IT Investment Loses Weight but Traditional and Services Investments Gain Weight
Released by Zero2IPO Research Center
SHANGHAI, China, Dec. 6 /Xinhua-PRNewswire/ -- Zero2IPO Research Center -- the research arm of Zero2IPO Group -- announced China VC investment created record high with US$3.18B invested during the first 11 months of 2007. Local VC funds tended to be active, performing well in fundraising, investment and exit via IPO and other aspects. In terms of industrial distribution, the Broad IT industry continued to lose weight in the total VC investment. But the Traditional and Services industries became hot investment sectors during 2007.
The data and conclusions are based on annual and quarterly surveys conducted in 2007. The research center launched China venture capital surveys since 2001 by collecting real-time data from 300 active local and foreign VCs in Chinese Mainland.
VC investment maintained rapid growth with Traditional and Services becoming hot investment sectors
As of November 30, the amount invested in 2007 touched US$3.18B -- a skyrocketing 78.9% up compared to 2006. In total, 428 Chinese enterprises received VC investment. The number was increased by 32.1% compared to 324 in 2006. It reflects that “Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises (the M&A Rules),” issued in 2006, does not seem to make great impact on China venture capital investments. However, encouraged by dynamic domestic capital market, the venture capitalists became confident in investing in China.
Figure 1 (Please Click the Link in the bottom of the page) VC investments from 2001 to 2007(1) (US$M)
The survey says the weight of IT investment amount fell to 42.5% from 61.5% last year, and that of IT deals fell to 46.0% from 59.6%. Quite different from the IT investment downward trend, the traditional and services industries became hot investment sectors during 2007. The traditional industry accounts for 16.4% of total deals and 16.3% of total investment amount in first 11 months of 2007. Compared figures for 2006 are 10.8% (deals) and 10.9% (investment). The services industry represents 13.0% of the total deals and total investment amount, respectively. They indicate that investment on China VC market is further diversified and the days that broad IT was the only dominant sector in garnering VC investment are gone forever. Enterprises in traditional and services industries have good prospects of being public on domestic capital market, which stimulates local and foreign VC funds to continually explore new investment fields for lucrative investment returns.
(1) In all the figures, 2007 refers to the timeframe starting from February 1, 2007 and ended on November 30, 2007.
Similar to 2006, Beijing received the lion’s share of VC investments in both deal number and amount invested in 2007, which was followed by Shanghai. As of Nov. 30, 2007, 127 deals in Beijing received US$1.01B; 94 deals in Shanghai secured US$900.05 million. In addition, Shenzhen, Jiangsu, Guangdong (Shenzhen excluded), and Zhejiang are other venture capital intensive regions in China.
The investment data for first 11 months of 2007 show the geographical concentration on China VC market in 2007 was quite high. There were a total of 221 deals closed in both Beijing and Shanghai, accounting for 51.6% of the total 2007 deals. They raised US$1.91B, representing 60.0% of the total amount invested in Chinese Mainland.
Figure 4 (Please Click the Link in the bottom of the page) Geographical distribution by deal number and amount invested in 2007
By VC type, foreign VC funds still played a dominant role in VC investments during first 11 months of 2007 in both amount invested and deal numbers. The amount invested of foreign investments reached US$2.53B representing 79.5% of the 2007 (as of November 30) total. The number of deals invested by foreign VC funds was 290, about 67.8% of 2007 (as of November 30) total deals. When compared to those in 2006, both deals and amount invested gained share. The recorded high fund-raising level during the second quarter of 2007 provided sufficient capital for 2007 and also 2008. Most funds raised during second quarter belong to foreign VC funds. As for domestic VC funds, most of them raised funds in the fourth quarter of 2007. The investment conducted by them will take effect later on a large-scale.
Domestic VCs actively raised capital: First foreign capital-launched RMB funds appear first
Till November 30, 2007, active domestic and foreign VCs raised US$5.42B for 55 new funds available for investment in Chinese Mainland during 2007, increasing by 36.5% and 41.0% respectively when compared to 2006. Among 55 new funds, there are 30 domestic VC funds -- nine more than 21 foreign VC funds. However, foreign VCs raised US$3.88B of newly added capital, far exceeding the funds raised by domestic counterparts.
Foreign VCs began following trails in establishing joint venture funds and RMB-denominated funds to adapt to the regulatory change brought by the issue of “Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises (M&A Rules)” and seek for exits on domestic capital markets.
Figure 7(Please Click the Link in the bottom of the page) Amount raised and number of new funds in 2007 (as of November 30)
Exit market remains active: Domestic capital market begins to show glamour
The exit activity on China VC investment market remained active. There were 130 exit events during first 11 months of 2007 - 30 more when compared to 2006. Ninety-two VC-backed IPOs represent 70.8% of the 2007 total exits. Impacted by regulatory effect of the “Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises (M&A Rules),” overseas IPO events fell when compared to last year. The active and fast growing domestic capital market attracts local and foreign VCs to choose domestic A-share market as an exit venue. For example, Shenzhen SME Board became the optimal IPO market for VC-backed enterprises in the third quarter of 2007.
In terms of industry distribution of exit events, 36.2% of 130 exit events were placed in Broad IT industry and 34.6% in Traditional industry in 2007 (as of November 30). When compared to 2006, Broad IT lost weight slightly but Traditional industry gained weight.
This is consistent with the industry distribution of VC investments: Traditional industry commanded share that belonged to Broad IT. As for VC-backed IPO events, the Traditional industry with 41 IPO events outstripped Broad IT industry that witnessed 34 events. The Traditional industry took the lion’s share of VC-backed IPOs. With the gradual tight control of red-chip listings and formal launch of domestic GEM, local and foreign VCs will prefer to exit from domestic capital market. Enterprises in Traditional and Services industries are favored in domestic capital market, and they will gain more attention from local and foreign VC funds. The Traditional and Services industries will further take over shares of Broad IT industry in terms of amount invested and amount exited.
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About Zero2IPO Research Center
Established in Nov. 2001, Zero2IPO Research Center aims to provide professional research reports and custom researches for relevant professionals in the Greater China Region. Our research ranges from venture capital, private equity, IPO, M&A to TMT industries. Currently, Zero2IPO Research Center has become the most prestigious research institute in China VC and PE field.
In addition, the Research Center launched the first online database in China - Zero2IPO-China VentureDatabase in December 2007, collecting the latest, in-depth and all-around data, covering China VC, PE, M&A, and IPO fields to satisfy the needs of the profession.