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China Venture Capital Survey 2004

China's annual venture capital investments surpassed US$1 billion for the first time, says Zero2IPO. Compared to 2003, they found the number of deals increased by 43% while the total investments increased by 28%.

Zero2IPO, a venture capital research and consulting company based in China, announced at 2004's China Venture Capital Annual Forum that Chinese venture capital yearly investments surpassed US$1 billion for the first time in 2004 according to its latest annual survey.

Venture capital firms covered in the survey invested US$1269 million into 253 China mainland or mainland-related enterprises in 2004 - both total investments and number of deals represented historical highs. Compared to 2003, the number of deals increased by 43% and total investments increased by 28%.

The data and conclusions are contained in the Zero2ipo-China Venture Capital Annual Survey, conducted since 2001. The survey targets all venture capital firms operating in mainland China, especially the most active 80 firms. Based on the survey, Zero2ipo compiles their annual report and rankings of Chinese venture capital firms.

The IC Industry contributed one third of total investments, while traditional industry became a sweet spot.

In 2004, the IC industry distinguished itself with US$424 million investment received. While it was the hottest sector of the year, the investment focus in the IC industry changed significantly. Last year, the investment was largely focused on IC Manufacturing and IC design segments, while this year the flows went primarily into IC design, with US$353 million going into over 30 fabless companies, represented by the Datang Microelectronics deal made by Warburg Pincus at US$70m and the BCD deal at US$50 million. This compared with a total of only US$42.2 million going into 6 fabless companies in 2003.

With the development of IC industry in China, other segments in IC industry were also active in 2004 - such as IC device manufacturing and IC packaging & testing. The Zero2ipo Venture Capital Research Center stated they believed that the successful IPOs of SMIC and CSMC boosted the investment in IC field in 2004.

Traditional industry was another sweet spot in 2004, with a total of US$178 million going into 30 companies, ranking third in number of deals and second in investment amount. Investment in traditional industry was relatively diversified, within which the manufacturing sector was the most favored, followed by chemicals, agriculture and consumer goods. The China Wolfberry deal, made by Actis China at US$10 million, was another large deal after Mengniu Dairy in the consumer goods sector.

Mid and late stage investment still dominated, while Shanghai left other cities far behind.

Although the number of early stage deals showed a sharp increase in the third quarter of 2004, on the whole however, investments still focused on mid and late stages in 2004. In terms of the number of deals, the growth stage was most favored, topping with 88 deals. In terms of investment amount, the expansion stage received most of the investments, accounting for more than US$400 million or 34% of total investments.

In 2004, Shanghai was the hottest place in terms of venture investing, with both the largest number of deals and highest investment amount. Beijing ranked second both in number of deals and investment amount. Other hot regions included Shenzhen, Shandong, Guangdong (not including Shenzhen), Helongjiang, Zhejiang and Jiangsu.

Exits made substantial progress, fund-raising showed a flat performance.

Exits made substantial progress in 2004. 60 of the venture capital firms covered in the survey exited at a total of US$802 million. Both the number of VC firms having exit records and the number of companies exited increased significantly compared with last year. Total exit amounts approached 4 times of that of last year. Trade sales were still the most frequently adopted exit route, facilitating nearly half of all exits. Meanwhile, exits via IPOs increased remarkably compared with last year, and realised nearly 70% of total exit amount thanks to oversea IPOs of SMIC, Shanda, Linktone, 51job.com and other venture-backed companies.

21 VC firms successfully raised capital in 2004, with a total of US$699 million available for investing in mainland China. Although amount increased compared with last year, the number of VC firms that raised capital was 7 less than last year. However, it is predicted that fund-raising will have better performance in 2005, thanks to the inspiring development of venture investing and exit.

Established in 2001, the Zero2IPO Venture Capital Research Center maintains the most extensive database on China private equity and M&A related activity with over 50 foreign venture capital institutions, 200 local venture capital companies, and nearly 5000 hi-tech ventures. For more details visit www.zero2ipo.com.cn