Venture investing in China, India near record quarters

Venture capital investment in China reached its highest level in five years at $1.4bn, while India recorded its second highest quarterly total at $238m. Chinese information technology and Indian advertising proved the most appealing sectors, according to a Dow Jones study.

Venture capital investments in China and India surged in the second quarter of 2008, with both emerging markets recording near-record funding levels for early-stage investments.

Mainland China saw venture investment increase to $1.37 billion (€928 million), its highest level in five years and roughly double the $662 million venture firms invested within the country’s borders during the same period last year, according to a study by Dow Jones VentureSource.

Information services and media content led all sectors by garnering 71 percent of the capital, with information technology alone accounting for $899 million in deals, a major increase over the $316 million IT received last year.

The $430 million later-stage round for Beijing-based Oak Pacific Interactive, a web 2.0 company, comprised almost half of the sector’s venture investment and roughly 31 percent of the country’s investment total. The venture arm of Japanese-based broadband company SoftBank led that financing round.

In total, venture firms backed 71 deals in China, a modest increase from the 69 recorded a year ago. Owing to the increased prevalence of second later stage financing rounds, the median size of Chinese venture investing reached an all-time high of $10 million.

Although considerably smaller than China in terms of raw figures, the $238 million India received in venture investments constituted the country’s second highest total on record and a 120 percent increase over last year.

Roughly 37 percent of financing, or $89 million, was routed towards advertising companies, as India’s Business and & Financial Services industry, which includes marketing businesses, led all other sectors in attracting capital.

The $70 million financing of Mumbai-based Laqshya Media, which specialises in out of home media advertising, was the largest deal of the quarter.

Unlike China, the median size of India’s venture deals dropped from $17 million in 2005 to $8 million in the first six months of 2008, despite a record surge in second round financings.

For the purposes of the report, Dow Jones defined venture capital investment as early-stage capital made available to entrepreneurial companies in exchange for ownership in the form of private securities. Leveraged buyouts, mezzanine and debt financing were excluded from the tally.