The enthusiasm of venture capitalists in China continued to grow in the first half of the year, as the recovery trend in the technology industry became clearer and there were more examples of successful exits of venture capital (VC) firms.

According to Zero2ipo.com Ltd, a professional VC market research company in Beijing, the total amount of venture capital reached US$438 million in the first half of this year, rising 31.86 per cent over the same period last year.

At the same time, the Zero2ipo VC index also grew to 122.94 points in the second quarter, compared with the 100-point base in the first quarter of 2003.

"As the index has set another record in the past quarter, the vitality of the industry continues to grow," said Kevin Ni, chief executive officer of Zero2ipo, one of the main architects of the mid-term VC report.

While foreign VC firms were strong in big projects and inferior in terms of the number of invested projects in the past years compared with domestic institutions, they beat their local counterparts in all areas for the first time.

The total investment volume of foreign VC companies accounted for 85 per cent of the total volume in the first two quarters. The money went to 37 projects.

In terms of invested projects, telecommunications ranked first, with 17 projects obtaining investment.

Integrated circuit (IC) and traditional industries followed the telecommunications sector, each with 11 companies invested.

About 10 Internet companies attracted investment from VC firms and made the sector the third most heavily-invested business.

In terms of the volume of investment, IC got almost 30 per cent of the total investment, followed by the Internet and telecommunications.

Ni said the geographic distribution of the investment was still focused on Beijing and Shanghai municipalities, Zhejiang Province, and Shenzhen with Beijing-based companies taking about US$160 million of venture capital in the first half of the year.

The exit situation of VC companies also improved in the January-June period.

VC investors exited from 36 projects and their returns reached more than US$200 million, close to the total amount in the whole 2003.

Initial public offering remained the dominant way of exit, as 11 companies became listed on stock markets, including nine on Hong Kong, US and Singapore markets. The amount of the money that VC firms obtained from listings accounted for almost 75 per cent of the total returns.

As to the impact of the launch of the small and medium board on the Shenzhen Stock Exchange in May, most VC companies say they believe it will not be of much help in solving the limiting of exit channels for them.

About 62 per cent of domestic VC firms and 57 per cent of foreign companies said the three-year limit on stocks held legally will restrict the exit of VC investors out of companies listed on the board.

Foreign VC companies were also the biggest beneficiaries from the improvement of exit channels and they were rewarded with 85 per cent of the total exited capital.

According to the Zero2ipo survey among VC firms active in the Chinese mainland, 76 per cent of domestic companies said they would make more investments in the second half of the year.

(China Daily 08/02/2004 page10)