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Unpaid suppliers picket, founders flee and thousands of white-collar tech workers laid off as investors grow wary of unprofitable consumer internet startups in China.
On an overcast afternoon in January, a procession of suppliers working for grocery company Nice Tuan staged a drive-in protest at an Alibaba warehouse in central China’s Changsha, where e-commerce He demanded the giant’s bailout of the company.
“We can’t get the money. No one from Nice Tuan is doing business with us. We are chasing Alibaba because we have no choice,” said Yang Shanli, a sunflower seed supplier. said.
China’s online grocery startup Nice Tuan, which has raised more than $1.2 billion from investors including Alibaba, DST Global and DE Shaw, said a radical change in Beijing’s policies has forced investors to abandon consumers. It’s the latest company to be inspired and on the brink of collapse. Internet company that backs “hard tech” ventures.
Chinese startups raised a record amount of funding last year, up a third year-on-year, according to data provider ITjuzi. But the Chinese venture space is widening the crossroads.
Funding in e-commerce, educational technology, and social startups has flattened or declined, while investment in semiconductors, robotics, and other hard tech companies surged.
Huang He, of Northern Lights Venture Capital, a major Chinese investment firm, said the competition for deals and valuations in the robotics sector is fiercer than ever.
“The country wants to focus more on hard tech and industries. Investors have to go in the direction of the country,” he said. Northern Lights Consumer Internet His team has shifted focus to direct-to-consumer sales and supporting retailers, he added.
SoftBank Chairman Masayoshi Son also said the Japanese group was changing its course in China. “Right now, we don’t invest in companies that are sensitive to consumer or media data,” he said on the earnings call in November.
“There are many companies that the Chinese government has not issued a warning about,” such as “robotics, medical care, B2B,” Mr. Son said.
The strategic shift gained momentum in July, when Chinese authorities launched an investigation into ride-hailing giant Didi Chuxing after its initial public offering in New York. A few weeks later, Beijing announced rules to overthrow its education technology sector. Officials have since added regulations to make it more difficult for Chinese companies to list in New York.
“Consumer internet is looking to the US as a major exit location. said an investor in a China-focused fund.
“Alibaba, Tencent, [private equity] Funds typically lead big growth rounds before IPOs, but they are backing down,” the investor added.
The impact of Beijing’s regulatory campaign on consumer Internet companies is severe. China’s online education leader, New Oriental, laid off 60,000 employees. Rivals such as Gaotu Techedu, TAL Education Group, Yuanfudao and Zuoyebang have collectively let go of tens of thousands of workers.
Valuations of publicly traded money-making internet companies have also fallen, spurring job cuts such as video-streaming site iQiyi and TikTok rival Kuaishou.
Online grocery stores have been targeted by authorities seeking to eliminate predatory pricing. Chinese antitrust authorities penalized five companies last year, he said, for their pricing practices.
Chengxin Technology, a spin-out of Didi’s grocery division, has shrunk significantly, while Tencent-backed Shixianhui and startup Tongcheng Shenghuo are on the brink of bankruptcy. Fresh food supplier Meicai and New York-listed Dingdong Maicai and Missfresh are shrinking.
Regulatory scrutiny has increased pressure on companies struggling to turn a profit. “Our positioning wasn’t clear, we didn’t have a clear direction…it was completely throwing money in the water,” said a former Chengxin employee. “[Didi] I could no longer bear the huge losses. ”
After spending $3.8 billion in the company alongside SoftBank and other investors in the first half of 2021, Didi was forced to write off most of its investment a few months later.
Didi declined to comment.
Nice Tuan faces a similar fate after exhausting $750 million in funding from investors including Alibaba and Yuri Milner’s DST Global last March. Unable to attract additional investors, suppliers are being forced to repay.
Nice Tuan laid off thousands of employees in recent months. One of his former employees in the strategy department told his FT that he has not been paid for the remaining two months after being laid off at the end of December.
“I knew there would be a problem, but when I changed legal representatives in December, [position] I knew it was really bad for people who had never heard of it,” he said. Under Chinese law, the company’s legal representative is legally responsible for the company’s negligence.
According to public records, Nice Tuan’s co-CEOs Cheng Ying and Wang Peng, Harvard Business School and Bain Capital alumni, transferred their positions at a significant subsidiary to a third party on December 15. Handed over to 65-year-old Wang Wenjing.
A week later, a Beijing court imposed personal spending limits on Wang Wenjing due to Nai Tuan’s unpaid bills. This was the first in a series of court orders barring Wang Wenjing from going on vacation, playing golf or staying in fancy hotels.
A spokesperson for Nice Tuan, spotted by the FT in an empty Beijing office, said the company still “has money in its bank account” and only “payment cycles have lengthened.”
A spokeswoman said some employees were in mediation over their retirements and confirmed the company had laid off more than 1,000 employees at its headquarters. I called.
“The new government policies have shrunk the entire industry . said.
“There has been a restructuring of the education industry. So has our industry. After this, there may be a period of healthy growth.”
Suppliers can only hope that the company will survive. Yang, a sunflower seed merchant, said he owed 60,000 RMB ($9,400).
“I know that my debts have to be repaid because I only have primary education. Even if my business cannot continue, I have to explain and explain to my creditors,” he said. Told. “How come Nice Tuan’s boss, a Harvard graduate, can’t figure this out?”
Additional reporting by Nian Liu in Beijing and Antoni Slodkowski in Tokyo
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