2010 China VC/PE Industry Survey Report

Transcription

1 2010 China VC/PE Industry Survey Report

2 The China Venture Capital and Private Equity Association ( CVCA ), incorporated in the middle of 2002, is a member-based trade organization established to promote the interest and the development of the venture capital ( VC ) and private equity ( PE ) industry in the Greater China Region. Currently CVCA has more than 150 member firms, which collectively manage over US$500 billion in venture capital and private equity funds. CVCA s member firms have long and rich experience in PE and VC investing worldwide and have made many successful investments in a variety of industries in China.Formerly known as China Venture Capital Association(CVCA),the association renamed to China Venture Capital and Private Equity Association in December Mission statement Support the sustainable development of venture capital and private equity industry in the Greater China region; Foster the understanding of the importance of venture capital and private equity to the vitality of the Greater China economy and global economies; Promote government policies conductive to the development of venture capital and private equity; Promote and maintain high ethical and professional standards; Facilitate networking and knowledge sharing opportunities among members; Provide research data, industry publications and professional development for private equity and venture capital investors; Provide quality informational/networking services for members and the entrepreneur community. Contact us Add: Room 2109, 21/F, Office Tower E1, 1 East Chang An Avenue, Beijing, PRC Postcode: Tel: (8610) Fax: (8610) research@cvca.org.cn Website:

3 On November 18 th 2010, China Venture Capital and Private Equity Association (CVCA) conducted a survey on China s Venture Capital/Private Equity (VC/PE) industry in The survey results and consequent report aim to help the readers understand the current development trends in China s PE/VC industry in 2010, evaluate the policy environment of the industry and predict upcoming industry development trends in the coming year. It is hoped that this report will provide the readers with valuable information and insight into the industry. Samples of the survey The target audience of this survey was the representatives of VC/PE firms present at CVCA s Annual General Meeting 2010, whose investment focuses on China. 35 valid responses have been calculated in the survey. Of the 35 responding firms, 76.9% are PE firms and 23.1% are VC firms. VC firms 23.1% PE firms 76.9% 1

4 Categorized by the type of funds managed by these firms, firms managing RMB funds and firms only managing USD funds account for 34.8% and 34.8% respectively, and firms managing both RMB funds and USD funds account for 30.4%. This indicates that, under the current foreign exchange management system in which foreign currencies are not freely convertible under capital accounts, managing both types of funds will become the most important strategic choice of excellent fund management teams for future development. However, the two kinds of funds are faced with potential conflicts of interest. It is worth mentioning that while management teams managing USD funds rush to set up RMB funds, local firms managing RMB funds have also started raising USD funds. Both funds have different features and advantages concerning fund raising, exit and investment. VC/ PE firms managing both funds shall explore the best practice with Chinese characteristics. Firms managing both funds 30.4% Firms managing USD funds 34.8% Firms managing RMB funds 34.8% 2

5 Current situation in 2010 Key Findings Nearly 80% of firms express satisfaction with industry development Nearly 70% believe industry policy environment has been improved to a certain extent Policy environment for exit has improved remarkably Over 80% have invested in fewer than 10 projects this year Over 50% have invested in more projects this year than last year Nearly 70% have increased their total investment this year Domestic and overseas exits have increased remarkably The average size of management teams has expanded Outlook 2011 VC/PE firms will increase their investment in mainland China in the coming year Raising RMB funds remains the first choice Consumption-related projects will become the first choice for investment The domestic capital market will become the first choice of exit via IPO Management teams will continue to expand Firms have great confidence in China s economic development in the coming year 3

6 Survey Findings Current industry situation and policy environment Nearly 80% of firms express satisfaction over industry development 79.4% of responding firms expressed satisfaction concerning the development of VC/PE industry in The percentage split is as follows: very good (23.5%); fairly good (55.9%), so-so (17.6%) and not good (only 2.9%). This information indicates that the overall development of the industry in 2010 has been recognized by respondents. How do you view the current situation of China VC/PE industry this year? Not good 2.9% So-so 17.6% Very good 23.5% Fairly good 55.9% Nearly 70% believe industry policy environment has improved to a certain extend VC/PE firms have different opinions on this issue. 51.4% of respondents believe that the policy environment for China s VC/PE industry in 2010 has improved. 17.1% believe it has changed for the better markedly. However, 22.9% think there is no obvious change and 8.6% think the policy environment has tended to deteriorate. This indicates on the one the hand that VC/PE firms have different understandings concerning industry policy environment, on the other hand that, because a number of tough issues hindering the development of the industry still remain unchanged, e.g., foreign currency, taxation, QFLP and others, some respondents find it hard to give positive comments on the industry policy environment. 4

