Tech

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

With Fidelity marking down the value of its Snapchat stake by 25 percent and mobile-payments provider Square floating below previous valuations, the investor chill surrounding U.S. technology companies isn't exactly a secret. 

And yet, despite its volatile stock market, China seems to keep churning out tech stars, at least if you believe the headlines. Look more closely, and in fact winter is beginning to descend on Chinese startups as well, with bankers saying that fundraising has become tough as investors cross-examine them on heady valuations.

Data from KPMG shows that even as fundraising in China reached a record last year, investor interest had begun tapering off by the fourth quarter. Just like their North American counterparts, Chinese startups have seen a drop in venture capital enthusiasm:

Chill Descends
As in North America, investing in Chinese tech startups fell in the fourth quarter
Source: KPMG, Venture Pulse, CB Insights

And yet the upbeat headlines keep coming. The merged Meituan.com and Dianping.com group-buying websites scored $3.3 billion earlier this month in what was billed as the largest private-fundraising round globally for a venture capital-backed startup. Boasting an $18 billion valuation, Meituan-Dianping has overnight become one of the biggest companies in China's online-to-offline space, a moniker that refers to business models which draw customers from the Internet and into regular shops.

There's also Lufax, or lu.com, which last week raised north of $1.2 billion in a fundraising the peer-to-peer lender says values it at $18.5 billion. That would make the company, owned by Chinese insurance giant Ping An, the world's most-valuable financial technology startup.

And therein lies the answer of what investors want -- startups that stay on top. It's a lesson once high-flying smartphone maker Xiaomi learned the hard way after missing its 2015 sales target. More established competitors like Huawei have since copied Xiaomi's ultra-thin models, leapfrogging it as the nation's cell-phone maker du jour.

Staying on top seems to require one of two strategies (putting aside innovation, which has a longer time lag). Either attract Baidu, Alibaba or Tencent (or better still, all three), or merge with another similarly sized player.

Tencent, owner of China's top messaging app WeChat, was one of the investors that poured into Meituan-Dianping's fundraising. Food-delivery startup Ele.me, backed by both Tencent and Dianping, is preparing to close a funding round of at least $1.25 billion as early as next month in a deal led by Alibaba, people familiar with the matter told Bloomberg News on Thursday.

On the merger front, ride-hailing apps Didi Dache and Kuadi Dache combined in February last year and became a virtual magnet for money, with China Merchants Bank the latest to jump onboard. And according to Citigroup, the Meituan-Dianping tie-up has given the duo almost 80 percent of China's group-buying market:

Stiff Competition
Combined, Meituan and Dianping control most of China's so-called group-buying market
Sources: Tuan800.com, Citi Research

Now that fashion retailer Meilishou.com, which had been trying to raise $300 million and even considered listing in the U.S., is merging with Mogujie.com, things are sure to start looking up.

Rapid Descent
Stock in online consumer finance business Yirendai has tumbled since its December debt
Source: Bloomberg

Of course, staying on top is easier said than done. And disruptive technologies in fast-moving markets mean the future in tech is unpredictable at best. But it's something investors should bear in mind before handing over wads of cash. Look at Beijing-based Yirendai, the first Chinese fintech company to go public. After selling shares at $10 apiece, it made its New York debut on Dec. 18. The stock closed that day at $9.50 and on Monday at $7.00. Ouch.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net