Billboards, hotels, taxi services and similar businesses were favourites of investors in China last year as venture capital investment in the region reached its highest level in six years
Billboards, hotels, taxi services and similar businesses were favourites of investors in China last year as venture capital investment in the region reached its highest level in six years with USD2.49bn invested in 241 deals, according to the China Quarterly Venture Capital Report from Dow Jones VentureSource.
This represents a 5 per cent increase in investment over 2006 despite 14 fewer deals. The fourth quarter saw 60 deals and USD660m invested in China, a 6 per cent increase over the USD622m invested in 63 deals in the fourth quarter of 2006, according to the report.
‘As has been the trend for several years, venture capitalists continue to diversify their investments in China,’ says Jessica Canning, global research director for Dow Jones VentureSource.
‘While prior years saw big gains in energy and web-related investment, 2007 saw much of that interest shift to the non-technology focused business, consumer and retail area. This industry really picked up in the second half of the year with more than USD831m invested in the third and fourth quarters.’
Overall, China’s business, consumer and retail sector saw a record USD1.25bn invested in 94 deals last year, up 83 per cent from USD682m invested in 2006. The most popular segment within this industry was consumer and business services, which accounted for 48 deals and USD761m in 2007 – 61 per cent of the sector’s investment total.
Elsewhere, 110 information technology companies received USD992m in venture funding, a nearly 9 per cent drop in capital from 2006. For the third year in a row, the most popular IT segment was internet-dominated information services area, which attracted USD562m in 55 deals. However, the number of information services deals was down from the 86 completed in 2006 and investment dipped 1 per cent year-on-year.
While healthcare is a relatively small investment sector in China, particularly compared with the US and Europe, it posted record gains in 2007 with 21 deals and USD175m invested, more than double the USD86m invested in 15 deals the previous year.
China’s energy segment, which enjoyed record investment and deal flow in 2006, cooled last year, with six deals completed and some USD31m invested, down from USD421m invested in 14 deals.
‘In addition to branching out into new investment areas, venture capitalists continue to help their companies grow quickly by providing larger sums of capital – a trend also seen in the US and Europe,’ Canning says.
‘The median deal size in China is now USD8m, up from USD6.1m in 2006, and the highest median in at least seven years. In addition, the amount of investment activity going to mature companies – those already profitable or generating revenues – points to the rapid development of the venture capital market in China.’
As expected given the youth of the Chinese venture capital market, seed and first-round deals make up the majority of deal flow with about 61 per cent, but second and later rounds now make up 50 per cent of total venture investment. Second rounds saw 15 per cent more capital invested in 2007 than the year before.
The report found the median size of a first-round deal was USD6.2m in 2007, up from USD5m, while the median for second-rounds deals fell slightly from USD10m to USD9.5m. However, the median round size for a later-stage deal jumped from USD20m to USD25m, a sign that investors are willing to provide more capital to mature companies in China.
