China VC investment lowest in five years – VentureSource

The decline is consistent with trends in the US and Europe. Venture investment in the US fell by 18% year-on-year to $6.3 billion, while funding in Europe came to EUR762 million, down 41%.

China's consumer sector - which, by VentureSource's definition, includes internet-heavy consumer information services, media and content, as well retail and travel and leisure - saw the biggest decline. A total of $294 million was committed to companies, down 66%, while the number of deals slumped 58% to 16. Information technology, meanwhile, posted its worst figures since records began in 2005, with $27 million committed across seven deals. In the first quarter of 2011, $369 million was invested.

The median value of completed deals in China's VC space came to $9.8 million, down significantly from last year's first-quarter record of US$15.2 million, but broadly in line with the $8.8 million and $7.6 million posted for 2010 and 2009, respectively.

"Despite its continued GDP growth and relatively robust economy, China has not been immune to declining volumes and values in venture capital equity financing," said Guido Schenk, VentureSource's sales director for Asia Pacific and Europe, the Middle East and Africa. "While the decline suggests that less money is flowing into venture-backed firms, the robust median value of these investments demonstrates that investors remain confident about opportunities in China and have not cut back on deal sizes."

The numbers are symptomatic of a wider decline in activity across China's growth capital space. According to AVCJ Research's preliminary data for the first quarter, investment came to $6 billion, up from $4.6 billion a year earlier. However, the number of transactions fell by more than half year-on-year, which translates into an average deal value of $83 million for the first quarter of 2012 compared to $30 million the previous year. Even examined on a quarter-by-quarter basis, average deal size has gone up by 18%.

The implication is either that China is becoming more expensive or that the smaller cap growth and pre-IPO deals are on the wane. It's probably a combination of the two, and they aren't mutually exclusive. Certainly, anecdotal evidence suggests that VC investors are sitting on a large amount of dry powder, waiting for valuations to steady.

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• Topics
• Venture
• Greater China
• Early-stage
• Expansion
• Venture
• China