Fallout from the coronavirus pandemic is extending a bitter winter suffered by China’s venture capital market.

According to a report from Beijing-based startup tracker IT Juzi, VC investment in the country’s tech sector shrank 30% in the first quarter of the year, with VCs funneling $16.8 billion into tech enterprises during the first three months, down from $24 billion in the same period last year. The total number of deals contracted too, falling 45% to 634.

With the pandemic making investors skittish, NGP Capital partner Yao Ge warns winter will linger for another year.

Winter freeze

China entered a “capital winter” in 2019 when funding for Chinese companies dropped to $35.6 billion in the first 11 months from $93.4 billion for the same period in 2018 as VCs practiced caution after overheating the market for several years. Now with the coronavirus crisis constantly shifting, limited partners—financiers that put up money for VCs to invest—are reluctant to release new funds.

“It’s not that limited partners don’t have money, but under the current circumstances, the market is so unpredictable they can’t decide where to invest,” Yao says, adding that fundraising will be “extremely difficult” this year.

Any money VCs do receive, Yao says, is earmarked for portfolio companies rather than shopping for new ventures, as financiers can’t visit new companies to perform due diligence. Restriction of movement has prevented would-be entrepreneurs from registering new ventures, too.

According to IT Juzi, fewer than 100 companies were established in the first quarter of the year, compared with more than 3,000 during the same period last year. Not all portfolio companies are safe, however. NGP Capital is prepared to cut any company with less than six months of cash, which counts for about 15% of the firm’s portfolio, Yao says.

The willingness to slash cash-weak ventures signals a change in China’s startup culture, which previously burned through VC funding to obtain market position first and worried about revenue later. Yao says her firm used to look at growth as the defining metric of a startup’s value, but now the VC group “looks for health.”

Hustle up

VCs aren’t the only ones altering their approach. Denis Barrier, managing partner at Cathay Capital, says startup culture is changing too, since lockdowns gave employees the chance to reflect on how they allocate their time. The so-called hustle culture that fueled startups in China and elsewhere may no longer be welcome in a post-pandemic world.

“That will be a change that has to be accounted for before VC funds do a lot of new investment,” Barrier says. Already last year, burgeoning resentment over the so-called 996 work ethic—9 a.m to 9 p.m, six days a week—inherent in China’s tech scene boiled to the surface, spilling over into a massive online protest. Once the pandemic clears, startups that serve a social purpose will likely see stronger interest from employees, Barrier says.

Spring thaw

There are tentative signs that venture funding is beginning to ramp up again as China’s lockdown measures ease. According to industry analysts Asian Venture Capital Journal, VC funding in March increased sixfold over February to $2.5 billion as some VC firms bargain hunted in the downturn.

Two-fifths of VC funding in March can be attributed to a $1 billion round led by Hillhouse Capital for Beijing-based online education platform Yuanfudao, driving the startup’s valuation to $7.8 billion.

Other VC funds are amassing new war chests, too. Qiming just completed a $1.1 billion fund for new investments—targeting health care and biotech, in particular. Meanwhile, IDG Capital is aiming for $3 billion, and Bytedance Venture Fund is targeting $1.4 billion. However, the new funds won’t be spent as lavishly as before.

“For a long time everyone had a lot of money, and capital ceased to be a differentiator,” says Gary Rieschel, managing partner at Qiming. Now that VCs have become more selective in which startups they fund, capital is a differentiator again, Rieschel says, and the “vintage” of startups funded this year will be better for it.