still have to be in the China market as “it’s too big to ignore.”
Southeast Asia and India are now at the top of General Atlantic’s list of target markets, Ford said.
Lee said that GGV now looks at venture deals — globally, not just in China — through the lens of “policy-sensitive” deals and “policy-non-sensitive” deals.
Deep tech sectors such as semiconductors are very sensitive to political factors in governments around the world, so they require a different investment approach, she said.
ZhenFund founding partner Anna Fang (方愛之) said that deal activity is still strong in China, although the pace of investments has slowed.
Her firm has found that valuation boosts are harder to come by, she said.
Beijing has to be sensitive to the private sector and foster a vibrant ecosystem of start-ups, she said.
It is also important for venture firms and their limited partners to have patience during difficult times. The industry is full of people who sold out too quickly from Facebook and Google.
“Obviously we don’t want to sell ByteDance right?” she said.
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