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In the third quarter of 2011, investors put US$1.3 billion into 89 deals for venture-backed companies in China, an 84% increase in investment and 19% increase in deal flow over the same period last year, according Dow Jones VentureSource.

Through the first three quarters of 2011, venture investment rose though the increase was milder than that seen in the third quarter alone. During the first nine months, $4.4 billion was raised for 236 financing deals, a 13% increase in investment and 6% increase in deal flow over the year-ago period.

Initial public offerings (IPOs) of venture-backed companies dropped slightly in the third quarter as 29 IPOs raised $4.6 billion compared with 33 IPOs that raised $3.9 billion in the same period in 2010.

“With investors on pace to put a record amount of capital into Chinese companies this year, it appears that venture capitalists are focusing on rebuilding the pipeline after seeing a record 140 IPOs in 2010,” said Jessica Canning, global research director for Dow Jones VentureSource.

The median size of a venture capital deal during the third quarter of 2011 was $11.7 million, more than double the $5.1 million median in the same period last year.

Consumer Services: Most Active Industry for Investment, Least Active for Exits

The Consumer Services industry remained the most popular investment area for venture capitalists, a distinction it has held since 2005, despite being one of the least active industries for exits. Forty deals for Consumer Services companies raised $674 million in the third quarter, a significant increase from the same period last year when 22 deals raised $287 million. With two IPOs, Consumer Services tied with Healthcare for the least active industry for IPOs.

Investment in the industry was driven by interest in the Consumer Information Services sector, which includes social media, entertainment and shopping companies. These companies raised $420 million through 23 deals.

Investment & Liquidity Roundup

Industrial Goods and Materials, the most active area for IPOs, saw nine companies go public during the third quarter and 13 financing deals raise $106 million.

Driven by interest in software, Information Technology companies raised $130 million for 15 deals, almost double the number of deals and more than triple the capital raised during the same period last year. The IT industry also saw four IPOs in the third quarter.

Fueled by interest in advertising and marketing companies, the Business and Financial Services industry saw 10 financing deals raise $120 million, a 47% drop in deal flow and 36% drop in capital invested. Four Business and Financial Services companies went public in the third quarter.

In the Consumer Goods industry, nearly as many companies went public as raised capital. Five Consumer Goods financing deals raised $63 million in the third quarter and four companies held IPOs.

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