The world was hit hard by the global financial crisis in 2008. While it was hard for Chinese economy to escape unscathed from the financial turmoil, the performance in Chinese venture capital (VC) market remained eye-catching. According to the China Venture Capital Annual Report 2008 recently published by Zero2IPO Research Center, a renowned research, advisory and investment institution on VC and private equity in the Greater China Region, the number of newly-raised funds in Chinese VC market reached 116 in 2008, of which RMB funds account for nearly 80%. VC growth slowed down, and the proportion of RMB investment almost halved. In terms of the investment structure, broad IT and bio/healthcare industries cooled down, while the proportion of traditional and clean tech industries increased; the enterprises in expansion stage took the lead in the market; the exit events shrunk apparently, so did IPO exit.
According to the statistics by Zero2IPO Research Center, 81 Chinese and foreign VC institutions launched 116 funds in 2008, wherein, an increase of US$7.31 billion was reported in capital investable on Chinese mainland. In terms of investment, 607 enterprises gained capital support from VC institutions, reporting a total of US$4.21 billion in disclosed capital; a total of 135 exit cases occurred in 2008.
The above data and conclusions were mainly resulted from quarterly and annual survey and researches by Zero2IPO Research Center. The center has been engaged in quarterly and annual survey/research and ranking for the Chinese VC/PE market nationwide since 2001 (including foreign capital). It also publishes quarterly and annual research reports.
Number of newly-raised funds exceeds 100, with RMB funds as the mainstream
In 2008, both the number and amount of newly-raised funds in Chinese VC market hit new high. 116 funds were newly raised by 81 Chinese and foreign VC institutions, wherein, the increase in capital investable in Mainland China reached 7.31 billion USD; Compared to 2007, the number of newly-raised funds doubled and the amount of newly-raised capital increased by 33.3%. In 2008 when a financial crisis lashed the world, the Chinese VC market remained highly active and attractive, showing that investors are optimistic about the Chinese market which has maintained a sustainable, steady and rapid growth (see Figure 1).
In recent years, Chinese VC market has started its localization progress, and the most remarkable performance in localization in capital raising is "RMB-lization". In the whole year of 2007, 58 funds were newly raised altogether, wherein, foreign currency funds and RMB funds share the same proportion. However, the year of 2008 saw a much more obvious trend of “RMB-lization” in capital raising in Chinese VC market: Among the 116 newly raised funds, 88 were RMB funds, accounting for 75.9% of the total. It is clear that RMB funds have become the mainstream of capital raising in Chinese VC market. However, since the capital-raising scale of RMB funds is relatively small, the 88 RMB funds raised 2.34 billion USD, accounting for 32.0% of the total, which shows that foreign currency funds remain the major capital source of Chinese VC market (see Figure 2 and 3)
Investment growth slowed down and nearly half was RMB investment
In 2008, altogether 607 investment deals occurred in Chinese VC market, exceeding 600 for the first time and representing an increase of 38.0% over 2007. The amount of disclosed investment totaled US$4.21 billion, exceeding 4 billion USD for the first time and representing an increase of 29.7% over 2007. Although Chinese VC market maintained a growing trend in 2008, the growth in both the deal number and the amount invested slowed down apparently compared to 2007. Some VC institutions tended to adopt more conservative and cautious investment strategy in response to the currently complicated and rigorous market changes.
In recent years, RMB VC funds developed rapidly, and RMB capital has been robust and active in the Chinese VC market. In 2008, RMB investment witnessed a rapid growth, with 269 RMB investment deals and US$1.39 billion disclosed RMB investment, representing a proportion of 44.3% and 33.1% of the total respectively. Compared to previous years, the proportions of both RMB investment cases and RMB investment amount increased in large.
Investment pattern was adjusted to some extent, while enterprises at expansion stage took the lead.
In 2008, broad IT industry took the lead in the industry pattern of VC, followed by traditional industries and service industries. Bio/healthcare and clean tech industries gained slightly less investment. However, in terms of the industry structure, obvious changes have taken place: the broad IT industry and bio/healthcare industry dropped obviously. The proportion of investment deals and investment amount in broad IT industry dipped below 40.0%, while that in bio/healthcare industry also fell below 8.0%. The proportion of other industries rose to some extent. The traditional industries saw a higher growth, with the proportion of investment case quantity and investment amount both exceeding 20.0%; in addition, the proportion of both deal number and investment amount in clean tech industry exceeded 5.0%.
Regarding the distribution of investment stage, enterprises at expansion stage continued to be the favorites of VC institutions in 2008, far ahead of enterprises at early and late stage in terms of investment deals and amount. To be specific, 302 enterprises at expansion stage shared an investment of US$2.49 billion, accounting for 49.8% and 59.1% of the total investment quantity and amount respectively; the proportion for enterprises at early stage were 29.0% and 13.9% respectively, falling slightly over 2007; and the figures for enterprises at late stage were 9.7% and 15.4% respectively. The average investment amount of the three investment stages also dropped remarkably over 2007.
Exit events shrunk apparently, and so did IPO exit
The global financial crisis in 2008 had the most direct impacts on the exit link of the Chinese VC market. As various capital markets in the world remain weak, the issue frequency of new stocks decreased or even stopped, and IPO exit channels narrowed down sharply. As a result, the exit events in Chinese VC market in 2008 shrunk apparently, and IPO exit deals also fell in large.
There were 135 exit deals in total in 2008, 7 less than 2007. In terms of exit option, 43 IPO exits accounted for 31.9% of the total exits, 57 or 38.5% less in exit quantity than 2007; Both the exit quantity and the proportion of secondary offer and trade sale increased obviously. In the exit industry, traditional industries and broad IT industry have 45 cases each, accounting for 33.3% of the total. In addition, only 7 exit cases occurred in service industries, with their exit quantity and proportion fell sharply compared to 2007.
Notes:
① Since 2008, Zero2IPO Research Center officially renamed the former Level-1 Industry "Other High-tech" as "Clean Tech", while the Level-2 and Level-3 industries remain unchanged.
② An exit case refers to one VC institution exiting from one invested enterprise, for instance, if n VC institutions exit from 1 enterprise, the number of cases would be n.
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About Zero2IPO Research Center
Founded in November 2001, the Zero2IPO Research Center aims to provide professional research reports and various customized research solutions for investment professionals, governmental authorities, agencies and venture enterprises in the Greater China Region. Our research ranges from Venture Capital, Private Equity, IPO, M&A to TMT industries. The Zero2IPO Research Center has become the most professional and authoritative research center in China VC and PE field.
