Zero2IPO Reports That China's VC Industry Raises More Than US$3 Billion in Capital...

Zero2IPO Reports That China's VC Industry Raises More Than US$3 Billion in
Capital in Q2
Total Amount Invested Grows 70% over Q2'07

BEIJING, July 22 /Xinhua-PRNewswire/ -- The Zero2IPO Research Center
announced today that China's VC industry has been extraordinarily active
during Q2'08. Both new funds and the capital raised reached historic highs.
The amount of new investment also approached an historic high. The domestic
stock market became the main form of exit.
According to Zero2IPO Research Center statistics, a total of 29 domestic
and foreign VC firms established 40 funds during Q2'08. This figure
represents US$3.02B of capital available for investing in Mainland China
marking a record high for a single quarter. Additionally, 159 Chinese
entrepreneurial firms receiving venture capital disclosed investment totaling
US$1.20B. In comparison with Q2'07, the number of deals and the disclosed
investment amount increased 31.4% and 73.5% respectively. Q2 also saw the
beginnings of a series of new industry trends. For example, while the
industry investment pattern basically remained the same, shares of IT-related
investment did increase. Expansion-stage and Late-stage enterprises both
gained much more favor from VC, with Expansion-stage firms accounting for over
half of the total deals. On the same note, multi-million dollar investment
deals accounted for nearly half of the total amount invested. Lastly,
domestic VCs performed stronger than their foreign counterparts leading the
domestic stock market to become the major exit venue for VC firms.
The Zero2IPO Research Center Q2 Survey and the ''China Venture Capital
Report Q2 2008'' provided the data and conclusions mentioned above. The
Zero2IPO Research Center began conducting Chinese VC surveys and creating
reports in 2001. Publications are based on real time data collected from 300
active Chinese and foreign VCs that currently operate in Mainland China.
Record High Fundraising Level: 40 New Funds Raise Over US$3B
The volatile global economic situation and dismal domestic capital market
performance did not hinder investors' enthusiasm for China's venture capital
market. A total of 40 funds collectively raised US$3.02B this quarter,
marking a record high for a single quarter. China's VC market seems to have
lower investment risks in comparison to the A-share market (which is under
substantial adjustment). Meanwhile, Chinese government support along with
emerging equity investment and increasingly mature LP groups also accelerated
the inflow of capital on the domestic VC market.
Foreign VC firms established seven funds and raised a total of US$1.69B
with an average of US$241M. Foreign VCs, like IDGVC, Qiming Venture Partners,
and Intel Capital, raised new Mainland China-focused large-sized funds during
this quarter. This proves that foreign investors are still optimistic about
the development prospects of China's VC market.
Domestic VC firms established thirty-one funds that raised a total of
US$1.18B. This is the first time domestic VC's broke the US$1 billion level
in a single quarter. Even typically risk-averse investors have been actively
involved in the domestic VC market.
Investment professionals are increasingly optimistic about RMB funds.
Twenty-nine of the thirty-one funds were RMB funds. Five funds took the form
of limited partnership (a portion of corporation funds will be restructured as
limited partnership funds) and two were trust funds. It has been over one
year of development and both institutions and investors accept the new forms
of organization. Additionally, two JV funds established by foreign and
domestic VC firms raised a collective US$146M (Both were RMB funds).
Figure 1: Total Funds Raised by Quarter, Q2'07-Q2'08
(Please Click the Link in the bottom of the release)

Total Amount Invested in Excess of US$1.2B, Growing 73.5% Year on Year
Q2 witnessed 159 entrepreneurial firms receive venture capital (A 37.1%
increase from Q1). 143 firms disclosed a total investment amount in excess of
US$1.20B -- registering a 28.0% increase over Q1. The total number of deals
and the total amount invested increased 31.4% and 73.5% respectively in
comparison to Q2'07. This quarter's total investment was only second to that
of Q4'07, when 164 firms received US$1.24B (the second highest level in
history).
Figure 2: Number of Deals and Total Amount Invested, Q2'07-Q2'08
(Please Click the Link in the bottom of the release)

