PE, VC investments in Q1 decline due to stricter regulation

Venture capital and private equity fundraising had an almost 75 percent year-on-year drop in the first quarter of this year; however, strong investment is still flowing into the internet, information technology and manufacturing industries, according to a recent report released by the ChinaVenture Institute.

According to the report, China's VC and PE markets in the first quarter this year experienced a 74.85 percent decline in the volume of fundraising, and a 54.82 percent drop in the number of deals, compared with the same period last year.

Guo Libo, president of the ChinaVenture Institute, said that the reason for the decline was partly due to tightened regulation and risk control measures. The State Council and related authorities have since last August issued regulations on the nation's VC and PE markets, as a guidance for the whole market's development in a healthy and scientific way.

"In addition, the market itself is undergoing a stage of adjustment. A large chunk of funds emerged in 2015; now, three years later, it is difficult to see another large batch occurring. Overall, these adjustments are beneficial to the development of the market," Guo said.

Despite the situation, investments into the internet, IT and manufacturing industries are still booming. According to the report, China's VC market attracted 236 investment deals in the internet industry, with a total value of $5,691 million, ranking first in terms of both the number and value of deals. The IT industry ranked second, with 197 deals completed, at a total value of$3,515 million.

The PE market, meanwhile, also attracted large money inflows in the IT industry, with a total value of $3,274 million, ranking first in terms of amount of deals. The manufacturing industry ranked second with an investment value of $1,525 million.

The report also demonstrated that A-round financing dominated the VC market, with a total of 530 deals completed, taking up 70.1 percent. The volume of A-round financing totaled $7.3 billion, taking up nearly half of the investments in the VC market.

"Although the investment vitality in the VC market declined in the first quarter, early-stage enterprises still attract great attention, and innovative companies are also favored by investors, which shows that the market is still burgeoning," said Tong Chang, researcher at the ChinaVenture Institute.

Meanwhile, the PE market also experienced a decrease in investment vitality in Q1; however, there was an increase in the average value, which was $53.78 million per deal, growing 148.75 percent year-on-year.

"The average investment per deal was relatively high, demonstrating that in the PE market, certain popular enterprises in certain sectors still accumulate great sums of money," Tong said.