The second quarter of 2008 saw venture investment in mainland China surge to its highest level in five years as venture capitalists put nearly USD1.37bn into 71 deals, more than double the
The second quarter of 2008 saw venture investment in mainland China surge to its highest level in five years as venture capitalists put nearly USD1.37bn into 71 deals, more than double the USD662m invested in 69 deals during the same period last year, according to the China Quarterly Venture Capital Report from Dow Jones VentureSource.
A single deal, the USD430m later-stage round for Beijing-based Oak Pacific Interactive, which provides an internet platform for Web 2.0 communities, accounted for 31 per cent of the region’s investment total.
‘Even when we remove the USD430m deal from our statistics, the China region still recorded its highest level of venture capital investment since the third quarter of 2003,’ says Jessica Canning, global research director for Dow Jones VentureSource.
‘In all, some USD968m, or 71 per cent of all capital invested in China in the second quarter, went to companies in the information services and media, content and information categories. By comparison, in the US only 12 per cent of venture capital investment went into these areas during the period.’
China’s information technology industry accounted for the most deals and investment in the second quarter with 28 deals attracting USD899m, a 184 per cent increase over the USD316m invested in 34 IT deals in the second quarter of 2007.
In particular, China’s information services sector, which includes Oak Pacific Interactive, saw 17 deals completed for USD805m, a fivefold increase over the USD161m invested in 15 deals in the sector during the same period of last year.
Dow Jones VentureSource reported that the consumer services industry, which includes media, content and information, saw 17 deals raise a record USD246m, up 34 per cent from USD183m invested in eight deals last year.
The business and financial services category saw 13 deals close in the quarter, attracting USD99m, 25 per cent less than the USD132m invested into 17 similar deals over the same period in 2007.
Health care still remains a small investment industry in China, with the quarter seeing only three biopharmaceutical deals close, accounting for USD13m – 28 per cent below the USD18m invested in five health care deals in the second quarter of 2007.
‘Larger deals drove investment in the second quarter as the median deal size in China reached USD10m, the highest total seen to date,’ Canning says. ‘Nearly 98 per cent of all capital invested during the quarter went to companies that are already profitable or generating revenues.
‘This is due in large part to the significant amounts of capital China-focused venture funds have raised over the past 18 months. Venture capital firms have to invest larger and larger amounts, and they’re looking to back later-stage, established companies that are seen as lower in risk than early-stage companies.’
The majority of capital invested in the second quarter went to developed and later-stage companies, according to the report. Smaller, early-stage deals were more prevalent, with seed and first rounds making up 52 per cent of all venture rounds, a figure down from 65 per cent in 2007. Second rounds made up 20 per cent of the deal count, up slightly from 19 per cent, and later-stage rounds accounted for 21 per cent, up from 7 per cent.
