China VC fund size lowest since 2004

China’s venture capital indicators plunged in 2012 as many funds came to the end of life while exits remained difficult.

Venture capital fundraising in China fell 67 percent year-on-year, and the average fund size dropped 50 percent to $38 million, the lowest since 2004, according to a recent Zero2IPO report.

In 2012, venture funds raised $9.3 billion across 252 funds, representing about one-third of the $28.2 billion raised the previous year across 382 funds.

Deals didn't fare much better. Total venture capital deal value dropped 43 percent to $7.3 billion year-on-year, Zero2IPO figures show.

China's numbers sharply contrast with deal results in other countries, according to Preqin data. India, for example, had a total of $1.5 billion across 306 venture capital deals last year, up slightly from $1.4 billion across 206 deals in 2011. Singapore had a jump to $57 million from $46 million, and South Korea had an impressive $92 million in venture capital deals, up from $1.5 million in 2011.

China's deal decline centered on fund life, according to Sopie Luo, analyst at Zero2IPO. “Many venture capital funds reached the end of their fund life in 2012, and exits were not so forthcoming,” she told Private Equity International.

Last year's numbers also stand out because 2011 was an outlier year for Chinese venture capital, which received a boost from the strong macroeconomic environment, Luo said. 

She also said there is reason to believe that 2013 will be a better year for venture capital than 2012. A recent survey from her firm of Chinese LPs – including institutional investors and high-net-worth individuals – indicated that 56 percent of them want to maintain their current level of investment in the Chinese venture capital market, while 44 percent said they would like to increase it.