Venture Capital Investment Declines in China

by CFO Innovation Asia Staff, 03 August 2012

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Venture capital investment in mainland Chinese companies declined significantly in the first six months of the year, the latest sign of weakening economic outlook in the world’s second-largest economy.

According to Dow Jones VentureSource, which tracks venture-backed companies, the value of venture capital investments in Chinese companies was US$1.9 billion in the six months through June, down 43% from the same period last year. The number of deals declined 38% to 103. Each deal represents a single case of investment by a professional venture capital firm, corporation, private equity firm or individual.

“Venture capital firms are being more selective in considering their China investments, particularly given the uncertain macroeconomic landscape and challenging exit environment," says Guido Schenk, APAC and EMEA sales director for Dow Jones VentureSource. "Until IPO and M&A activity in China pick up, we’re unlikely to see a jump in venture capital investment.”

In the six months ending June, venture capital exits in China by IPO declined 42% to 32 cases. Venture capital firms exited only three China investments by M&A, far less than the 208 exits by M&A or buyout in the U.S. and the 68 exits by M&A or buyout in Europe during the same period.

Median Investment Values Remain Robust

Despite the slide in total investment volume and value, the median invested amount for the half year remained relatively robust at US$11.5 million, only slightly below the same period in 2011.

“The robust median value demonstrates that investors remain confident about opportunities in China and have not cut back on deal sizes,” says Schenk.

The largest investment declines were in consumer services and industrial goods.Investment in consumer services, which is largely driven by consumer internet companies, fell 51% to US$908 million invested in 47 deals.

Industrial goods and materials makers saw a decline of 86% to US$29 million across three deals in the six months through June.

Information technology (IT) investment declined 42% to US$342 million invested in 22 deals across the first half of 2012. Investment declines hit all IT sub-sectors, including communications and networking, electronics and computer hardware, semiconductors and software.

Healthcare investment declined 71% to US$61 million for seven deals in the half year due to smaller investments in biopharmaceutical companies (down 85% to US$24 million) and medical device and equipment manufacturers (down 65% to US$12 million).

Investment in business and financial services totaled US$233 million across 13 deals in the first half of the year. Although the number of deals declined 48%, the investment value fell just 2% year on year, reflecting continued interest in attractive investment opportunities in China’s financial services institutions and business support services providers.

The underlying philosophy of

Submitted by John Sneed on 7 August 2012 - 6:01pm

The underlying philosophy of Blackhawk Partners investment approach consists of funding its private equity and real estate investment acquisitions with a combination of equity and debt.

Thanks
ziad abdelnour

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