REPORT: China's startup sector is faltering with its stock market

A boon of capital injections into China’s tech startup scene has seen the number of innovative companies in the region skyrocket in the past year.

However, a report in the Wall Street Journal today says the flow of capital is drying up at the country attempts to restore confidence in its highly volatile stock market.

China’s share market has been destroyed this week, on Monday suffering its largest decline since February 2007 and the sell-off continued into Tuesday until the index lost 15.06% in two days. It was the largest two-day fall seen since December 1996 and sparked chaos on markets around the world.

There are hundreds of entrepreneurs in the nation’s tech hub, Shenzhen, and many are getting ready for tougher times.

“Raising new money is difficult now,” said Mosso Lau, vice president of Shenzhen-based startup VC and incubator Firebird Institution.

The outfit is looking to set up a new fund to invest in tech startups but Lau says it isn’t going to be as easy as the 12 million yuan raised two years ago for its first fund after investors were hit by huge sell-offs this week.

Startup founder Jerry Dai also told WSJ investors are “getting more selective”.

“Some investors think there is a bubble in China that may break in one or two years,” he said.

That said any contraction is coming off a much larger base. VC investments in China’s tech sector increased from $2.8 billion in 2013 to $6 billion last year and investment in startups was up to $2 billion in 2014 compared to $313 million just two years prior, data from AVCJ Research indicates.

“From last year until this June, there was so much money in venture investment. It was unusual,” Lau said.

While it’s anecdotal commentary, it is an area to watch as a sector directly impacted by violent moves in the nation’s share market.

There’s more here.

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