Reposted from Forbes:
“Tech investments in China are dangerously hot. They will cool down soon. Companies should buckle-up for a bumpy downhill ride.” These are the key messages from an internal letter written by veteran Chinese venture capitalist, Matrix Partners China‘s co-founder David Zhang, and sent to dozens of CEOs at Matrix’s portfolio companies two days ago. “Several hours ago, my colleagues just signed papers for our 45th investment deal this year, and we are only at the end of the third quarter! I think it’s time to send you a letter,” writes Zhang, soberly.
The letter, which has been floating around Chinese social networks over the past couple of days, continues: “If you paid any attention during the past nine months, you perhaps have felt the incredible heat of tech venture deals. Financing rounds are breaking records again and again, valuation and IPOs are becoming red hot.” If the current pace continues for another three months, 2014 could break the previous tech venture investment record set in 2011, when 113 deals with total value of $5.05 billion were registered for the year.
Based on daily conversations with the firm’s portfolio companies, Zhang says he is sensitive to market changes. But he can’t say if a downturn will come in the next 12 months, later, or sooner. But one thing he is sure: the Chinese technology market will cool down, eventually. The market is simply too hot right now, Zhang writes. Several major venture firms in China, including Matrix, have so far this year made double the number of investments they made for the whole year of 2013.”