Where Chinese venture capitalists are putting their money

Chinese venture capital fund raising in the third quarter of 2016 improved from the previous quarter reaching US$1.91 billion across seven funds with consumer services attracting the most investment and deal flow.

A Dow Jones VentureSource report released on October 24 showed the total capital raised represented an increase of 54% from the second quarter of 2016, but fund closings declined by 36%.

IDG China Capital Fund III LP of IDG Capital Partners was the largest China-based venture fund raised during the third quarter at US$1 billion – accounting for 52% of the total amount raised in funds during the period. It was followed by Sinovation RMB Fund of Sinovation Ventures which raised US$374.13 million and Joy Capital Fund of Beijing Yuyue Capital Investment Management Company which raised US$200 million.

Equity financing into China-based companies raised more than US$6 billion across 448 deals in the third quarter of 2016. Compared with the previous quarter, the total amount raised plunged by 50% and the number of deals declined by 2%.

Consumer services companies generated the largest investment allocation during the third quarter as they attracted US$2.2 billion through 188 deals, or a 35% share of the total transactions. The total amount, though, was down by 75% from that raised in the second quarter and the number of deals fell by 15%.

Information technology ranked second with US$1.8 billion investment allocation across 88 deals, followed by business and financial services which received US$1.6 billion across 110 deals.

A total of eight M&A deals were completed by venture-backed companies in China during the third quarter of 2016, garnering US$1.18 billion. The largest transaction involved Beijing Zhuoyi Xunchang Technology Company, a provider of software for Android-based devices, which was acquired by Alibaba Group in July for US$200 million.

Another deal involved Shenzhen Yihua Technology Company, operator of an online gaming and entertainment portal, which was bought by Tianshen Entertainment in September for US$147.56 million.

Meanwhile, 26 venture capital-backed companies went public during the third quarter of 2016 in China, raising US$1.21 billion. The largest IPO during the quarter was China Harzone Industry Corporation, a manufacturer of emergency traffic engineering equipment, which raised US$115.74 million through the listing.