There will be a lot less money sloshing around China’s tech startups next year—at just the time when they’re going to need it most.
VC firms that invest U.S. dollars in Chinese tech startups have raised far less money this year than in the past. Such firms have raised $4.2 billion this year so far, down 65% from all of last year, while the number of new funds has decreased by two-thirds to 24, according to data provider Preqin. China-based VC firms that invest in startups using yuan, the country’s currency, experienced an even steeper drop: Just 14 funds raised the equivalent of $1.7 billion in yuan, down 79% from last year.
The decline follows China’s regulatory crackdown on tech companies such as Alibaba and Didi Global as well as a slowdown in China’s economic growth. The drop means there will be less capital available for China’s startups to spend on growing their businesses, from hiring software engineers to online advertising. It could also curb startups’ valuations, which have kept rising even as Chinese tech stocks have collapsed.