Hundreds of Chinese tech start-ups ;— including several unicorns — failed in 2019, with many more limping into the new year, as companies burned through cash in the face of growing financial headwinds.

According to new data from business information provider ITjuzi, 336 start-ups in the country were forced to cease operations over the course of last year, having collectively raised Rmb17.4bn ($2.5bn) from investors. Among them were companies valued individually at more than $1bn.

Of the 20 costliest failures of “new economy” start-ups — those that have sprung up alongside the internet and private industry over the past two decades — about half occurred in 2019.

The closures come as tech companies in China face an advancing “capital winter”, a funding shortage that began last year as investors grappled with a slowing economy and the end of a venture capital boom. Meanwhile, tech start-ups’ penchant for employing expensive and risky strategies such as large subsidies intended to woo new customers has added to their problems.

By the time Zhang Zhengping, the founder of social ecommerce start-up Taojiji, announced the pending bankruptcy filing of his company last month, the platform had collected 130m shoppers buying its subsidised clothes, cosmetics and groceries.

Me and other executives have received countless threatening calls, text messages and even threats to the safety of our families and relatives

But Taojiji had also spent the $42m raised from venture capitalists in 2018, and owed merchants and suppliers another Rmb1.6bn ($230m). Debt collectors piled into its office building in Shanghai demanding payment.

“Me and other executives have received countless threatening calls, text messages and even threats to the safety of our families and relatives,” Mr Zhang wrote in a letter to employees and suppliers, claiming that two investors had failed to wire previously agreed-upon financing in December, necessitating the bankruptcy.

Creditors similarly besieged the offices of last year’s largest failure, the peer-to-peer lender Tuandaiwang, which was valued at Rmb10bn ($1.4bn) before being hit by a regulatory crackdown that aimed to shrink its overextended business and exposed holes in its finances.

Lacking the cash to repay their thousands of individual lenders, the company’s two founders turned themselves in to police in March on charges of illegal fundraising.

Losing money is not unusual among start-ups. But China’s fiercely competitive market and knack for copycats pushes many founders to turn to burning cash early on to win market share. Analysts say customer acquisition costs in the country are also some of the highest in the world, with William Bao Bean, a partner at SOSV Investments in Shanghai, estimating a single user app download cost $10 to $100.

“A lot of investors have a herd mentality and they’ve turned against business models that use money as a weapon to subsidise customer acquisition,” said Mr Bean, adding that fundraising was particularly hard for start-ups with unprofitable unit economics.

Grocery delivery start-ups had received an influx of investor capital in recent years, seeding a wave of new companies fighting to provide consumers with highly subsidised fruit and vegetables — and leaving almost all unprofitable. Renminbi unicorns Wochu.cn and Miao Life were among more than a dozen that failed last year, according to ITjuzi.



Investors once gave China’s lossmaking start-ups time to turn things round. Meituan Dianping had raised more than $4bn privately, with much of the capital burnt on consumer and merchant subsidies, before it listed publicly in Hong Kong in 2018. Last year it turned profitable and its value jumped, making it China’s third most valuable tech company.

But as a result of the “capital winter”, the number of venture capital deals fell 36 per cent last year, with total deal value down to $51bn, from $112bn the year prior, according to data from Preqin.

“It’s been a horrible year,” said one Hong Kong-based lawyer working on private financing deals.

This article has been amended since publication to remove DST Global as an investor in Taojiji.

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