Despite plenty of bargains, funds are wary of investing during coronavirus outbreak
Venture capital companies in Silicon Valley are not taking any chances when it comes to the coronavirus outbreak.
“Due to the Coronavirus, No Handshakes Please. Thank You,” reads a sign on the office doors of Andreessen Horowitz, a powerhouse in the U.S. venture capital world.
Handshakes are not the only thing Silicon Valley VCs are shunning.
“We have pushed the pause button on every deal in China and even some in other Asian countries,” a venture capitalist in the consumer tech sector told the Nikkei Asian Review, asking not to be named.
With the number of confirmed coronavirus cases and deaths rising daily, businesses across China have closed offices, asked employees to work from home and canceled meetings.
For their part, U.S. companies have suspended all business trips to and from China after the U.S. Department of State issued a “do not travel” warning for the country.
Venture investors normally visit China’s tech hubs regularly, generally flying out of San Francisco International Airport or San Jose Airport. But with the virus raging, there are currently no flights to mainland China from nearby airports till the end of March, significantly disrupting the normal flow of business in Silicon Valley.
“It is nearly impossible for us to do due-diligence work in Asia under the current situation,” said the venture capitalist, adding that his company has reduced all international travel, in addition to canceling all China trips.
David Ulevitch, a partner at Andreessen Horowitz, posted on twitter that he has ordered hazmat suit and respirator for coronavirus prevention.
“I’m not canceling any of my pitches next week due to coronavirus… But, seriously, if you’ve been to China in the last two weeks we are moving to Zoom,” he tweeted on Jan. 29, referencing the video conferencing software.
However, none of this means Silicon Valley financial backers are taking their eyes off China.
“2020 was supposed to be the year of rebound in China after the capital winter in late 2018 and last year,” said a partner at an early stage venture investment firm headquartered in Menlo Park.
According to him, there were some major valuation adjustments of Chinese startups in 2019 and local investors are becoming more conservative. With less competition and lower price tags, now it is a good time to “buy low.”
“Obviously we cannot hand out any checks [to Chinese startups] now, but we are still looking at pitch books and remain in constant communications with companies in the region,” he said.
“I can’t say when the deal flow will go back to normal because coronavirus is now the biggest uncertainty in the deal-making process,” he added.
Another VC source who focuses on consumer tech agreed.
“Startups are still relatively cheap in China compared to the U.S… and the fundamental market demand remains strong there. We were planning to put more bets in China than at home in 2020,” he said.
But because of uncertainty over when the coronavirus outbreak will be contained, “now we have to wait and see,” he added.
If history is any indication, a rebound may not be far off, as investment has tended to pick up quickly once a pandemic is brought under control.
Foreign investment into China plunged in the early months of the SARS outbreak of 2002 and 2003. As confirmed cases and deaths caused by severe acute respiratory syndrome dropped by the day in late 2003, foreign cash began flowing back in a big way. The country attracted $53.5 billion in total foreign direct investment that year, a 1.44% growth year over year, according to China’s Ministry of Commerce.
A report by tech intelligence company CB Insights found that after investment activities slowed during the SARS and Zika virus outbreaks, private market deal volume and funding both started to recover in affected regions after WHO declared an end to the global emergency.
“Both of the past private market downturns that accompanied a major viral outbreak were followed by an eventual bounce back,” the report says.
“So at the end of the current coronavirus outbreak, we could see landmark deals or new funding highs in the Asian market.”
Source: Nikkei Asia ReviewRelated posts: