China overtakes UK for VC funding
China surpassed the UK to become the second-largest recipient of venture capital equity financing in 2011.
According to Dow Jones VentureSource, which tracks venture-backed companies, Chinese firms received 332 VC equity financing deals in 2011, surpassing the UK’s 274. The US retained its lead with 3,209 deals.
Each deal represents a single case of equity financing by a professional venture capital firm, corporation, other private equity firm or individual. Deals are an indicator of the emergence of start-up and growth companies in an economy.
Venture capital firms are not only placing more bets on China, but bigger bets, as well.
In total value, Chinese companies attracted $6 billion in venture capital equity financing, compared with $1.7bn in the UK and $6.1bn in Europe as a total.
The median deal size of a venture capital deal for a Chinese company was$12.4 million in 2011 – more than four times the median deal size in Europe, at $2.7. The US median deal size for VC financing was $5m.
Chinese companies’ gains in venture capital financing come as their European peers experience a decline. VentureSource data indicates a continuous decline in venture capital financing for European companies.
The near parity of China and Europe’s VC funding in 2011 is a relatively new phenomenon. Until 2010, European companies had consistently attracted more than double the VC backing of Chinese companies.
As recently as 2009, for example, Europe’s VC funding of $5.2bn was 86 per cent greater than China’s $2.8bn. This lead diminished in 2010 to 20 per cent and in 2011 to just two per cent.
“Thanks to a growing economy and strong exit environment, venture capitalists have shown significant interest in funding Chinese companies,” said Guido Schenk, sales director, Dow Jones VentureSource.
While China continues to attract financing for consumer-oriented industries, including consumer goods and services, the country is also recording strong increases of VC cash for information technology and healthcare companies.
Chinese companies operating in the consumer services industry, which includes many Internet companies, raised $3.3bn in 2011, a 12 per cent increase from 2010.
Chinese IT companies attracted $849mv in venture capital in 2011, a 35 per cent increase in investment from 2010. China’s healthcare industry attracted $317m of financing by VCs in 2011, a 73 per cent rise on the previous year.
Cambridge UK entrepreneur Alan Barrell, who has extensive experience in business and academia in China, has been predicting this surge by the dragon economy for several years.
“It was only a matter of time before we saw these kind of figures emerge. China is an increasingly powerful player with great innovation and a fabulous engineering base and its more open approach with the West has naturally led to a Western-style approach to funding businesses.
“I can only see this trend continuing.”