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June 27, 2006
Venture Investment in China, Spurred by IT, Continues to Expand
Red Herring looks at current venture capital investment trends in China:
The latest taste of the figures shows the flow of venture capital between 2004 and the first quarter of 2006 topped $2.81 billion, according to Dow Jones VentureOne, which has begun to track China and will take a closer look in a report slated for release later this summer.
Overall, the country attracted $1.5 billion in 2005, up from $1 billion in 2004. This year appears to be on track, with preliminary numbers showing China snared more than $300 million in new investment in the first quarter of 2006—not bad for what is historically the lowest quarter of the year—and about twice the level of investment in the year-ago quarter.
These numbers are in line with similar figures released by Zero2IPO, a Shanghai-based firm that monitors both foreign and domestic venture capital. But unless second and subsequent quarters vastly exceed the $300 million mark, venture capital in China for 2006 won’t soar—it will fall.
If history is any indicator, that’s unlikely: first quarters in China are frequently tepid for VC, but subsequent quarters usually make up the difference. Moreover, the trend in China VC is resilient, even during a downturn. . . .
Hot areas for investment in the first quarter, according to VentureOne, include information technology investments, which garnered 64 percent of all Chinese deals in the quarter. That’s down from 2005, when IT investment snared 71 percent.
Consumer and business services are the largest segment for Chinese venture capital investment outside of the IT sector, representing more than half of the deals in the products and services category.
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