From Zero2IPO Research Center

Zero2IPO Research Center, the research arm of Zero2IPO Group, announced that China VC market witnessed a skyrocketing growth in both fundraising and investment, both of which created historical high in the second quarter of 2007. According to the statistics of Zero2IPO Research Center, twelve new funds raised the total of US$2.36B; 121 enterprises received VC investment of US$693.95M.

The conclusion was mainly based on Zero2IPO China venture capital second quarter survey and the report “Zero2IPO – China Venture Capital Report Q2 2007”. The research center launched China venture capital survey since 2001 by collecting real-time data from 300 active local and foreign VCs operating in Mainland China. The quarterly report is an informative, reliable and up-to-date source for professionals in VC industry to trace the development of China venture capital industry.

New Funds Raised Increased by 563.5% Quarter-on-Quarter

After the depression occurred in the previous quarter, fundraising for China VC market regained its momentum and created a new record this quarter. According to the statistics of Zero2IPO Research Center, thirteen new funds successfully raised capital available for investment in mainland China for US$2.36B. Compared with US$355.58M (raised by four funds) in the previous quarter, the total funds raised increased by 563.5% quarter-on-quarter. The good fundraising performance also reflects the lasting enthusiasm of both Chinese and international investors towards China market potentials.

Investment Created New Record to US$693.95M

In the second quarter, 121 Chinese enterprises netted venture capital investments, among which 113 disclosed their investment amount, totaling US$693.95M. Comparable figures for the previous quarter are 67 and US$418.95M, resulting in the growth of the deal number and the investment by 80.6% and 65.6% respectively quarter on quarter.

Foreign VC funds continued to play the key role in China VC market. 92 enterprises garnered foreign VC investments, accounting for 76.0% of the total. Meanwhile, the investment amount involved by foreign VCs reached US$618.00M, representing 89.0% of the total. The average deal size of the second quarter was US$6.14M, slightly lower than US$7.10M received last quarter.

Broad IT Deals Account for 57.9% in Q2, Slightly Rebounded

VC investment deals and total investment amount in the Broad IT industry exceeded those of all other industries. 70 IT enterprises netted VC investments, accounting for 57.9% of all the quarterly deals, with disclosed investment amount reaching US$426.78M, representing 61.5% of the total. Notably, IT deals weight unwound its slack performance and regained its momentum in netting VC investment during the second quarter. Three enterprises in other hi-tech industry received about US$7.62M of VC investment. In contrast, there was no deal in this industry last quarter.

As for the bio/healthcare sector, both the deal number and investment amount decreased quarter-on-quarter. Nine enterprises received US$66.89M last quarter; while eight enterprises obtained US$43.28M this quarter.

Average Deal Size of Late Stage Investments Topped with US$10.33M

Among the 121 deals, 110 disclosed the information on investment stage. Especially, there were 64 deals in early stage, representing 52.9% and 30 deals in expansion stage, representing 24.8%. The combined investment amount of these two stages accounts for the majority of VC investments. Specifically, enterprises in early stage netted US$267.01M and expansion stage US$223.06M; accounting for 38.5% and 32.1% of the total disclosed amount respectively.

Besides, there were sixteen deals and US$154.92M in late stage. Its average deal size was the largest, reaching US$10.33M, higher than that of expansion stage and early stage, US$8.58M and US$4.38M respectively. Notably, the average deal size of expansion stage deals in the first quarter of 2007 was US$11.26M. This shows the average deal size of expansion stage deals declined sharply quarter-on-quarter.

Exits through Trade Sale or M&A Decreased

Totally, there were 41 exit events, including eighteen in Broad IT, accounting for 43.9% of the total, and eight in traditional industry, 19.5% of the total. Three exits in bio/healthcare industry account for 7.3% of the quarterly total. Though the ratios of exits in traditional and bio/healthcare were close to those (20.0% and 7.0% respectively) of last year, they declined compared with that of last quarter.

There was little change in the second quarter in terms of exit options. IPO was still the mainstream option with 28 exit events or 68.3% of the total, topping all other options. One interesting observation is that secondary offering became an important exit route in Q2. Four events were completed via secondary offering, accounting for 9.8% of the total and became the runner up in number of exits.

Copyright Fund China 2009.

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