Chinese venture capitalists warn IPO freeze will hit innovation

By Thomson Reuters May 10, 2024 | 1:56 AM

SHANGHAI (Reuters) – Chinese venture capitalists have warned the country’s IPO freeze is starving tech startups of funds by keeping market participants locked into existing investments, undermining Beijing’s current push to lift innovation in the economy.

Venture capital firms said at the three-day ChinaVenture Investment Conference in Shanghai that they were struggling to recoup investment through the traditional route of initial public offerings.

The rare public criticism of regulation at the high-profile annual industry summit comes amid increased official scrutiny of new listings aimed at reviving the secondary market by slowing the pace of public share sales.

“The biggest problem is exit,” Deng Feng, founding partner of Northern Light, told the conference, which ends on Friday.

It will lead to an investment drought for start-ups, he said, adding “it’s a very big issue that will impact China’s technology innovation.”

Total funds raised via IPOs in mainland China plunged nearly 90% to $2.6 billion for the first four months of the year, the lowest since 2013, according to LSEG data. More than 130 Chinese IPO candidates have terminated listing plans so far this year, exchange data shows.

China’s venture capitalists already face a slowing economy and geopolitical tensions that have made tech investment and offshore company listings difficult.

ChinaVenture Investment Consulting chief executive Yang Xiaolei said various policies to support the secondary market have been “upending the primary market.”

The China Securities Regulatory Commission (CSRC) didn’t immediately respond to Reuters’ request for comments.

Chinese VCs are becoming increasingly pessimistic, a survey by ChinaVenture shows. Most respondents cite policy uncertainty as the industry’s biggest threat and a majority have started cutting staff.

Andrew Yan, managing partner of SAIF, a China-focused private equity investor that manages over $5 billion, said policy missteps would be more harmful than market dysfunction.

Northern Light’s Deng called on the government to unveil detailed policies to support the struggling VC industry.

The Politburo of the Communist Party, the top decision-making body, said on April 30 China should promote venture investment and bolster long-term capital.

“These slogans are absolutely right, but how to turn them into concrete measures?” Deng said, urging the industry to make united calls for support.

ChinaVenture’s Yang echoed those pleas during the conference.

“We really hope that the government and regulators can attach importance to the primary market, treat it well and listen to its voice,” Yang said.

($1 = 7.2258 Chinese yuan)

(Reporting by Shanghai Newsroom; Editing by Sam Holmes)