Investment in Chinese funds plummeted to $73 million in just two funds in the second quarter of 2013, according to an article
appearing on China Money Network. This amount was less than a tenth of the amount raised in the first quarter. The vast majority of the funds raised were by Envision Capital's Growth Fund II, according to the article. Investment in Chinese venture-backed companies was also down - $438 million was invested in 47 deals, with deal value down 9% from the first quarter.
Exits actually improved, albeit from pretty dismal levels. There were two venture-backed IPOs in the second quarter, up from zero in the first quarter. Also, there were nine venture-backed merger and acquisition exits in the first half of 2013, up from four in the first half of 2012.
I continue to hear from venture capitalists that the Chinese venture market is challenged, but these figures seem worse than what I'm hearing.
In "Venture capitalists rethink big bets on China
", which appeared yesterday on MercuryNews.com, the article discusses a pull-back in investing in China by venture capitalists. Among the reasons given:
- Few and poor performing IPOs of Chinese companies, both in China and in the US;
- Uncertainty about the Chinese economy;
- The rise of "copycat" companies:
- Too much capital chasing too few deals;
- China's opaque regulatory environment;
- Intellectual property issues;
- Arcane laws on foreign investment in China;
- Complex ownership structures; and
- Uncertain tax environment.
The article does point out the huge potential of the Chinese market, and indicates that both mobile and cleantech are among the promising areas in China.
Here's the link: http://www.mercurynews.com/business/ci_23023790/venture-capitalists-rethink-big-bets-china
The article on Forbes.com "Private Equity In China: Too Much Money, Too Few Deals
" explores some of the issues confronting the Chinese private equity industry. The article points out how "official" statistics may understate the actual situation, as unofficial estimates indicated that at the end of 2011 there were more than 10,000 venture capital and private equity firms in China, while official estimates were for 882 such firms. As the title implies, the article argues that there is too much money in China and a shortage of good deals. The article points out other issues, including:
- The advantage local firms have over international firms (they can act faster and have more exit options);
- Debt financing is difficult to obtain in China; and
- The rise of Yuan-denominated funds.
The article is an interesting read. Here's the link: http://www.forbes.com/sites/jackperkowski/2012/08/08/private-equity-in-china-too-much-money-too-few-deals/
Two recent articles discussing China have caught my eye. The first is the VentureBeat article "As venture capitalists turn their backs on China, funding dries up
." This article starts off by saying that "venture capital investment is hitting the skids in China..." and points to data indicating a steep decline in venture deals and investment in the first quarter of this year. Reasons for the decline are cited as the exit markets not functioning, a loss of belief in the China fast growth story, a slow-down of Chinese economic growth, reallocation of capital to US deals, and the impact of recent Chinese accounting scandals.
The second article is from the From the Crowd blog on Fortune Term Sheet entitled "VCs 'turn their backs' on China?
" in which contributor Jeff Richards of GGV Ventures provides some of his thoughts on venture investing in China. He provides a balanced view of the risks of investing in China and the benefits of investing in China. His points are (1) good investors invest in both good and bad markets; (2) VCs must work harder now to find the best companies; (3) the Chinese domestic market opportunity is real and growing; and (4) the risks are real and remain, but real VCs will remain and the tourist investors will go home.
Links to the articles:
From the Crowd: http://finance.fortune.cnn.com/2012/05/09/vcs-turn-their-backs-on-china/
that China's internet sector has seen a dramatic fall in venture capital investment. According to the article
, Chinese Internet companies raised $138.5 million in the first quarter of 2012, compared to a whopping $866.5 million invested in the same quarter last year, a decline of 84% (data from Thomson Reuters). Last year, China's internet sector received $3.6 billion in venture investment, over double the $1.7 billion invested in 2010.
The article cites several reasons for the decline in venture investment in the Chinese Internet sector include a general pull-back from an overheated sector, recent accounting scandals involving Chinese firms listed on US stock exchanges, tougher US listing requirements for Chinese firms, poor market performance of recent listings, and a shifting towards newer sectors.
I was recently in China meeting with venture capital firms, and the sense that I had was that there was a general cooling attitude towards venture capital investing in Chinese tech companies. In addition to the factors cited above, a common reason that I heard was that liquidity in general (IPOs and M&A) was proving more difficult and taking longer than expected.
It's a good article and worth a read. Here's the link: http://www.reuters.com/article/2012/04/23/net-us-dealtalk-china-internet-idUSBRE83M0AY20120423
has a good post on Zhongguancun, outside of Beijing, which is a technology hub in China. Here's the link: http://techcrunch.com/2011/12/27/geeks-guide-china-silicon-valley/
There's an interesting article in today's New York Times "Entrepreneurs Rival in China: The State" which contains hints of patent piracy and how one innovative private company ended up competing with a government sponsored company, and losing. Here's the link: http://www.nytimes.com/2011/12/08/business/an-entrepeneurs-rival-in-china-the-state.html?_r=1&ref=asia
There's an interesting article in Forbes about Chinese venture capital firms investing in US cleantech firms. The link is here: http://www.forbes.com/sites/yonicohen/2011/12/05/cleantech-startups-look-to-china-for-venture-capital/
The article discusses that Chinese venture capital firms, including GSR Ventures, Tsing Capital and DT Capital Partners, are investing in international cleantech deals that have a China connection. In addition, the article highlights that the Chinese government is providing financial incentives and is fast-tracking administrative approvals for these companies. Finally the size of the domestic Chinese market provides great market opportunity.