A drop in China-focused VC funding could spell rough times ahead in 2022

Plus, could the New York Times finally buy The Athletic?

Inside.com Part of   Network December 20, 2021

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Venture capital firms that invest U.S. dollars into Chinese startups saw a 65% YoY drop in funding in 2021 — down to $4.2B from $12B in 2020. The decline in available capital could translate to slower growth and lower valuations for China's startups. More: The number of new China-focused VC funds investing U.S. dollars has decreased by 67% in 2021. Funding into China-based VC firms that invest in startups using the yuan has declined 79% in 2021. Despite a drop in their own funding, U.S dollar-based VC firms still invested $56.6B into Chinese tech startups this year, up from $42.8B in 2020. Many of the deals made in 2021 came prior to China's July regulatory crackdown on its tech companies. Numerous China-focused VC firms are still deploying the capital that they raised a few years ago. As of March 2021, these firms still had an estimated ~$24B of undeployed capital. Zoom out: Capital raised by Chinese-focused VC firms is a leading indicator, and its effects may not proliferate until mid-2022. The drop in funding demonstrates that the Chinese regulatory crackdown undoubtedly spooked the more risk-averse LPs like pensions, endowments, etc., that invest in these funds.

The New York Times is reportedly in advanced talks to acquire the sports journalism company The Athletic. Continued unprofitability driven by a staff of 600+ journalists has led The Athletic to become overly reliant on venture capital.  A perfect marriage: The Athletic is seeing its CAC rise and its LTV shrink, signaling that it may have approached its theoretical total addressable market. Between 2019 and 2020, The Athletic spent about $95M while netting $73M in revenue. The company has raised ~$140M in venture capital since its founding. Despite the unprofitability, The Athletic's platform still touts an extraordinary 1.2 million paying subscribers and an 80% retention rate. An NYT acquisition of The Athletic would be beneficial for both sides. The Athletic's founders and early stakeholders would get a much sought-after exit, allowing them to focus less on growth and more on margins. The NYT could add The Athletic's aforementioned 1.2 million subscribers while bolstering its notably lacking sports coverage. More: The Athletic was founded in 2016 by Alex Mather and Adam Hansmann. The company participated in Y-combinator with the goal of being "the local sports page for every city in the country." The company has brought in LionTree to assist in facilitating a sale valuing the company at around $750M.

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India-based fintech RazorPay has closed on a $375M funding round. The financing, co-led by Lone Pine Capital, TCV, and Alkeon Capital, will value RazorPay at $7.5B. More: The company's offerings are similar to Stripe's and include credit cards and working capital for businesses, payment processing, and tax collation, amongst others. RazorPay's valuation has doubled since April 2021. The platform processes $60B in transactions annually — up from $5M in 2019. Over 8 million businesses use RazorPay's services. The company will use the fresh funding to expand its product offerings and its workforce.

Polygon (MATIC) and Alexis Ohanian's Seven Seven Six have collaborated to launch a $200M Web3 fund. The fund will specifically look to invest in Web3 social media and gaming startups building on Polygon.  More: The fund will back both equity and token funding rounds. Neither side disclosed their exact capital contribution or how the funds will be deployed. Seven Seven Six launched a $100M fund for Web3 social media projects on Solana (SOL) back in November. The fund will be denominated in USD, not Polygon's Matic cryptocurrency.

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The user-generated immersive gaming platform Rec Room has raised $145M in funding on a $3.5B valuation. The funding was led by Coatue Management with participation from Sequoia Capital, Index Ventures, and Madrona Venture Group. More: Rec Room's new capital is set to assist the company in developing tools for its users. The free-to-play gaming platform has ~37 million users playing or creating content on the platform — up from 2 million in March. Rec Room's user growth has largely been driven by mobile.

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Trevor Grant is an entrepreneur, investor, and writer based out of Chicago, Illinois. His primary area of interest is web3 venture capital, social tokens, and infrastructure. Other pursuits include screenwriting, yoga, and traveling. He holds a BS in biomedical engineering.   Connect with him on Twitter @trevorisonline Editor Aaron Crutchfield is based in the high desert of California. Over the last two decades, he has spent time writing and editing at various local newspapers and defense contractors in California. When he's not working, he can often be found looking at the latest memes with his kids or working on his 1962 Ford.

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