China's venture capital market reached historic highs in both fundraising and investment in the second quarter of 2007, according to Zero2IPO Research Center, a Beijing company that tracks venture capital and private equity.

 

Twelve new funds raised US$2.36 billion in the second quarter, sharply higher than the US$360 million raised by four funds in the first quarter.

 

A total of 121 companies acquired about US$694 million in venture capital in the second quarter, compared with 67 companies that received almost US$419 million during the January-March period.

 

The IT industry regained momentum, topping the list in both the number of venture capital deals and the amount of investment in the second quarter, followed by the traditional and service sectors.

 

Seventy IT enterprises received investments totaling almost US$427 million.

 

"The IT industry will continue to net large amounts of venture capital in the months ahead," says Michael Kang, managing director of the research center at Zero2IPO.

 

But senior economist Andy Xie notes that traditional industries, not the IT sector, are in most urgent need of capital.

 

"There is a new group of companies that has growth potential, and it needs financial and technical support," Xie said in a published report.

 

Among the 121 second-quarter deals, 92 companies acquired investments from foreign venture capital firms, with the rest funded by domestic firms.

 

Industries attracting investment from the two groups varied widely, with foreign venture concentrating on the IT, service and bio-healthcare segments, while domestic venture capitalists were active in traditional and non-IT hi-tech industries.

 

Of the 121 deals, 110 disclosed information on the maturity of companies which received VC investments, with 64 of the deals in an early stage, or 52.9 percent of the total, and 30 in the expansion stage, or 24.8 percent, of deals that were closed. The rest fell outside those categories.

 

Companies in an early stage netted US$267 million, while expansion-stage companies received about US$223 million.

 

"From a long-term perspective, capital firms in China should be turning to businesses in an early stage, rather than expansion or late stages through which they make quick money," says Xie.

 

There were 41 companies financed by private capital that went public or were acquired by other companies, including 18 in the IT sector, 12 in services and eight in traditional industries.

 

Rising with the markets

 

The number of IPOs by Chinese companies reflected globally rising stock markets in the past three months, with 43 new companies listed both at home and overseas in the second quarter, raising about US$20.5 billion, up from US$14 billion in the first quarter.

 

Despite more stringent rules adopted in September 2006 by six governmental authorities to limit domestic companies listing overseas, the number of overseas IPOs increased significantly over the previous quarter.

 

Among the 43 IPOs, 21 were on overseas markets, including the NASDAQ, the Hong Kong Stock Exchange, the New York Stock Exchange (NYSE) and the Singapore Exchange (SGX). The number of new listings was the same as in the second quarter of 2006.

 

Chinese companies raised an aggregate of about US$11.5 billion overseas compared with 14 domestic companies in the first quarter that listed overseas to raise US$2.06 billion.

 

"In the latter half of 2007, overseas IPOs will decrease, but domestic IPOs will climb," says Kang.

The Hong Kong exchange led in the number of overseas IPOs, followed by the NYSE and the SGX.

 

Asia Media Co Ltd was notable in its debut on the "Mothers" section of the Tokyo Stock Exchange, which specializes in high-growth start-up companies, a first for a mainland company.

 

There were 22 domestic IPOs that raised US$8.97 billion in the second quarter, fewer than the previous quarter, when 27 IPOs raised US$12.02 billion.

 

A total of 15 companies funded by venture capital or private equity firms went public in the second quarter, raising a total of US$3.80 billion. Among them, US$3.71 billion was raised from overseas listings, up 171 percent from a year ago.

 

(China Daily September 6, 2007)