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China Venture Capital Investment Hits New High

by Mary Swire,, Hong Kong

08 December 2006

Venture capital investment in China hit a new record in the first eleven months of 2006, reaching a total of US$1.7 billion, according to a study by the Zero2IPO Group, a leading integrated service provider in China's venture capital and private equity industry.

The announcement is based on 'Zero2IPO - China Venture Capital Annual Report 2006' and 'Quarterly Reports' launched by thr Zero2IPO Research Center. It noted that the majority of the venture capital investment went to enterprises in early stage and expansion stage, with each group securing approximately US$600 million.

As of November 30, the amount invested in 2006 has exceeded previous year's figures, and is 57.5% higher than that in 2005. This reflects the continued confidence being shown in the Chinese venture capital market, the report suggested.

While the IT sector continues to command the lion's share of venture capital investment, the report noted that the amount invested in this area fell about 10% over the year to 62.1% of total VC investment.

Broadly the industrial distribution of VC investments is similar to that of 2005, with the exception of a strong increase in the amount invested in Bio/Healthcare, which increased to 7.1% of the total from 2.3% in 2005.

Geographically speaking, Beijing received the highest percentage of VC investments in both deal number and amount invested in 2006, followed by Shanghai. This geographical concentration also appeared to increase: 108 deals worth US$730 million closed in Beijing as of November 2006, compared with US$374 million in 70 deals in 2005.

Both deal numbers and the amount invested in Shanghai also increased substantially: 81 closed deals worth US$347 million in 2006 compared with 44 deals worth US$162 in 2005.

The combined amount invested in Beijing and Shanghai represents two thirds of all the venture capital investments in mainland China.

The report also found that foreign VC funds continued to play a dominant role in VC investments for the first 11 months of 2006, in both amount invested and deal numbers. The amount invested by foreign VC funds and domestic VC funds accounts for 74.2% and 18.3% respectively in 2006.

Meanwhile, the amount invested in early stage enterprises has climbed dramatically since 2005, the study noted. In the first 11 months of 2006, US$580 million was invested in early stage enterprises - four times the amount invested in 2005. However, the amounts invested for expansion stage and late stage were little changed from those in 2005.

The report found no substantial change in exit events in 2006, which, at 82, was equal to 2005. Interestingly, half of 2006 events came in the fourth quarter of 2006.

Total fundraising by VC firms reached US$3.96 billion in the first 11 months of 2006, slightly below the figure for the whole of 2005, the report concluded.

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