Industry Investment Pattern Remains Unchanged; IT-related Investment Sees
a Slight Rebound
This quarter the industry investment pattern remained relatively
unchanged.
VC investment followed this pattern: Broad IT industry continued to lead,
Traditional and Services followed (Traditional industry recorded more deals
and investment amount than Services). However, Bio/healthcare and Other
Hi-tech sectors attracted less investment. Nevertheless, IT-related
investment saw a slight quarter-on-quarter rebound with more IT deals
receiving a greater amount of investment.
During Q1, investment deals and total amount invested in the IT industry
only accounted for 38.8% and 39.5% of the total (both below 40% for the first
time). By contrast, IT industry accounted for 42.1% of deals and 45.9% of
amount invested. This fact shows that IT industry is still a key investment
field for VC firms. Among its sub-sectors, Internet is still the most popular
in attracting venture capital. IT services and Semi-conductor (IC) also
accounts for a considerably large proportion of deals.
During Q2, 35 Traditional deals (22.0% of the total) collectively received
US$240M (19.9% of the total) of venture capital; 22 Services (13.8% of the
total) raised US$180M (14.9% of the total). Traditional deals were
distributed among 15 sub-sectors, with the
agriculture/forestry/husband/fishing sector being the most popular with five
deals.
Over the past few years, soaring prices of international agricultural
products, strong demand for consumer goods and widespread of inflation, all
drove venture capital investors to invest in agricultural production and its
upstream and downstream businesses.
Figure 3: Industrial Distribution by Deal Number & Amount Invested (US$M)
(Please Click the Link in the bottom of the release)
Expansion-stage Enterprises Contribute Over 50% of Total Deals; Late-stage
Enterprises Gain Favor from VC Firms
A total of 85 expansion stage enterprises received venture capital. The
disclosed amount of investment reached US$682M, which accounted for 53.5% and
56.6% of their respective total (The Q1 figures were 56.9% and 72.3%). These
figures reflect the strong preference of VC firms towards investing in
expansion-stage enterprises.
Meanwhile, late-stage enterprises gained more favor of some VC firms.
During Q1 late stage represented 6.9% of the total deals and 8.5% of total
investment amount, however this quarter a total of 26 enterprises (16.4% of
the total) in this stage received US$373M (31.0% of the total). Some VC firms
are adopting a prudent and stable investment strategy. They are trying to
avoid the negative effects of underperforming domestic and international
capital markets, the blocking of red-chip listing model as well as other
factors. Given the current investment climate, VCs prefer to invest in mature
enterprises with a proven profitability and stable growth model to help
mitigate risk and attain quick exit.
Figure 4: Investment Stage Distribution by Deal No. and Amount Invested
(US$M)
(Please Click the Link in the bottom of the release)

Mega Deals Contribute Nearly 50% of the Total Amount Invested
The second quarter saw small-sized deals frequently emerge: 81 deals with
size below US$5M represented 56.6% of the total deals, however they only
contributed 17.7% of the total amount invested. Meanwhile, 13
large-sized/mega deals with size of over US$20M only accounted for one tenth
of the total deals, but they contributed nearly half of the total amount
invested. VC firms preferred to invest either in start-ups or in elite,
mature enterprises to share their stable revenue.
Additionally, the distribution of investment scale reflects the specific
investment styles of both domestic and foreign venture capital firms.
Domestic VCs finalized more deals with a size less than US$5M than their
foreign counterparts. Domestic VCs only finalized one deal above US$20M
leaving the rest for foreign VCs. Figure 5: Deal Number and Amt. Invested
for Deals with Different Sizes
(Please Click the Link in the bottom of the release)
Domestic Capital Market Becomes the Major Exit Venue; Domestic VCs Perform
Stronger Than Foreign VCs
A total of 36 exit transactions took place during Q2'08. IPO was still the
most favored option for venture capitalists to choose from: 18 IPO events made
up 50.0% of the total. The industry breakdown went as follows: 17 exits in
Broad IT industry and 12 in Traditional industry, taking the top two
positions.
Additionally, there were three exits in Other Hi-tech, while there were two
exits in the Bio/healthcare industry.
A total of 10 VC-backed enterprises attained IPO status this quarter (VC
funds launched 18 exits). As for market exit, nine IPO events occurred on the
Shenzhen SME Board, and only one on the HKMB. Of the 18 VC IPO exits, twelve
took place in Shenzhen and six occurred in Hong Kong. While the domestic and
international capital markets continued to plummet and the red-chip listing
mode suspends, the Shenzhen SME Board has become the major venue for VC exits.
As for fund type, domestic VCs successfully achieved 28 exits, including
13 exits via IPO. These figures indicate that domestic VCs performed better
than foreign VCs in attaining exits. As the domestic capital market opens
exit channels, domestic VCs have achieved strong development. As for funds
raised, 31 new funds (77.5% of the total) launched by domestic VCs raised
US$1.18B (39.2% of the total). In regard to investment, 71 domestic VC-backed
deals (44.7% of the total) secured US$293M (24.3% of the total). These
figures experienced a substantial quarter on quarter increase.
Figure 6: Exit Distribution by Option & Industry
(Please Click the Link in the bottom of the release)

For more information please click:
http://www.zero2ipo.com.hk/china_this_week/detail.asp?id=6980

About Zero2IPO Research Center
Founded in November 2001, the Zero2IPO Research Center provides a full
range of business research reports and customized research solutions for
investment professionals in the Greater China Region. Our research ranges
from Venture Capital, Private Equity, IPO, M&A to TMT industries. The
Zero2IPO Research Center sets itself apart from competitors as the most
prestigious research institute in China's VC and PE spheres.
Note about Citation
For any quotations, please note it is quoted from ''China Venture Capital
Report Q2 2008'' and send two copies of your newspaper to:
Aileen Huang
Suite 1203, Tower A, Eagle Plaza, No. 26,
Xiaoyun Road, Chaoyang District, Beijing, 100125, China
Tel: +86-10-8458-0476 x8037

Or email the website link of your article to aileenhuang@zero2ipo.com.cn.

SOURCE Zero2IPO

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