China’s unicorns tap US$240 billion in private-market funding as they face IPO freeze

China’s recent crackdowns on overseas listings have thrown a wrench in the works of start-ups looking to go public, driving them to pursue investors in Asia’s rapidly growing private capital markets.

JPMorgan Chase & Co estimates the fundraising amount in private capital markets for entrepreneurs in Asia surged to over US$240 billion last year from about US$100 billion in 2017, driven largely by Chinese firms.

For years, the private market for stakes in the hottest companies in Silicon Valley has pumped ever-increasing sums into start-ups, and more recently, investors such as Blackstone and Temasek Holdings have swarmed toward China’s unicorns ahead of initial public offerings. Now, sectors such as education and consumer technology have fallen under Beijing’s steely gaze, throwing initial public offering (IPO) plans off course and sending cash-burning firms back to square one.

“A higher number of companies will be considering private markets as a potential fundraising avenue,” said Selina Cheung, co-head of Asia equity capital markets and head of private financing markets for Asia-Pacific at UBS Group. “It’s getting more difficult to raise funds in the public market amid the regulatory headwinds and Sino-US tensions.”

Companies like ByteDance, which had been preparing for an IPO before the crackdown started, are not the only ones whose listing dreams are on hold. Last year’s global surge of listings has given way to a slump, as rising rates and market volatility cast a pall over high-growth companies. The situation is particularly acute in Hong Kong, which saw its worst January for IPOs in three years. Start-ups in Asia are hoping potential private backers will continue to focus on the opportunities for patient capital.