in the region reached its highest level in six years with $2.49 billion invested in 241 deals, according to the China Quarterly Venture Capital Report released today by Dow Jones VentureSource.
"As has been the trend for several years, venture capitalists continue to diversify their investments in China," said Jessica Canning, Global Research Director for Dow Jones VentureSource. "While prior years saw big gains in energy and Web-related investment, 2007 saw much of that interest shift to the non-technology focused business, consumer and retail area. This industry really picked up in the second half of the year with more than $831 million invested in the third and fourth quarter."
In total, the report found that China's business/consumer/retail industry saw a record $1.25 billion invested in 94 deals in 2007, up 83% over the $682 million invested in 2006. The most popular segment within this industry was consumer/business services, which accounted for 48 deals and $761 million in 2007-61% of the industry's investment total.
Elsewhere, 110 information technology (IT) companies in China received $992 million in venture funding in 2007, a nearly 9% drop in capital compared to 2006. For the third year in a row, the most popular IT segment was the Internet-dominated information services area, which attracted $562 million in 55 deals. However, the number of information services deals was down from the 86 completed in 2006 and investment dipped 1% compared to the prior year.
While healthcare is a relatively small investment industry in China, particularly in comparison to the U.S. and Europe, it did post record gains in 2007 with 21 deals and $175 million invested, more than double the $86 million invested in 15 deals in 2006.
The data also found that China's energy segment, which enjoyed record investment and deal flow in 2006, cooled in 2007. The area saw six deals
completed and some $31 million invested in 2007, a big drop-off from the $421 million invested in 14 deals in 2006.
"In addition to branching out into new investment areas, venture capitalists continue to help their companies grow quickly by providing larger sums of capital - a trend also seen in the U.S. and Europe," said Ms. Canning. "The median deal size in China is now $8 million, up from $6.1 million in 2006, and the highest median in at least seven years. In addition, the amount of investment activity going toward mature companies-those that are already profitable or generating revenues-points to the rapid development of the venture capital market in China."
As expected, given the youth of the Chinese venture capital market, the report found that seed and first round deals make up the majority of deal flow in China with about 61%, but second and later rounds now make up 50% of total venture investment. Specifically, second rounds saw 15% more capital invested in 2007 than in 2006.
As for round sizes, the report found the median size of a first round deal was $6.2 million in 2007, up from $5 million in 2006. For second rounds, the median was $9.5 million, down slightly from 10 million in 2006. However, the median round size for a later-stage deal jumped from $20 million in 2006 to $25 million in 2007 - illustrating that investors are willing to provide more capital to mature companies in China.
