Venture Capital Investing in China Grows 47% to $361M in 3Q

Venture capital investment in China rose 47% from an year earlier to $361.1 million in 54 deals during the third quarter, putting China on course to beat last year's total of $1.2 billion in 151 deals, according to the China Quarterly Venture Capital Report released today by Ernst & Young and Dow Jones VentureOne.  Through the first nine months of the year, there has now been $1.18 billion directed to 145 deals. 

The median round size reached $5 million, the highest on record -- and are directing investments to an increasing number of second- and later-round financings:

  • Seed- and first-round deals make up 70% of deal flow in the third quarter. There were 38 seed- and first-round deals in the third quarter, an increase from the 25 that occurred in the third quarter of 2005. The capital investment to these rounds was $216.6 million, a 65% increase in capital from a year ago.
  • There were 14 second or later round deals this quarter, up from 10 in the same quarter a year ago, with $139.7 million directed toward these later rounds, an increase of 57% from last year. 
  • 69% of the companies funded in the third quarter in mainland China are already shipping product, compared to 56% in the U.S., and 22% of the Chinese companies are already profitable compared to 7% in the U.S.

VC Investing Activity By industry:

  • Information technology (IT) remains the stronghold for venture capital activity in China in the third quarter as there was $221.8 million invested in 34 IT companies in the third quarter, an increase of 85% in capital and nine more deals than a year ago. 
  • Within the IT industry, the Internet-focused information services segment continued to draw the most activity, with 22 deals and $136.2 million invested. 
  • There were three energy deals in the third quarter and $8.70 million invested in them, compared to zero in the third quarter of 2005. 
  • Investment in the business and consumer services category also increased, with 17 deals, nearly twice as many as a year ago, and $130.6 million invested, a 7% increase. 

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