In the first half of 2011, China-based companies with venture backing raised $3.2 billion through 145 deals, a 1% decline in deal activity and 2% decline in capital invested over the same period in 2010, according to venture capital industry tracker Dow Jones VentureSource.
Initial public offerings (IPOs) of venture-backed companies were similarly in line with the previous year, as 54 IPOs raised $9.2 billion in the first half of 2011 compared with 57 IPOs at $10.1 billion in the same period in 2010.
“Through a continued focus on late stage deals, venture capitalists are able to bring their companies public in less than three years,” says Jessica Canning, global research director for Dow Jones VentureSource.
“With a short timetable from investment to exit and valuations on the rise, investors in Chinese companies have a good story to tell their limited partners. In the coming quarters, however, we will learn if the current exit pace and valuations are sustainable.”
The median size of a venture capital deal during the second quarter of 2011 was $10.5 million, up 50% from the same period a year earlier.
Companies Raise More Capital Prior to IPO
After hitting a record 140 IPOs in 2010, venture-backed companies in China were just three IPOs short of matching the number of offerings in the first half of last year. Companies that went public during the second quarter raised a median of $6.4 million and were founded a median of 2.8 years prior to their IPO.
Compared to the second quarter of 2010, it took companies 78% more capital to reach an exit but only slightly more time – the median tracked during the most recent quarter marked a negligible increase from the 2.7-year median a year ago.
The most active area for venture-backed IPOs was Industrial Goods and Materials, which recorded 20 IPOs raising $3.1 billion. Information Technology followed closely with 16 IPOs raising $2 billion.
Consumer Web Companies Raise Nearly $1 Billion
In the first half of 2011, the Consumer Services industry was the most popular investment area for venture capitalists. Sixty-nine deals for Consumer Services companies raised $1.7 billion in the first half of the year, a 57% increase in deal flow but a 16% decline in capital invested.
Investment in the industry was driven by interest in the Web-heavy Consumer Information Services sector, which includes social media, entertainment and shopping companies. These companies raised $942 million through 44 deals during the first half of the year, more than triple the amount raised in the 23 deals the same period a year ago.
Software Sees Boost as Rest of IT Lags
The information technology (IT) industry recorded 25 deals collecting $533 million in the first half of the year, a 29% decline in deal activity. Software was a bright spot within the industry, with $429 million raised in 17 deals, more than triple the capital raised in the 12 deals completed the same period last year.
The Communications and Networking and Electronics and Computer Hardware sectors each had four deals completed.
Interest in Advertising Drives Enterprise Investment
Driven by increased interest in advertising and marketing companies, the Business and Financial Services industry recorded a 21% increase in deal activity, with 23 deals raising $334 million.
Within the industry, companies offering advertising and marketing technologies or services accounted for 13 deals at $279 million raised.
In other areas, the healthcare industry’s deal activity halved to eight deals collecting $205 million.
Industrial Goods and Materials also declined, with nine deals raising $155 million. Consumer Goods companies closed up by one deal over the prior year, with 10 deals raising $189 million.
Corporations Played Bigger Role in Funding VC-Backed Companies
While corporate investment into venture-backed companies lagged in 2009 and the first half of 2010, activity began to pick up in the fourth quarter of last year when five deals raised $38 million.
In the first half of 2011, corporations invested a record $584 million via six deals for venture-backed companies. More than half of this capital was invested in Qunar.com, a Beijing-based price comparison
search engine for travel, which raised $306 million from Baidu.com.
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