Where Chinese venture capitalists are putting their money

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.