China's venture capital scene has been on fire this year, and a record-breaking run to unicorn status by a Chinese coffee startup suggests it is not cooling yet.
Luckin Coffee took just six months to reach a $US1 billion ($1.35 billion) unicorn valuation, a performance that is helping boost investor appetite for Chinese startups, even as they estimate that valuations are far outstripping US ones.
At Hong Kong's recent RISE technology conference, a key stop on the Asian venture capital circuit, investors told Reuters startups in China were 30 to 40 per cent more expensive than their US counterparts and, in some cases, were even valued at twice the price.
"If I put my US lenses on, this is insane," said Edith Yeung, partner at 500 Startups, a California-based venture capital firm.
But, she said, the calculus for investors was the sheer size of the Chinese market, noting that the WeChat social media platform had three times more daily users than the population of the US.
"Everything is sort of relative," Ms Yeung said.
Luckin Coffee typifies the optimism evident in China's startup scene.
The Beijing-based coffee delivery company only began operating in January and has plans to expand its 660-strong network to challenge Starbucks, with 3,400 stores.
Detractors point out that Luckin's fast growth has relied heavily on cut-price promotions and warn it also faces heavy competition from other chains such as Canada's Tim Horton's.
Its backers still see value, however.
"Luckin's valuation is not cheap or lofty – it's reasonable," David Li, head of Centurium Capital, said.
The former head of Warburg Pincus Asia Pacific led Luckin's recent $US200 million financing round and maintains it is not a conventional startup, pointing to a management of experienced, serial entrepreneurs.
At the other end of the scale from Luckin sits Ant Financial, the Chinese payments giant that became the world's largest unicorn in June when it secured $US14 billion in fresh cash that valued the company at $US150 billion.
In search of the next Ant, Sequoia Capital China, the local arm of the Silicon Valley-based venture capital giant, is close to raising 15 billion yuan ($3.1 billion) in its fifth yuan-denominated China-focused fund, the largest of its kind.
"Lots of China's rising sizeable tech companies are promising and still fast-growing and rely on fundraising for further growth,” Zhou Kui, a partner at Sequoia Capital China, said.
“We are increasing our fund size to capture those opportunities."
The firm's recent investments include Bitmain Technologies, a Chinese bitcoin mining equipment maker, Pinduoduo, a fast-growing e-commerce firm, and the self-driving startup, Pony.ai.
On average, a startup in China reaches unicorn status about 18 months quicker than its US equivalent, according to Pitchbook, an industry data provider.
"There is a lot of aggression and hunger," Jixun Foo, managing partner at GGV Capital, said.
"It's important to recognise the amount of talent and capital that's pouring into this market. That's capitalising on a lot of change."
Beijing's deleveraging campaign, which has driven up borrowing costs, slowed the economy and aggravated already tight market liquidity, could potentially affect fundraising for funds and companies, some investors warned.
For now, however, venture capitalists are confident they can exit via either an IPO or a sale.
Hong Kong is readying for a series of blockbuster tech deals, led by smartphone maker Xiaomi's $US5.4 billion float in July, the world's biggest tech IPO in four years.
Despite a relatively weak debut by Xiaomi, the earliest investors in the company still made 866 times their initial investments at the IPO price, said Hans Tung, San Francisco-based managing partner with GGV, which invested in Xiaomi from day one.
"The next two to three IPOs will determine whether people will come in big numbers," Mr Tung said.
The trump card for those shrugging off bubble fears in China is the presence of other deep-pocketed buyers, including Alibaba Group, Tencent Holdings and SoftBank Group, with its $US100 billion Vision Fund.
The three have shelled out about $US45 billion since 2015 across 71 investments in Chinese tech companies, according to Thomson Reuters data.
Chinese venture capital funds have so far performed better than their global peers, delivering a multiple of money – the total return on investment – of 1.72 times, compared with their US peers' 1.59 times, according to May data from eFront, which analyses about 4,000 funds.
Tay Choon Chong, China managing partner at Vertex Ventures, an arm of the Singapore state investor Temasek Holdings, shrugged off concerns that any nascent bubbles posed a real danger to the wider venture capital scene.
"It's like beer. You need the right amount of bubbles for it to taste good," said Mr Tay, who has been investing in China since 2009.