vc activity in china, q3 '09

8/14/2019 VC Activity in China, Q3 '09

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News Release

Newly-raised Capital Hits US$1.26B in Q3; RMB Funds

Outstripped USD Funds in Amount Raised; Traditional

Investment Scores New High; IPO Exits Increase Sharply

Zero2IPO Research Center Oct. 27 2009 Beijing

In the second half of 2009, world economy continued to pick up amid fluctuation and

uncertainties. Chinese economy took the lead to show signs of stabilizing and recovery. But

on the whole, the pace is prudent. The Zero2IPO Group, a prestigious institution in Chinese

Mainlandspecializing in VC and PE research, consultation and investment, reported that

Chinas VC market has seen stable fundraising in Q3 and the amount raised was on a par

with the previous quarter. VC investment has also climbed up since the beginning of 2009,

and by Q3 the pickup has become obvious. In terms of exit, IPO has again become the

main exit option on VC market. As more than more enterprises to be listed on the Growth

Enterprise Market (GEM) opened subscriptions, VC institutions are embracing a spring for

exits via IPOs.

According to statistics from Zero2IPO Research Center, 18 funds were established by 16

VC institutions at home and abroad in the quarter, among which newly-raised funds

available for investment in Chinese mainland amounted to US$1.26B. Compared with the

previous quarter, the number of newly-raised funds increased by 6.0% and the newly

added capital dwindled by 8.0%. In terms of VC investment, both the number of VCinvestment deals and investment amount reported a huge rise from last quarter. VC

institutions invested a disclosed amount of US$785.10M in 122 enterprises. The number of

investment deals was up by 23.0%, and the investment amount increased by 38.0%

quarter-on-quarter. In this quarter, an investment diversification structure has taken shape

as Traditional industry outstripped Broad IT to take the top slot in investment. Beside, late-

stage investment has gradually become a thing of the past, and PIPE has come under the

spotlight instead. With the resumption of IPOs, IPO is likely to become the main exit

channel for VC institutions.

The statistics and conclusion were mainly derived from Zero2IPO Research Centers

investigation and research on Chinese VC investment and its upcoming China Venture

Capital Annual Report Q309. Since 2001, the Center has been researching and ranking

enterprises (including foreign-funded enterprises) on Chinese VC market, producing

quarterly and annual research reports.

VC Fundraising Cautious but Stable; RMB Fundraising Dominates VC

Market

In Q309, 18 VC funds were newly raised by 10 domestic, five foreign and one Sino-foreignjoint VC institutions, involving a total amount of US$1.26B. Quarter-on-quarter, the number

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of new funds was up by 6.0%, while the amount raised was down slightly by 8.0%. Year on

year, the number of new funds declined 14.0% but the amount raised jumped a staggering

113.0%.

Due to such favorable factors as the sound economic fundamentals at home, the gradually

complete multi-tier capital market and high price/earnings ratio of the GEM, domestic VC

institutions have staged a quick rise and become a bellwether on domestic VC market.

However, as a result of the small scale of RMB funds, the increase in the amount raised

was not impressive in Q3. On the other hand, foreign LPs whose assets have shrunk have

yet to walk out of the economic grim, hence hindering the VC institutions progress in

fundraising. In general, domestic VC fundraising was cautious and stable in Q309.

Chart 1 Quarter-on-quarter Comparison of Fundraising by VC institutions between

Q308Q309

In Q3, 17 RMB funds pooled in a total of US$1.06B, accounting for 94.4% of the total newfunds and 84.1% of total amount raised. On the one hand, government guidance funds

continued to participate in the fundraising of domestic VC funds; on the other hand, more

foreign VC institutions took part in the fundraising of RMB funds for their long-term

development and to share the IPO feast on the GEM. For example, IDVC Suzhou RMB

Fund and Yinke Detong VC Sub-fund were both established by foreign institutions.

Chart 2 Distribution of Newly-raised Funds by Currency (By No. of New Funds)

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Chart 3 Distribution of Newly-raised Funds by Currency (By Amount Raised, US$M)

VC Investment Climbs Quarter-on-quarter

In Q309, 122 Chinese companies secured VC investment and 108 of them disclosed a

total investment amount of US$785.10M. In quarter-on-quarter comparison, the number of

VC investment deals was up by 23, or 23.2%, and the investment value also climbed

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38.2% from US$568.00M to US$785.10M. Year-on-year, the number of investment deals

was down by 12.9% from 140 in Q308, and the investment amount also fell by 19.4%.

