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US Investment in Chinese Startups Plummets Amid Political Tensions

Plus: How to Build a SaaS Unicorn and Reach $100M ARR

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🍿 Quick Snack

  • πŸ‡¨πŸ‡³ US investment in Chinese startups sees a 47% decline amid political tensions and restrictions on certain sectors, while Chinese technology elites lead the frenzy of AI startups in China.

  • πŸ€‘ Learn how to build a SaaS unicorn and reach $100M ARR, including choosing the right product category, as well as different acquisition strategies to match different customer ARPA (average revenue per account) sizes.

  • πŸ“‰ Venture debt dries up as interest rates rise, leading to a 50% decline in investment in startups and hindering job creation, although it may ultimately benefit the economy by directing funding towards better startups.

  • 🍟 Extra Fries: SoftBank's Vision Fund loses $2 billion in Q1 2023, tech leaders discuss the impact of generative AI on business and society, and SaaS Capital releases latest report on SaaS retention.

πŸ” The Full Meal

Venture Funding in China Falls 47% in 2022 Amid Political Pressures

# of Investment Deals in Chinese companies by US investors

  • There is a decline in US investment in Chinese startups, likely due to political tensions between the two countries.

  • Venture funding in China almost doubled in 2021 to an all-time high of $87 billion, but dropped significantly in 2022 to $46.3 billion, a 47% decline.

  • President Joe Biden is expected to sign an executive order that will limit investment in certain sectors of the Chinese economy by US investors, such as semiconductors and artificial intelligence.

  • As a result, Hong Kong-based exchanges are seizing the opportunity to fill the gap left by the decline in US investment in Chinese startups.

Other Related News:

  • Chinese technology elites have also jumped in to lead the frenzy of AI startups in China.

  • Wang Huiwen, the retired co-founder of Meituan, announced a personal investment of $50 million to set up Beijing Lightyear Technology and went on a talent hunt to "build China's OpenAI."

  • Overall, China's AI investment is expected to reach $26.69 billion in 2026, accounting for about 8.9% of global investment, according to IDC in an October report.

Together with EarlyNode: How to Reach $100M ARR

  • Christoph Janz is famous for his graph of 5 ways to get to $100M ARR, a.k.a. to build a SaaS unicorn. Our friends at EarlyNode summarized his takeaways πŸ‘‡

  • Choosing the right product category is key. Ideally, you should focus on one or two types of customer sizes that offer an ARPA of $3.3k to $333k, β€œdeer” and β€œelephants”. Companies of these types were found to create more than two-thirds of SaaS Unicorns.

  • Align CAC and ARPA/LTV to avoid the "Zombieland" of startups who fail to scale due to a mismatch between their customer acquisition channels and lifetime value. Put simply, each customer category will require a different level of spending. The following graph provides some high-level guidelines.

  • Different acquisition strategies match different customer ARPA sizes. Choose the right tools for the job.

  • To acquire 10,000 Deer, you probably have a relatively complex product that requires more than a free trial before fully activating a customer. As such, you should aim to spend a good amount on marketing/sales (~$13K per customer), but the challenge is finding ways to implement a scalable lead generation process. Examples of companies hunting in this category: Hubspot, Atlassian, and New Relic.

  • To acquire 1,000 Elephants, your team should be focused on outbound sales, account-based marketing, events, steak dinners, etc. With high LTV, you can afford to spend big money on customer acquisition. However, the challenge is raising a lot of money upfront to pull this off. Examples of companies hunting in this category: Salesforce, and eloqua (acq. by Oracle).

Interested in more content like this?

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Tech Startups Struggle as Venture Debt Dries Up

  • The volume of venture debt has fallen to its lowest level in the US since 2017.

  • Last year, companies drove venture lending to record levels as revenue was under pressure and other forms of financing were drying up.

  • By the first quarter of 2023, venture firms had invested $79 billion in startups, which was less than half the $178 billion invested in the previous year, according to PitchBook.

  • The decrease in venture debt has been caused by rising interest rates, making it more expensive for companies and a lack of willingness among many lenders to take on risk.

  • The decline in venture debt may lead to more startups collapsing, as many startups often focus on growth instead of profitability and need consistent capital to operate.

  • This reduction in funding may also hinder job creation, as new businesses account for most job creation in the US.

⚑️ Power Take: The economy may ultimately benefit from the reduction in funding, as capital may flow to better startups and worse ideas may not get funding.

🍟 Extra Fries

  • πŸ‘€ SoftBank's Vision Fund has lost money for the fifth quarter in a row, despite the recent tech rebound. The unit lost $2 billion in Q1 2023. (Read More)

  • πŸ€– Tech leaders discussed the impact of generative AI on business and society at a roundtable event in Bellevue. (Read More)

  • πŸ“ˆ SaaS Capital has released its latest report on SaaS retention after surveying over 1,500 SaaS companies and professionals. The report shows that annual contracts don't actually increase NRR for SaaS startups. (Read More)

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