Asian startups reeling under VC fund crunch

By : |May 12, 2016 0

In 2014, he was part of Forbes China’s list of the 30 most successful entrepreneurs under the age of 30. In 2015, his Shanghai-based startup, ‘Yiqi Chang’ was valued at more than $100 million. Early this year, an email was sent to all his 600 employees that his karaoke-booking startup was in crisis- running out of money after failing to raise funds and that he wouldn’t be able to pay staff salaries.

Yin Sang, a prominent Chinese entrepreneur is one among many startup founders who are struggling to hold ground in the face of VC fund crunch. Yin has cut his firm’s payroll from 600 to 200 in the past three months. Yiqi Chang, which means “sing together” in English, is trying to break even and now operates in just six cities, compared with 20 in January. The company has also secured some loans.

“A year ago, we thought we could always raise more money,” Mr. Yin said. “Now, we have to survive on our own.”

                                 

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And this isn’t just China story; the phenomenon is pan-Asian. In recent years, investors flocked to Asia—home to the world’s biggest number of mobile users—as its startup scene boomed. Now they are spooked by weakness in the global economy, volatility in China’s stock market and slumping investments in Silicon Valley amid talk of a tech bubble.

In the face of growing investor scrutiny, protracted fundraising discussions, and downward pressure on startup valuations, some startups have shut down altogether while others are laying off workers, cutting costs and moving away from business models that burned through cash to attract users.

China and India worst hit

Hong Kong-based AVCJ Research says venture-capital investments in China’s technology startups fell by 28 percent to $1.8 billion in the first quarter of 2016 from $2.5 billion a year earlier. Similarly, Indian tech startups witnessed a slump of 17 percent from $891 million to $736 million for the same quarter. And in South Korea, venture capital investments fell 37 percent to $45.8 million in the first quarter from $72.2 million a year earlier.

Pei Qiao, co-founder of Weichaishi, a Shanghai-based startup that runs an online crowd sourcing platform for corporate clients, believes that the tougher environment means cutting even small expenses. Snacks and beverages for employees are out, along with expensive branding campaigns.

CIOL Asian startups reeling under VC fund crunch

After raising $3 million in September 2014, Weichaishi treated all of its employees to a Thailand trip. But now the startup just holds a monthly birthday party for employees, providing a small cake. “We are becoming more practical and looking for tangible results,” adds Pei.

In India, Oravel Stays Pvt.’s Oyo Rooms, recently declined funding from new investors to avoid a drawn-out discussion over the company’s valuation, according to The Wall street Journal. To avoid running out of cash before the end of the year, the startup is also cutting costs and no longer loses money on each hotel room it books.

Singapore-based online grocery-delivery service RedMart Ltd. has also faced funding challenges in recent months. In Indonesia, fashion e-commerce startups Paraplou Group and PinkEmma have closed in recent months, with the former blaming the closure on a tight fundraising environment.

Though Chinese Internet giants such as Alibaba Group and Tencent Holdings Ltd. have been playing greater roles as deep-pocketed strategic investors for many startups in Asia, cushioning the blow, global funding slowdown is nevertheless forcing companies to make drastic changes in the harsher climate.

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