Venture capital investment has fizzled in China as investment in the world’s largest Internet market fell to its lowest level in six years this quarter, the Dow Jones VentureSource reported.
China’s bubble has likely popped. This past quarter saw 45 deals raised $745 million, a 39 percent deal drop and 56 percent decline in capital investment compared to the first quarter of 2011. This year ranked as the lowest quarterly volume since the first quarter of 2006.
At US $9.8 million, the median value of deals in the first quarter of 2012 was also down significantly from last year’s $15.2 million. It remains comparable to 2010’s median value of $8.8 million and 2009’s median value of $7.6 million.
The investment decline was primarily driven by a fallout in investments on the side of consumer services, which fell 66 percent to $294 million. The numbers of deals in the consumer services sector fell 58 percent to 16.
Also contributing to the drop was a sharp decline for the IT industry, which fell to US $27 million in seven deals, compared to $369 million in the first quarter of the previous year. The number of deals had a more modest decline however at 42 percent, indicating that median investment values remained high as interest waned.
At the same time, the size of deals remains high, indicating investor confidence remains high enough to follow through once the investment has been made.
“Despite its continued GDP growth and relatively robust economy, China has not been immune to declining volumes and values in venture capital equity financing,” stated Guido Schenk, APAC and EMEA sales director for Dow Jones VentureSource. “While the decline suggests that less money is flowing into venture-backed firms, the robust median value of these investments demonstrates that investors remain confident about opportunities in China and have not cut back on deal sizes.”
The slowdown in China reflects similar investment struggles in the US and Europe. US companies raised 18 percent less than the previous year at US$6.3 billion. Deals dropped 9 percent to 717 deals. Europe companies saw a 41 percent drop in investment with €762 million invested. European deals also fell 9 percent to 241 deals.
The investment market in China is most likely suffering from the lack of a healthy exit market. Highly profitable companies such as Baidu made the region seem like a goldmine, leading to a number of Chinese companies going public with good results. This led to a bubble valuation, which had started its own burst as investment companies instead funnel their funds into a rebounding US market.