"As investors move to monetize China's Internet, we've seen a consistent increase in the amount of capital invested in IT deals," said Bob Partridge, Ernst & Young's Transaction Advisory Services Leader - China. "The median amount of capital put to work in IT deals in Mainland China now stands at $6.2 million, the highest on record and up from the median of $5 million seen in 2006."
The "business, consumer and retail" segment in Mainland China also saw record amounts of investment in the second quarter with 15 deals garnering $198 million, according to the report. That was more than six times the $31 million invested in the first quarter and 23% more than the previous record of $161 million invested in 15 deals during the second quarter last year. Within this segment, $181 million went to 11 consumer/business services companies, which include non-technology-focused services. The biggest reported deal in this category, and for Mainland China overall, was the $85-million first round for Shanghai-based Hanting Hotels, an economy hotel line for business travelers.
"What we're seeing in China is the result of ever more opportunistic investors," said Jessica Canning, Director of Global Research for Dow Jones VentureOne. "Venture capitalists are expanding their focus beyond the Internet and backing more bricks-and-mortar types of businesses that correlate well with China's emerging economy. We're seeing more rounds for outfits like outdoor advertising, entertainment and travel services companies."
The report showed that there was still no breakthrough investment in the health care sector, as venture capitalists invested $13 million investment in three health care deals. Even so, biopharmaceutical companies saw the greatest amount of investment since the first quarter of 2004 with $9 million put to work in two deals during the quarter. The data also showed that one energy company raised a $2-million round in the second quarter.
Early stage deals accounted for a greater percentage of the overall deal count as 53% of deals in the second quarter were seed and first rounds. Most notably, there were 29 first rounds closed, up from 17 in the first quarter of the year. Second and later rounds remained virtually unchanged. Reflecting the quick development of 'Web 2.0' products and services, 50 of Mainland China's 55 total deals were for companies in advanced stages of development. Of these, eight deals were for companies already turning a profit and 42 had fully developed product offerings.
The investment figures included in this release are based on aggregate findings of VentureOne's proprietary Chinese research and are contained in VentureSource. This data was collected by surveying professional venture capital firms, through in-depth interviews with company CEOs and CFOs, and from secondary sources. These venture capital statistics are for equity investments into early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors. No statement herein is to be construed as a recommendation to buy or sell securities or to provide investment advice.