7 What is your view on the policy environment for China s VC/PE industry this year? Changes for the better markedly 17.1% Tends to deteriorate 8.6% Changes for the better 51.4% No obvious changes 22.9% Improvement in exit environment has been most remarkable Regarding the improvement of the industry environment, many of the respondent firms believe improvement in the exit environment has been most remarkable (40.5%), followed by the fundraising environment (26.2%) and the fund formation environment (16.75%). Improvement in intermediaries, investment environment and professional talents has not been obvious. The launch of ChiNext broadened VC/PE firms domestic exit channels, while the new round of overseas IPO in Quarter 3 this year created an upsurge that enabled many firms to realize overseas exit opportunities. The lack of domestic institutional LPs has always been a headache for RMB fund management firms. However, insurance premiums have been allowed to enter the PE sector this year, though subject to strict restrictions, a move which has broaden the available sources of capital for PE firms to a certain extent. It also demonstrates the government s effort in improving the fundraising environment for VC/PE firms. Where have the greatest improvements been seen regarding the overall environment of China s VC/PE industry? Exit environment 40.5% Fund-raising environment 26.2% Fund formation environment 16.7% Intermediaries 7.1% Investment environment 7.1% Professional talents 2.4% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 5

8 Investment and exit of VC/PE firms Over 80% of firms have invested in fewer than 10 projects The survey found that most of the respondent firms (81.3%) invested in fewer than 10 projects this year. 59.4% of firms invested in 1-5 projects and 9.4% of firms did not make any investment. How many projects have your firm invested in this year? % % Over % 0 9.4% % % Over 50% invested in more projects this year than last year 56.3% of respondent firms invested in more projects this year than in % reported the number of projects remains unchanged and 12.5% reduced the number of projects. This means, compared with 2009, the overall investment speed and rhythm of firms are on the rise. Compared with last year, has your firm invested in fewer or more projects this year? Remains unchanged 31.3% Increases 56.3% Decreases 12.5% 6

9 Nearly 70% have increased their total amount of investment 68.8% of respondent firms indicated that their investment in 2010 had increased compared with For 18.8% of firms investment remains unchanged, and only 12.5% decreased their investment volume. The increase in investment volume is higher than the increase in the number of investment projects. This indicates that, to a certain extent, the valuation of enterprises has tended to rise. Compared with last year, what is the total amount of investment by your firm? Remains unchanged 18.8% Decreases 12.5% Increases 68.8% Domestic and overseas exits have increased remarkably Over half of the interviewed firms (65.0%) have had exits this year. Overseas IPO as an exit method accounts for the highest percentage (42.9%), followed by domestic IPO (39.3%) and M&A (17.9%). This year, VC/PE backed Chinese enterprises which did IPO in domestic capital markets and overseas capital markets (Hong Kong and USA) all generated good returns. At the beginning of the year, RMB funds gained a great deal from Chinext, while in the second half of the year USD funds benefited greatly in Hong Kong and the USA capital market. With the number of management teams managing both RMB funds and USD funds increasing, exit channels at home and abroad are set to become an indispensable choice for local and foreign VC/PE firms. Has your firm had any exit cases this year? If yes, please select the exit strategy which accounts for the largest proportion. No 35.0% Yes 65.0% 7

10 M&A 17.9% Overseas IPO 42.9% Domestic IPO 39.3% The overall size of management teams has expanded The survey found that the total number of staff in VC/PE firms was on the rise this year: 81.8% of firms recruited new staff, while 15.2% did not employ new staff and only 3.0% decreased the size of their team. With the rapid development of the industry, the demand for professional talents has increased tremendously. As VC/PE firms continue to expand their teams, they should pay attention to building capacity: maintaining stability and sustainability within teams is the key challenge facing partners. This year the number of staff in your firm Decreases 3.0% Remains unchanged 15.2% Increases 81.8% 8

