Key Findings

　　l  428 disclosed investments involved a total amount of USD 3.767 billion, indicating a year-on-year decline both in the deal number and the amount

　　l  The top four sectors-IT, Manufacturing, Internet and Healthcare-are responsible for over 60% of the total deals, marking a slightly increased sector concentration

　　l  IT disclosed 75 deals worth of USD 706 million, ranking first by the deal number

　　l  243 deals worth of USD 2.453 billion were sealed for development-stage upstarts, taking the lead over other stages both in the number of deals and the amount

　　l  Series-A round investment dominated the market, with 303 deals involving a total amount of USD 2.372 billion

　　l  Regional concentration for VC investments was on a downward trend, with Beijing as a share of the total across the country both in the deal number and the amount falling by 7.8% and 3.9% respectively year-on-year, and Shanghai by 3.0% and 7.9% respectively

　　l  Chinese institutions were more active, clinching 267 deals worth of USD 949 million

　　1.   Review of Domestic VC Market in 2009

　　In 2009, China’s VC market declined both in the deal number and the amount: 428 disclosed deals involved a total of USD 3.767 billion, down 20.0% and 24.8% respectively compared with the previous year, largely in line with ChinaVenture’s forecasts.

　　By the sector, domestic VC market experienced a moderate rise in the investment concentration, with IT, Manufacturing, Internet and Healthcare closing the most deals, over 60% of the total and up 3.6 percentage points compared with 2008.

　　By the stage, development stage investment saw a strong rally both in the deal number and the amount in 2009, while at other stages a sharp fall, mirroring a revived rational mindset in China’s VC market: development stage upstarts with both tolerable risks and a reasonable investment cycle have been favored once again by investors.

　　By the round, the number of deals for each round dropped in 2009 due to the reduced total deals. For example, Series-A round grabbed the majority of the deals, 303 in total, and Series E round merely two, namely the follow-on financings by Youku.com and PPLive. Thriving on online video boom, Youku.com has managed to command the leading position in the sector so far. However, for these Series-A round investors in Youku, 2010 will be their fifth year since their entry, a ripe time for capital exit.

　　By the region, VC institutions continued mainly focused their investments on first-tier cities and eastern coastal areas, such as Beijing, Shanghai, Jiangsu, Zhejiang, and Shenzhen, though a declining regional concentration. For example, Beijing saw 104 deals at USD 1.045 billion (as shown in Table 6-1), with its share of the total across the country both in the deal number and the amount falling respectively by 7.8% and 3.9% year-on-year, and Shanghai respectively by 3.0% and 7.9%.

　　By the investor, both the number and the combined amount of deals closed by Chinese institutions saw a steep rise over the previous year, with their share of their respective total up by 62.4% and 25.2% respectively.

　　2. Analysis by Scale

　　In 2009, China’s VC market declined both in the deal number and the investment amount: 428 disclosed deals for the year involved the total of USD 3.767 billion, down 20.0% and 24.8% respectively compared with the previous year, largely in line with ChinaVenture’s previous forecasts. The average investment amount stood at USD 8.8 million, a sharp slide from the previous year.

　　3. Analysis by Sector

　　3.1 Analysis by Number and Amount

　　By the sector, China’s VC market in 2009 saw a slight increase in the investment concentration, with IT, Manufacturing, Internet and Healthcare closing most deals, making up over 60% of the total and inching up 3.6 percentage points compared with that of 2008. IT did the best job among all the players by securing.

　　3.2 Analysis by TMT Vs. Non-TMT

　　In 2009, domestic VC market remained dominated by non-TMT investment, with both the deal number and the investment amount higher than TMT. To be specific, 241 deals going to non-TMT sectors and involving a total amount of USD 1.851 billion, respectively down 12.4% and 28.0% year on year in terms of the deal number and the amount.

