Some takeaways :
- Up to 90 percent of blockchain-focused Chinese venture capital market left the market after 2018 crypto crash.
- At the same time, just as China’s central government pushes for better blockchain adoption, some are returning and deal-flow is increasing.
- Surviving funds are reestablishing and diversifying into fields such as secondary trading and bitcoin mining.
Chinese venture capital firms is looking into blockchain again. After the 2018 crypto crash, almost 90 percent of blockchain-focused VCs left the market. Subsequently, as China’s central government pushes for greater blockchain adoption, some are coming back.
In additional, during the first six months in 2019, Chinese blockchain startups raised $368 million through 71 funding deals. According to Chinese financial data tracker 01Caijing
VCs are increasingly easier to raise money. Hong Kong based Kenetic, is a company started in 2016 with a few partners trading their own capital. Accordingly, they are on track to close an eight-figure fund next month, said managing partner Jehan Chu. Likewise, Neo Global Capital, a fund backed by the NEO crypto project, has been raising a second fund. The amount of the fund is about $50 million since June.
Virtual Coins Diversifying From Equity Plays
In the meantime, VCs firms are diversifying away from equity plays in startups towards areas such as secondary trading and bitcoin mining.
Furthermore, these include Sora Ventures, an early-stage blockchain investment that entered the secondary market trading earlier this year. The trading activities takes up about 20 percent of its asset-under-management. For instance, swap, futures of mostly mainstream cryptocurrencies, said founder and managing partner Jason Fang.
Fundamental labs is a $500 million-under-management blockchain that has backed Coinbase, Canaan Creative and Binance. They invested $44 million in bitcoin miners in May that could increase the bitcoin network’s total hash rate by at least 1,000 peta hashe per second (PH/s)
In additional, Parallel Ventures is a blockchain VC founded by Yizhou Zhu, a former investment director at FreeS Capital. The company has also invested in bitcoin mining equipment this year via a separate unit. The investment boasted a computing power of about 300 PH/s that’s worth about $15 million. Simultaneously, FreeS has backed Chinese and U.S. tech startups including Uber.
Nonetheless, the deal flow is not what it was in 2018. The 71 deals in 2019 represent a drop of 67 percent in deal dollar value compared to 2018. Furthermore, there is a 47 percent fall in deal volume, and there are a far fewer firms.
“Probably less than 10 percent of Chinese crypto investment funds have survived today ”Howard Yuan – Managing partner of Fundamental Labs
According to Yuan, there were nearly 1,000 early-stage blockchain investment funds during the peak in 2018. Including non-institutionalized individual vehicles and informal cryptocurrency capital pool.
Age of maturity
After the baptism by fire of the last market cycle, Chinese blockchain venture firms are maturing and evolving to find more sustainable paths, investors say. Valuations are becoming more reasonable and speculative players have left the market.
Funds are becoming more professional, said Jason Fang, managing partner at Sora Ventures. When his fund started in late 2017, it was among the first institutionalized funds in China with a recognized fund administrator and auditor. Now that practice is more standard.
“Before the market crash, investors didn’t evaluate projects carefully because token prices kept going up,” said Xin Jiang, an investment manager at Fenbushi Capital, one of the earliest and biggest venture funds in China established in 2015. “Now investors need to truly find value through more vigorous research and due diligence.”
Last but not least, what’s your opinion on the state and usage of cryptocurrency in China? Will it bounce back or would it struggle ? Feel free to leave some comments on your point of view.