Chinese Venture Capital Investment Grows in 2007, But Not in High-Tech Industries

Venture capitalists invested almost $2.5 billion in China in 2007, according to a new report from Dow Jones VentureSource. That figure is a 5 percent increase over the 2006, and the highest since 2001, despite a decrease in the number of deals. Though investment is not growing quite as quickly as it is in the U.S., where venture investment rose by 8 percent last year, China is becoming a key global market for venture investment.

 

The decrease in the number of deals appears to be a sign of a maturing venture capital industry, according to the VentureSource report. Though seed and first-round investments still constitute 61 percent of the country's venture deals, more investors are looking at companies in their second round of financing or later. Fifty percent of total investment went to these later-stage companies. Second-round investment dollars increased by 15 percent over the previous year. Deal size may be decreasing as firms devote more money to investment in relatively mature companies.

 

The Chinese business, consumer and retail sector experienced the greatest gains in investment, up 83 percent over 2006. The most popular industry segment within that sector was consumer/business services, which accounted for 61 percent of total Chinese venture investment. Several high-tech sectors, such as energy and information technology, suffered modest decreases. Investment in information technology, the second largest sector, decreased by 9 percent.

 

In contrast, in the U.S., investors flocked to deals in research and technology-intensive sectors. Last year brought record investments in biopharmaceuticals, medical device and energy-related companies in the U.S., while investment in the business, consumer and retail sector dropped nearly 20 percent. The largest gains occurred in the information services segment, which includes Web-based tools for businesses and consumers. Information services investment surged by 44 percent, unlike in China where investment in the sector shrunk by 1 percent.

 

China, however, is not alone in the growth of its business, consumer and retail sector. In Europe, investment in that sector jumped by 33 percent, though venture investment overall only grew by 2 percent. Like China, the most active segment of that sector was business and consumer services, which more than doubled.

 

More information is available at: https://www.venturesource.com/