Winter for capital
Andy Yan, managing partner of SAIF Partners, recently proclaimed that a chill has descended over the capital market in the country.
"What is the most expensive thing in China? You might say housing... (But I would say) it is the valuation of a startup," he said. Yan said he was advised to invest in a company whose annual revenue was about 4 million yuan ($600,000), but valued at $100 million.
Yan slammed the overpriced startups whose valuation rose much faster than the real estate market.
He added that it was harder to make money now. "It is rare to have a net profit as high as 5 percent, as opposed to a commonly seen 10 percent in the past."
Best time for startups
However, Deng Feng, co-founder of Northern Light Venture Capital, approached the issue from a different angle. He said it is golden time to start a business when the capital market is tightening.
"(During sluggish economy) once you have the money, you will be more careful to spend it. At the same time your rivals would struggle to get the financing. Then your chance of success is bigger," said Deng, "Really excellent companies are those who could bottom out during bad business and funding environment."
Such opinion was echoed by Li Zhu, co-founder of the InnoAngel Fund. "Investment in the time of capital shortage will get bigger returns in the future," Li said, and also predicted "the primary market will turnaround next year".
He said: "The State Council and other government bodies have rolled out policies to encourage more capital to flow to the investment industry, including State-owned companies, banks, and foreign capital. In years to come, thousands of billions yuan will be invested in the equity market."
In the first half year of 2016, InnoAngel Fund invested in 42 companies with a total amount of 150 million yuan, and the investment will increase in the second half, according to Li. Under sluggish economy, valuation of companies is 20 to 30 percent lower than a year earlier, making the prices more reasonable, said Li.
