China’s venture fundraising plummets

Venture fundraising in China, both USD and RMB, has fallen dramatically year to date, according to PE Asia's data division.

It’s been a bad year for China’s venture capital fundraising, with totals for USD-denominated funds plunging to $1.1 billion year to date, compared to $3.6 billion for the full year 2011, according to PE Asia’s data division. 

The domestic capital market are also proving to be weak as RMB venture funds fell even more. During the same period, local currency funds dropped 74 percent to RMB 9.3 billion (€1.2 billion; $1.5 billion) compared to full year 2011.

China’s slowing GDP growth, which is expected to come in under 8 percent this year, could be one factor that has been dampening investor interest.

But according to venture capital sources, the larger problem is China’s weak capital markets, which are preventing IPO exits – the main route for venture firms when divesting.

“The Hong Kong IPO market is slow, and in the US it’s almost dead [for Chinese companies],” said Lawrence Tse, co-founder and partner of China-based venture capital firm Gobi Partners. 

Gobi has had one exit this year, but not through a Chinese IPO. Vange Software was listed in Germany back in June.

While there have been more China listings this year, the IPOs have raised far less than last year. In 2012 to date, 137 private equity-backed IPOs have raised $8.4 million, almost a third of the $24.3 billion raised from 136 private equity-backed IPOs last year, according to Thomson Reuters data.

Exit strategies for China’s venture industry will become more of a priority up front when investments are assessed, added Feng Deng, founding partner of China-based venture firm Northern Light Venture Capital.