The second quarter of 2008 saw venture investment in Mainland China surge to its highest level in five years as venture capitalists put nearly $1.37 billion into 71 deals, more than double the $662 million invested in 69 deals during the same period last year, according to the China Quarterly Venture Capital Report released today by Dow Jones VentureSource. One deal — the $430 million later-stage round for Beijing-based Oak Pacific Interactive, which provides an Internet platform for Web 2.0 communities — accounted for 31% of the region’s investment total.
“Even when we remove the $430 million deal from our statistics, the China region still recorded its highest level of venture capital investment since the third quarter of 2003,” said Jessica Canning, Global Research Director for Dow Jones VentureSource.
The majority of capital invested in the second quarter went to developed and later-stage companies.
“In all, some $968 million, or 71 percent of all capital invested in China in the second quarter, went to companies in the ‘information services’ and ‘media, content and information’ sectors.” Canning added. “By comparison, in the U.S., only 12% of venture capital investment went into these areas during the second quarter.”
In total, the report found that China’s Information Technology (IT) industry accounted for the most deals and investment in the second quarter with 28 deals garnering $899 million. This is a 184 percent increase over the $316 million invested in 34 IT deals in the second quarter last year. In particular, China’s “information services” sector, which is where Oak Pacific Interactive falls, saw 17 deals completed in the quarter for $805 million, a five-fold increase over the $161 million invested in 15 deals in the space during the second quarter of 2007.
Elsewhere, Dow Jones VentureSource found that the Consumer Services industry, which includes the “media, content and information” sector, saw 17 deals garner a record $246 million in the quarter, up 34% from $183 million invested in eight deals last year. The Business & Financial Services industry saw 13 deals close in the quarter, garnering $99 million, 25 percent less than the $132 million invested into 17 similar deals over the same period in 2007.
Health Care still remains a small investment industry in China, as the second quarter saw only three biopharmaceutical deals close, accounting for $13 million. This is 28% below the $18 million invested in five health care deals in the second quarter of 2007.
“Larger deals drove investment in the second quarter as the median deal size in China reached $10 million, the highest total we’ve seen to date,” said Canning. “Nearly 98% of all capital invested during the quarter went to companies that are already profitable or generating revenues. This is due in large part to the significant amounts of capital China-focused venture funds have raised over the past 18 months. VCs have to invest larger and larger amounts and they’re looking to back later-stage, established companies which are seen as lower in risk than early-stage companies. ”
The majority of capital invested in the second quarter went to developed and later-stage companies, according to the report. Even so, smaller, early-stage deals were more prevalent, as seed and first rounds made up 52 percent of all venture rounds in the quarter, which is down from 65 percent in the second quarter of 2007. Second rounds made up 20 percent of the deal count, up slightly from 19 percent, and later stage rounds accounted for 21 percent, up from 7 percent.