China’s Venture-Capital Slowdown Is Less Obvious

By Scott Martin for WSJ Venture Capital

China’s wealthy are seeking places to park capital in the U.S., but that doesn’t mean there’s a shortage of cash for mainland China’s venture-backed companies.

Exhibit A is funding to Chinese venture-backed companies: In the first quarter, it was up 33% from the same period a year before, according to industry tracker Dow Jones VentureSource. That figure comes as funding to U.S. venture-backed companies plummeted 21% in the first quarter compared with the same quarter in 2015. VentureSource, like The Wall Street Journal, is owned by Dow Jones & Co.

China has a lot going for it beyond its giant market and roughly 600 million people using smartphones, says GGV Capital Managing Partner Jenny Lee. Patent applications in China are outpacing the U.S., as entrepreneurs are forming their own novel approaches to businesses, she said.

“In the early days it was trying to resolve the initial information need,” she said. “Now we’re seeing Chinese business models going to the U.S.”

It is worth noting that funding for Chinese companies rocketed in the past few years. On a percentage basis, the growth far outpaced U.S. venture-backed companies. China’s venture-backed companies hauled in $45.1 billion in 2015 compared with $17.8 billion in 2014. U.S. startups took in $74.7 billion in 2015 compared with $58.4 billion in 2014.

On the heels of a massive leap in capital deployment to China’s venture-backed companies, 33% year-over-year growth can only be viewed as deceleration.

First appeared at WSJ Venture Capital