Analysts predict that this year could be tough for Chinese tech firms as they face high expectation from the investors who poured billions in the country's tech sector last year.
Citing data from CB Insights and Dealogic, the Wall Street Journal noted that over $60 billion of fresh capital went into take-private deals and Chinese startups in 2015, a significant increase from 2014's $13.9 billion.
Nonetheless, investors are becoming more cautious as the local stock market has put on hold domestic initial public offerings.
For Richard Ji, founder of All-Stars Investment Ltd., which has invested in Chinese startups such as Xiaomi and Didi Kuaidi, "the huge swings in the public markets have spilled over into the later-stage venture investment market. Valuations overall have softened and companies are offering better terms to investors."
Investors and bankers also agree that this year's harsher fundraising environment will prompt tech firm owners to tighten their expenses and take merging with rivals into account, the report added.
Jeremy Choy, investment bank China Renaissance's co-head of mergers and acquisitions, said that startup entrepreneurs "shouldn't assume that they can always raise a bigger round with a higher valuation six or nine months down the road. This could be a driver for more M&A discussions."
The WSJ article further noted that China's financing climate has also changed for startup founders. After a crash in the local stock market in August and September last year, firms that invest in early-stage tech startups like Shenzhen Capital Group have stopped looking at new deals.
Du Jian, the firm's tech investment manager, pointed the reason out: "More resources are being concentrated into fewer startups."