Venture Capital: Foreign Dominance Brings Regulatory Change

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Zero2IPO and the China Venture Capital Association have released a survey on the industry showing healthy returns, as well as domination by foreign firms. Findings include:

  • Many foreign venture capital firms had internal return ratios of over 100 percent. Most local currency funds had estimated internal return ratios of below 10 percent.
  • Internet-based companies have given investors the greatest returns.
  • USD12 billion was raised for investment in China from 1993 to 2005.
  • There were 80 active venture capital funds in China, including local currency and US dollar funds.
  • In the first three quarters of 2005, there were 11 venture-capital backed (IPOs), compared to 24 in all of 2004.
  • Of those IPOs this year, 23 percent each listed on the NASDAQ and on the Hong Kong main board, 22 percent on the Hong Kong GEM market, with the remainder on domestic or other offshore exchanges.
  • From 2002-2004, China saw 55 IPO exits raising more than USD600 million. China’s top exits via public listings have been Shanda, Baidu, Ctrip, and Focus Media.
  • From 2002-2004, China recorded 192 venture capital-backed mergers and acquisitions amounting to USD100 million.
  • While it is foreign companies that have driven development of the venture capital sector, a new initiative (Measure No. 39) by the National Development and Reform Commission (NDRC), is set to offer local VCs lower capital requirements, tax breaks, debt guarantees and other benefits vial local governments. The plan is expected to come into force in March 2006, and it is hoped it will help address the issue of lack of funding for private SMEs.

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