China gold rush: Venture in bloom

One of the best recent examples is the resurgence of investments into internet and technology companies, in particular those with more innovative models. This is of great benefit to the venture capital industry, which until a couple of years ago had largely fallen out of favor with LPs. The tough times are mostly behind the industry now and the future looks bright. Or does it?

In China, arguably the most successful venture capital market outside of the US, the amount of capital raised for new funds reached $7.2 billion in 2014, about twice the previous year's figure. There has been a similarly large increase in investment. For 2014, AVCJ Research has records of 677 VC deals worth a cumulative $8.2 billion. That's an average of $12 million per investment - higher than the comparable 1999 figure ($10 million per investment) but still lower than the $14 million per deal average posted in 2003.

Is it a sign that investments are getting more expensive or are there simply more very large deals taking place? The answer is certainly a bit of both, but the latter phenomenon is the one really moving the needle.

In the US, there is no shortage of still unlisted (and unprofitable) companies with valuations in excess of $1 billion raising money from investors. Four-year-old Uber, last valued at $40 billion, is a good example. Asia is no stranger to the VC mega-deal, however, India's FlipKart , which is said to be eyeing a $1.7 billion round of funding, is valued at $15 billion, while in China smart phone maker Xiaomi (which is profitable), recently received a $1.1 billion injection at $45 billion post money valuation.

This story wouldn't be complete without plenty of liquidity events, which are also at record highs, even though the Alibaba Group IPO threw the dollar proceeds figure completely out of whack.

The gold rush to find the next big start-up has even spread to Asian governments. From funding schemes to incubators to mentorship programs, there is no shortage of initiatives intended to attract talented people capable of starting their own companies. Venture capitalists are also being courted as preferred investors for their roles in providing risk capital and nurturing this next generation of entrepreneurs, although some of these incentives may not necessarily attract top-tier firms.

It is truly good news that venture capital is shining once again. The industry's role in identifying, investing and nurturing the next generation of innovators is important if Asia is to continue on its current growth trajectory. There are some signs - and concerns - about overheating but certainly the investors of today have a better understanding of long-term business models.

 

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

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