China Overtakes U.K. in Venture Capital Financing

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China surpassed the U.K. to become the second-largest recipient of venture capital equity financing in 2011.

According to Dow Jones VentureSource, which tracks venture-backed companies, Chinese firms received 332 venture capital equity financing deals in 2011, surpassing the U.K.’s 274. The U.S. retained its lead with 3,209 deals.

Each deal represents a single case of equity financing by a professional venture capital firm, corporation, other private equity firm or individual. Deals are an indicator of the emergence of start-up and growth companies in an economy.

Venture capital firms are not only placing more bets on China, but bigger bets, as well.

In total value, Chinese companies attracted US$6 billion in venture capital equity financing, compared with US$1.7 billion in the U.K. and US$6.1 billion in Europe as a total. The median deal size of a venture capital deal for a Chinese company was US$12.4 million in 2011 – more than four times the median deal size in Europe, at US$2.7 million. The U.S. median deal size for venture capital financing was US$5 million.

Chinese companies’ gains in venture capital financing come as their European peers experience a decline. VentureSource data indicates a continuous decline in venture capital financing for European companies.

The near parity of China and Europe’s venture capital financing in 2011 is a relatively new phenomenon. Until 2010, European companies had consistently attracted more than double the venture capital financing of Chinese companies. As recently as 2009, for example, Europe’s venture capital financing of US$5.2 billion was 86% greater than China’s US$2.8 billion. This lead diminished in 2010 to 20% and in 2011 to just 2%.

“Thanks to a growing economy and strong exit environment, venture capitalists have shown significant interest in funding Chinese companies,” said Guido Schenk, sales director, Dow Jones VentureSource.

While China continues to attract financing for consumer-oriented industries, including consumer goods and services, the country is also recording strong increases of venture capital financing for information technology and healthcare companies.

Chinese companies operating in the consumer services industry, which includes many Internet companies, raised US $3.3 billion in 2011, a 12% increase from 2010.

Chinese information technology companies attracted US$849 million in venture capital financing in 2011, a 35% increase in investment from 2010.

China’s healthcare industry attracted US$317 million of financing by venture capital firms in 2011, a 73% increase on the previous year.

For information on Dow Jones VentureSource’s research methodology, visit http://bit.ly/VSFAQs.