VENTURE CAPITAL ACTIVITY DECLINES IN CHINA

Dow Jones VentureSource: Value and volume of deal activity drop sharply in first quarter; Decline consistent with other geographies

Venture capital equity financing of Chinese companies fell to its lowest level in more than five years in the first quarter of 2012, according to Dow Jones VentureSource, which tracks venture-backed companies.

During the quarter, 45 deals raised US$745 million, a 39% decline in deals and a 56% decline in capital invested compared to the first quarter of 2011. This marks the lowest quarterly volume since the first quarter of 2006.

Commenting on the data, Guido Schenk, APAC and EMEA sales director for Dow Jones VentureSource, noted: “Despite its continued GDP growth and relatively robust economy, China has not been immune to declining volumes and values in venture capital equity financing. While the decline suggests that less money is flowing into venture-backed firms, the robust median value of these investments demonstrates that investors remain confident about opportunities in China and have not cut back on deal sizes.”

Each deal represents a single case of equity financing by a professional venture capital firm, corporation, other private equity firm or individual.

The median value of completed deals, at US$9.8 million in the first quarter of 2012, was down significantly from last year’s first-quarter record US$15.2 million, although more broadly in line with the 2010 (US$8.8 million) and 2009 (US$7.6 million) median deal values.

Decline consistent with other geographies
The year-on-year decline in China in 2012 mirrors similar trends in the U.S. and across Europe. U.S.-based companies attracted US$6.3 billion through 717 venture capital deals in the first quarter of the year, down 18% and 9% respectively on the previous year.
Europe-based companies attracted €762 million across 241 deals in the first quarter of 2012, down 41% and 7% year-on-year respectively due to softening performance in the U.K. and Germany—typically the continent’s two largest destinations for venture capital equity financing. Investment values and volumes declined 44% and 3% respectively in the U.K., and 55% and 17% respectively in Germany. France saw a 34% jump in investment value, although the number of deals during the period fell 9%.

Sharp decline in investments in consumer services companies
The overall decline in investment volume and value in China was driven primarily by fewer investments in consumer services. The value of equity financing in these companies, which includes the Web-heavy consumer information services sector, media and content, retailers, and travel and leisure, fell 66% year-on-year to US$294 million while the volume of deals fell 58% to 16.

Most notably, investment in consumer information services saw the lowest volume on record, which extends to 2005, and the lowest value since the first quarter of 2007. The retail sector also showed a sharp decline, falling to two deals valued at US$45 million in the first quarter of 2012 from seven deals valued at US$161 million in the same period of 2011.

IT industry sees drop in investment value
The information technology industry experienced sharp decline, as well. Year-on-year, venture-capital equity financing in the industry fell to US$27 million for seven deals, led principally by a lack of appetite for financing opportunities involving software firms as well as electronics and computer hardware makers. The previous year saw US$369 million in investment activity in the first quarter. Despite this sharp drop in value, the number of deals declined by a more modest 42%, suggesting that median investment values remain buoyant despite declining interest.

Business and financial services’ relatively stable business support services and financial institutions sectors saw modest decline. In the first quarter of 2012, those sectors attracted nine investments valued at US$75 million, down from 10 deals valued at US$98 in the previous year.

Dow Jones VentureSource helps venture capitalists, corporate development executives, investment bankers and service providers find deal and partnership opportunities, perform comprehensive due diligence and examine trends. It provides accurate, comprehensive data on venture-backed companies and their investors and executives around the globe.