Venture capital inflows in China leap to US$558m
54 deals represent largest number of agreements in one quarter since 2001
Venture capital investment in China more than doubled to US$558.1 million in the second quarter, according to a survey by Ernst & Young and Dow Jones Financial Information Services.
The largest total investment in a single quarter in the last 21/2 years, it represented a 136 per cent increase from the same period last year and 111 per cent from the first quarter. The 54 deals concluded marked the largest number of agreements in a single quarter since the survey started in 2001.
The quality of the deals also was impressive, said Gil Forer, global director of Ernst & Young venture capital advisory group.
'The venture capital ecosystem in China is getting mature, although it is still very young,' he said.
Both entrepreneurs and investors were more experienced. 'Many of them have worked in a few start-ups before,' he said.
An example would be Buddy Ye, founder and chief executive of WangYou, a website that focuses on grooming amateur performers in China. Previously, he was a founding member of e-commerce company MeetChina and ECantata, a Web-based software and consulting firm. WangYou received an unspecified investment from US-based venture capital firm Charles River Ventures in January.
On the investor side, Neil Shen, founder of China's leading online travel company Ctrip, is now a partner of US-based Sequoia Capital, managing its China fund.
The investments are also more diversified. Although information technology took 57 per cent of the second-quarter total investments, medical devices, healthcare services and alternative energy are also getting attention. The largest second-quarter deal was for an alternative energy company, with US$99 million going into CEEG Nanjing PV-tech, a developer of solar cells and solar-powered products.
Fears that a bubble is developing may be misplaced. 'Even for the first-round investment, many of the companies have already had products and customers,' said Mr Forer.
Frank Lu, a partner of iD SoftCapital, a venture firm operating mainly in China, agreed. 'It is not like the last time - the bubble era in 2000. Now, people are more rational,' he said 'They spread out their investment into a longer time frame, once they detect things are getting out of hand.'
The more immediate threats might be new government regulations that will take effect tomorrow which require commerce ministry approval for foreign investments in mainland companies. 'It will definitely slow the deal flow,' said Mr Lu. 'But it will not stop all of them. Only the first-round investments are directly affected.'
First-round investment accounted for 30 of the 54 deals concluded in the second quarter and 20 of the 30 deals in the first quarter.
