Takeaway dishes:

  • After the 2018 computer crash, nearly 90 percent of China's blockchain venture capital firms left the market.
  • Now, as the Chinese central government seeks to adopt more and more blockchains, some are returning and the number of transactions is increasing.
  • The surviving funds are reorganizing and diversifying into areas such as secondary trading and bitcoin mining.

Chinese venture capital firms are looking again at the blockchain After the crypto crash of 2018, up to 90% of VCs centered on the block chain have left the market. Now, as the Chinese central government pushes for greater adoption of the blockchain, some are coming back.

In the first six months of 2019, Chinese start-ups raised $ 368 million through 71 financing agreements, according to the Chinese financial data tracker. 01Caijing.

Credit companies have an easier time raising money. Hong Kong-based Kenetic, which began in 2016 with some partners trading their own capital, is about to close an eight-figure fund next month, said managing director Jehan Chu. NEO Global Capital, a fund financed by the NEO cryptography project, was also breeding a second fund of about $ 50 million since June.

This is one of many funds that are collecting new vehicles this year due to renewed optimism. At the same time, venture capitalists are turning away from stock games in startups to focus on areas such as secondary trading and bitcoin mining.

This is Sora Ventures, an early phase blockchain investment company entering the secondary market earlier this year. Its trading activities include swap transactions, primarily consumer-oriented cryptocurrency futures, which account for approximately 20% of its asset management, said Founder and Managing Partner Jason Fang.

Fundamental Labs, a $ 500 million blockchain fund that supported Coinbase, Canaan Creative and Binance, invested $ 44 million in bitcoin miners in May, which could increase the bitcoin network's total hash rate by at least 1,000 PPS.

And Parallel Ventures, a multi-channel distribution chain founded by Yizhou Zhu, former director of investments at FreeS Capital, also invested in bitcoin mining equipment this year via a separate unit. The investment has a computing power of approximately 300 PH / s valued at approximately $ 15 million. FreeS has supported Chinese and US startups, including Uber. It also manages assets for other investors interested in the cryptographic space and raised a new blockchain fund of 200 million yuan ($ 28 million) in August.

Big crash

Nevertheless, the flow of transactions is not that of 2018. The 71 transactions in 2019 represent a 67% decrease in the dollar value of transactions compared to 2018 and a 47% decrease in the volume of transactions. And there are a lot less companies than before.

"Probably less than 10% of Chinese cryptographic investment funds have survived today (since early 2018)," said Howard Yuan, managing partner of Fundamental Labs.

According to the Yuan count, there were probably close to 1,000 start-up investment funds at the beginning of the 2018 season, including non-institutionalized individual vehicles and an informal cryptocurrency capital pool. According to a study by Frank Li, chief investment officer of private equity firm Node Capital, a blockchain company that backed the Huobi stock market, 150 to 200 of them were large in size and focused on investment from departure.

"There are (currently) probably between 20 and 30 blockchain private equity funds today (in China)," says Ren de Consensus Lab, adding:

"Last year, during blockchain nights in Beijing, people from more than 50 funds mingled. Now, I can count all the funds in Beijing with less than my two hands. "

The Fundamental Lab Yuan echoed this sentiment, saying that there are only "dozens of funds left". Bonnie Cheung, venture capital partner of 500 start-ups, told Coindesk "less than 50% of Blockchain's initial phase funds are based in China, while Yizhou Zhu of Parallel Ventures estimates the number at" about 20 ".

Many funds were created by blockchain veterans who drew money from the mining, trading and operational exchange. Their risk vehicles tended to be extra abilities. Returning to mining, trade and trade is natural to them.

Other investors simply stay on the sidelines. Junfei Ren, founding partner of Redbank Capital and former founder of Huobi Labs, said her newly created investment fund is just storing bitcoin value, investing instead in startups using the underlying technology.

The Blockchain investment company, Consensus Lab, is currently focusing on incubating five to six projects. "We no longer see venture capital investing as an isolated business. It needs to be partnered with other companies to leverage our unique resources and create a matrix of products that can withstand the bear market, "said company partner Kevin Ren.

The funds are struggling to find good investment targets, despite declining valuations from blockchain startups. Simply supporting equity or symbolic investments this year would mean the funds are probably at a standstill.

"We have only invested in a handful of new chip projects in the last two months. At the height of last year, we made one to two investments a week, "said Kenetic's Jehan Chu.

Transaction size is also decreasing as start-up valuations are dull and investors become more cautious. The Consensus Lab, Ren told CoinDesk that the average transaction size in China was around $ 100,000 this year, while transactions of half a million dollars are rarely concluded. Token transactions, on the other hand, have for the most part become silent, with the exception of a few bright pockets such as stock exchanges.

Age of maturity

After the baptism of fire of the last cycle of the market, Chinese blockchain companies are developing and evolving to find more sustainable paths, according to investors. Ratings are becoming more reasonable and speculative players have left the market.

The funds are becoming more and more professional, said Jason Fang, managing partner of Sora Ventures. When his fund was established in late 2017, it was one of the first institutionalized funds in China with a recognized fund administrator and auditor. Now, this practice is more standard.

"Before the market crash, investors were not carefully evaluating projects because symbolic prices had been rising steadily," said Xin Jiang, investment manager at Fenbushi Capital, one of the oldest and largest of the largest venture capital funds established in China in 2015. "Investors now need to really find value through more vigorous research and due diligence. "

Expectations for returns become more realistic. "Analysts spend a lot more time researching and checking startups," said Frank Li, a former Node Capital associate and recently joined Parallel Ventures. He added:

"The mindset of investors is also longer term because no one (at present) is expecting a return in a few months. The horizon is more likely in the coming years.

Building a sustainable future will take time. "We have trouble defining a reasonable investment rationale and it's hard to explain how we should value startups," said Ren of Consensus Lab. "It's a profound paradox, because when we invest, we do not know what direction to take for the future."

Kenetic's Chu is more optimistic. "Equity in blockchain startups will never be cheaper than today," he said. "We are excited about Chinese companies, especially crypto-trading platforms, infrastructure and the challenge space (decentralized finance)."

the Chinese yuan image via Shutterstock


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