Top Biz News

VC rebound sees market more than double

By Li Weitao (China Daily)
Updated: 2006-07-13 08:45

"We are investing in the third fund and exiting from seven to eight projects," Chen revealed at the China Venture Capital Semi-Annual Forum 2006 yesterday.

Legend Capital Ltd is controlled by Legend Holdings Ltd, the parent company of China's top PC-maker Lenovo Group.

Ni said there might be a VC bubble, but the market is not yet overheated as China's national economy is still on a fast track and start-ups are thirsty for capital to boost business growth.

"But the competition between VC firms is intensifying," Ni said.

In China, 29 million small- and medium-sized enterprises (SMEs), which employ less than 500 people and generate annual revenue of US$300 million, contribute 55 per cent of the country's gross domestic product (GDP).

According to a government survey of 270,000 SMEs, 78 per cent of such businesses are profitable. And their revenue and profit grew by 26 per cent and 36 per cent respectively in the 2001-04 period.

"Such high growth rates mean that China's SMEs are in acute demand of cash," said Kathy Xu, managing partner of Capital Today.

Yet IT firms, especially Internet companies, are beginning to lose their lustre as the industries mature, she said.

"We need to make more effort to look for promising companies in the traditional industries."

In the first half of this year, 13 Chinese mainland firms, supported by VCs or private equity funds, successfully launched initial public offerings (IPOs) on domestic or overseas stock markets and raised a total of US$11.76 billion.

Ni said the environment for exit channels for VCs has been improving. "So far, it's still the top priority of VC firms to exit by helping launch the IPOs of the companies (they invested in)."

Ni predicted total VC investment in China could exceed US$1.5 billion this year, and said China's private equity market still promises much untapped potential.

According to Zero2ipo, 17 private equity funds raised US$4.631 billion in the first half of this year and invested in 31 projects in China with US$5.559 billion.

Zero2ipo estimated that private equity investment in China accounts for 0.5 per cent of the country's GDP. For Western countries, the average figure stands at 4 to 5 per cent. "That means the private equity market promises huge potential," said Ni.