According to the analysis of Zero2IPO Research Center, on the one hand, due to he

relatively slow recovery of overseas capital market, exit feasibility has yet to improve,

making foreign VC institutions prudent and rational in fundraising and investment; on the

other hand, though RMB funds have outstripped foreign currency-denominated funds in

both number of investment deals and investment amount, their small scale has resulted in

the small rise in investment amount in this quarter. Also as domestic VC market remained

cautious in investment, corporate valuations are still at low levels.

Chart 4 Quarter-on-quarter Comparison of VC Investment Amount and Deals

between Q3'08Q309

Industry Investment Diversification Takes Shape; Traditional Industry

Scores Record Investment

The industry investment diversification has gradually taken shape on Chinas VC market.

After outperforming Broad IT to become the most favored industry by VC institutions for the

first time last quarter, Traditional industry scored new high in both number of investment

deals and investment amount. Broad IT secured second most investment.

Due to a pickup in general VC market, both Traditional and Broad IT secured more than

US$100.00M VC investment. To be specific, 43 Traditional enterprises secured a total of

US$392.52M, representing 35.2% of the total investment deals and 50.0% of the

investment amount. Broad IT fell further behind, with 38 enterprises, or 31.1% of the total,

securing a combined US$133.50M, or 17.0% of the total.

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Chart 5 Industry Breakdown of VC Investment Deals (By No. of Investment Deals

Chart 6 Industry Breakdown of VC Investment Deals (By Investment Amount,

US$M

Investment Scale Scattered; Mega Investment Reappears

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87 of the 108 investment deals with disclosed amount involved less than below

US$10.00M, accounting for 80.6% of the total. Ten deals registered an amount between

US$10.00M-US$20.00M, six between US$20.00M-US$30.00M, and five above

US$30.00M. As domestic economy stabilized, the once popular Pre-IPO projects involving

a relatively huge amount again attracted the attention of VC institutions. Besides, the PIPE

projects which are popular with PE funds are also drawing the interest of VC firms due to

their stable development prospects, and projects of this kind usually involved a relatively

huge amount, such as Tsing Capitals US$30.00M investment in Neo-Neon and Sequoia

Capitals US$30.00M infusion in American Dairy Inc.

Chart 7 Distribution of Investment Deals and Amount by Scale

IPO Exits Increase Sharply; VC Market Embraces Sound Exit Situation

The facts that Chinese economy took the lead to stabilize, IPOs on the main board market

resumed and 28 enterprises received approval to launch IPOs on the GEM all points to an

upcoming spring for the exit of VC institutions in China. Q309 saw 28 exits on Chinese VC

market, among which 20 occurred via IPOs, up from four in Q1 and two in Q2. According to

Zero2IPO Research Center, as more and more companies get approval to launch IPOs on

the GEM in late 2009, more VC institutions will be able to exit via IPO. Chinese VC market

is sure to see a favorable situation for IPO exits.

In terms of exit option, IPO played a major role in this quarter. This is the first time since the

IPO exit channel shrank in 2008 that IPO became the leading player on Chinese VC

market. To be specific, 20 exits were closed via IPO, accounting for 71.4% of the total, six

Note: one exit deal refers to one VC institution exiting from one investee. If n VCinstitutions exit from one investee, the number of exit deals shall be n.

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via M&A, and two via trade sale, accounting for 21.4% and 7.1% of the total respectively.

By industry, Traditional industry topped its counterparts with nine VC exit deals, accounting

for 32.1% of the total, followed by Broad IT with seven deals, or 25.0% of the total.

Services and Clean-tech each had four exits, or 14.3% of the total. Industry information

was not available for the other four exits deals.

Chart1 8 Distribution of Exits by Option (By No. of Deals)

Chart 9 Industry Breakdown of VC Exits

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Statement on Republication:

The article is publicly released to media by Zero2IPO Group. Please identify the source as

"Zero2IPO China Venture Capital Report Q3 2009". Any questions and suggestions on data

and research, please contact Ms. Leaf Zhang by phone or email:

Tel: +86 10 84580476

Email: [email protected]

If in republication please mail two sample copies to:

Nicole Meng

Rm.1202/03, Tower A, Eagle Run Plaza, No.26, Xiaoyun Road, Chaoyang District, Beijing

100125

Or email the website link of your article to [email protected]. Thank you.

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vc activity in china, q3 '09

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