VC, PE get back on track to recovery

By Wang Xinyuan

Venture capital (VC) and private equity (PE) investment continue to pick up the pace of recovery as new capital was raised in the third quarter.

A total of 18 new VC funds were raised by 16 domestic and foreign VC firms in the third quarter, up 6 percent over the second quarter in number of newly-raised funds.

The capital for domestic investment amounted to $1.26 billion, according to a latest report released by Zero2IPO research center.

VC investment deals increased by 23 percent compared with the second quarter though still down 14 percent year-on-year.

Meanwhile, 122 firms obtained $785 million in investments in the third quarter, up 38 percent from the previous quarter.

The PE sector has also begun to show signs of recovering. A total of 20 PE deals were finalized in the third quarter, valued at approximately $983 million.

The number of deals was down 31 percent compared with a year earlier but up 53.8 percent from the second quarter.

The investment amount was down 62.2 percent year-on-year but 42.7 percent higher than the second quarter.

Before the financial crisis, a large number of hedge funds and funds that normally invest in bonds and other debt securities competed fiercely against PE firms to grab projects worldwide including those in China, Chen Shiyou, managing director, head of private equity at CICC, said during the Global Entrepreneur Summit 2009 held Saturday in Beijing.

"Those hedge and bond funds had a competitive advantage over PE firms as they require lower rates of return, about 15 percent for hedge funds and 8 to 10 percent for bond funds. A PE firm usually requires about 25 percent return," Chen noted.

"On a micro-level the competition is intense, but overall there is still not enough PE investment," Chen continued, "China has a bank-oriented financing market, but there are many things that bank loans cannot accomplish."

"PE firms have access to the board of the companies in which they are invested and have an important say in where they are going. That's what bankers cannot do," Chen said.

The VC and PE market had not started recovering until three months ago, Chen Hong, chairman and CEO of the Hina Group, an investment banking and private equity firm, told the Global Times.

Our company, for example, made only one deal in the first six months of the year, but closed seven deals in the past two to three months, Hina's Chen pointed out.

"With the rebounding stock market, new capital has become available, and (we feel that) the most uncertain period has passed," he added.

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