　　4. Analysis by Stage

　　In 2009, China’s VC investment focusing on development-stage upstarts witnessed a visible rise as opposed to an obvious decline for those at expansion and profitability stages. To be specific, development stage enterprises grabbed 243 disclosed deals worth of USD 2.453 billion, up 14.6% and 64.5% respectively on a year-on-year basis--taking the lead over the other stages both in the number of deals and the investment amount; Expansion stage enterprises sealed 137 deals worth of USD 1.005 billion, down 36.9% and 59.8% respectively, and those at profitability stage secured merely 30 deals worth of USD 219 million, dropping by 58.9% and 71.3% respectively.

　　The trend mirrored a revived rational mindset on China’s VC market: the development stage enterprises, due to their tolerable risks and a reasonable investment cycle, have been favored once again by investors.

　　5. Analysis by Round

　　The number of investment deals for each round dropped in 2009 due to the reduced total deals. For example, Series-A round grabbed the majority of the deals, 303 in total, and Series E round saw merely two deals, namely the follow-on financings by Youku.com and PPLive. Thriving on online video boom, Youku.com has managed to command the leading position in the sector so far. However, for these Series- A investors in Youku, 2010 will be their fifth year since their entry, a ripe time for capital exits.

　　6. Analysis by Region

　　VC institutions continued mainly focused their investments on first-tier cities and eastern coastal areas, such as Beijing, Shanghai, Jiangsu, Zhejiang, and Shenzhen, though a declining regional concentration. For example, Beijing snatched 104 deals worth of USD 1.045 billion (as shown in Table 6-1), with its share of the nationwide total both in the deal number and the amount falling respectively by 7.8% and 3.9% year-on-year, and Shanghai respectively by 3.0% and 7.9%.

　　7. Analysis by Investor

　　In 2009, both the number and the combined amount of deals closed by Chinese institutions saw a steep rise over the previous year, with their share of their respective total increasing to 62.4% and 25.2% -- mirroring to a great degree the rapid developmental trend of Chinese VC institutions. There were various contributing factors behind the robust momentum, including heightening activity of Chinese institutions, improving legal frameworks, favorable business environment since 2006, a recovering domestic capital market and the newly launched GEM since the beginning of 2009. Although debates over the prospect of Chinese VC institutions exist among LP’s, it is expected that a more favorable external environment to Chinese institutions will shape up with the improvement of related laws & regulations. As such, more and more influential, renowned Chinese institutions will come to the fore, and China’s VC market will become more mature.

　　8. ChinaVenture’s Insights

　　In ChinaVenture’s opinion, the contraction of domestic VC market in 2009 was simply a transient correction during its rapid development, rather than a cooling-off. Therefore, we are sure that both the deal number and the investment amount in China’s VC market will go up in 2010. Some traditional hot spot sectors, such as Internet and Heathcare, will continue to be the major destinations for domestic VC investments, and at the same time, certain promising opportunities will also crop up in some emerging sectors, including Telecom & VAS and Media & Entertainment.

　　l E-commerce as a subsector of Internet will maintain its fast growing momentum. As a result, scouting for new investment opportunities and pumping additional capitals into backed upstarts will be a main investment direction for domestic VC institutions.

　　l Mobile Internet play will continue to be favored. According to the data from CNNIC, so far, mobile internet subscribers have already reached 155 million in China. Additionally, with a fast expanding 3G handset user base, 3G operations are expected to push the mobile value-added operations onto the fast track of development. Therefore, lots of subsectors, such as mobile gaming, mobile animation and mobile reading, will become investment hotspots with huge potentials.

　　l Media & Entertainment will also have multiple subsectors attractive to investors. A telling example is the investments targeting Film & TV programs. In 2009, China’s film industry generated the yearly box office revenues of RMB 6 billion, a 40% increase compared with the previous year, with as many as 21 blockbusters topping the mark of RMB 100 million in box office revenues each, so, What a gold mine it is! In addition, investors’ enthusiasm for animation subsector has never faded, as evidenced in the Sequoia Capital China’s investment in Great Dreams and the Silicon Paradise Sunshine’s investment in Jiang Tong Animation Co., Ltd in 2009. Fueled by fast market expansion, the investment spree in Media & Entertainment will surely extend well into 2010.