11 Outlook 2011 VC/PE firms will increase their investment in mainland China in the coming year Of all the VC/PE firms surveyed, the majority (90.9%) indicate that they will absolutely increase their investment in mainland China. Only 9.1% are not sure whether they will increase their investment. This reflects that most VC/PE firms are very optimistic about China s economic development, market, investment opportunities and investment returns. Will your firm increase investment in mainland China next year? Not sure 9.1% Yes 90.9% Raising RMB funds remains the first choice Concerning the set up of new funds, only 38.7% of respondent firms indicated that they would set up new USD funds in mainland China in the coming year, while 61.3% indicated they would not. However, 81.2% will set up new RMB funds in the coming year and only 18.8% will not. With the gradual improvement of the domestic fundraising and exit environment, RMB funds as a domestic currency fund are gaining more and more favor and attention from VC/PE firms. Management teams with domestic backgrounds foreign backgrounds are both very enthusiastic about RMB funds. Comparatively speaking, the disadvantages of USD funds in investment, exit and other aspects have resulted in a gradual decline in attractiveness. However, the new round of overseas IPO upsurge may lead to a turn around in this situation. Will your firm set up new USD fund investment in mainland China next year? No 61.3% Yes 38.7% 9

12 Will your firm set up RMB funds next year? No 18.8% Yes 81.2% Consumption-related projects will become the first choice for investment The survey found that in the coming year, VC/PE firms will focus on consumption-related projects (18.8%), biomedicine (17.3%), cleantech (15.8%), the segmented service industry (14.3%) and the manufacturing industry (12.0%), while enthusiasm for wireless value-added services and internet-related sectors are on the decrease. This is partially due to the fact that the majority of the firms surveyed were PE firms. However, it also reflects the considerable impact of China s policy to develop seven strategic new industries, the 12th Five-year Plan, the adjustment of industrial structure and other policies which have a degree of influence over VC/PE firms investment direction. Which industries will be the focus for your firm next year? Consumption 18.8% Biomedicine 17.3% Cleantech 15.8% Segmented service industries Manufacturing industry Value added wireless service Internet-related industries Entertainment & media Others 6.8% 6.0% 5.3% 3.8% 12.0% 14.3% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 10

13 The domestic capital market will become the first choice for exit via IPO According to the survey, over half of respondent firms (56.9%) will focus on the domestic capital market for exit via IPO. ChiNext and SME Board in China are the primary choices. Regarding the selection of overseas capital markets, 27.6% favor Hong Kong Main Board and 12.1% favor NASDAQ. Future exits via IPO will be diversified as firms consider exit strategies according to the nature of their funds (USD or RMB funds), the capital markets preference and recognition of projects and other factors. Which capital market will your firm prefer for your portfolio company to go to public with next year? NASDAQ 12.1% Others 3.4% HK Main Board 27.6% Domestic Main Board 13.8% Domestic SME Board 20.7% ChiNext 22.4% VC/PE management teams will continue to expand The survey indicates that 81.8% of respondent firms will recruit new staff next year. This percentage is very high, reflecting the attraction and potential of the industry. Meanwhile, is predicted that competition to recruit excellent investment talents will be much fiercer. Will your firm recruit new staff next year? Not sure 18.2% Yes 81.8% 11

14 Firms have great confidence in China s economic development in the coming year The survey found that the majority of the firms (79.4%) expressed confidence in China s economic development next year. 11.8% were not clear about China s economic trend and 8.8% expressed a lack of confidence. Generally speaking, VC/PE firms are optimistic about China s economic development in What is your confidence level regarding China s economic development next year? Not clear 11.8% Lack of confidence 8.8% Full of confidence 79.4% 12

15

16 Disclaimer The report was written by China Venture Capital Association, who reserves the final right of interpretation and ownership of this report. Reproduction or translation of it into other languages is strictly prohibited. Anyone who violates the copyright will be held legally accountable. CVCA has taken steps to ensure the reliability of the information provided in this report. However, CVCA can t guarantee the ultimate accuracy of the information and therefore CVCA does not accept responsibility for any decision made or action taken based on the information provided. Add: Room 2109, 21/F, Office Tower E1, 1 East Chang An Avenue, Beijing, PRC Postcode: Tel: (8610) Fax:(8610) research@cvca.org.cn Website: Copyright CVCA 2010