MoneyTree TM China TMT Report

Transcription

1 Technology Institute This MoneyTree TM China Telecommunications, Media and Technology (TMT) Report includes information on private equity and venture capital (PE/VC) investment in the TMT industry for Q1/Q 14, as well as 1 and 13. PricewaterhouseCoopers Zhong Tian LLP MoneyTree TM China TMT Report Q1/Q 14 Data source: ZeroIPO Research

2 Table of contents 1. Overview 3. PE/VC investments in the TMT industry 4 TMT industry investments compared to all industries 4 Investments by quarter 6 Investments by TMT sector 7 First-time funding compared with follow-on funding 1 Investments by stage of development 1 Investments by region PE/VC exits in the TMT industry 16 Exits by quarter 16 Exits by type 17 Exits by sector Sector focus: Technology, Internet, Telecommunications Investments in Technology Investments in Internet 6 Investments in Telecommunications 3 5. A close look at investments in Mobile Methodology and definitions Contacts 41

3 1. Overview Welcome to the MoneyTree TM China TMT Report for Q1/Q 14. In this report, you will frequently read the phrase reaching a historical high, indicating that China s private equity and venture capital (PE/VC) investment in the Telecommunications, Media and Technology (TMT) industry is now in full swing. In the first half (H1) of 14, overall PE/VC investment fell in Q1 and then rose sharply in Q, seeing a big leap in investment growth. In Q 14, came a historical breakthrough, with the total PE/VC investment figure across all industries hitting an unprecedented peak of US$17,61 million. Total PE/ VC deal volume in Q 14 rose 3% quarter on quarter (QoQ), while the total deal size climbed % QoQ. Looking at overall investment in the TMT industry, deal volume in H1 14 continued in the same vein as H 13, with solid figures. A total of US$,34 million in investments were made in 45 deals in Q1. In Q, the industry saw US$5,346 million of investments in 14 deals, a two and half year high, which was equal to the total investment figure for the TMT industry in H1 13 and the equivalent to the overall PE/VC deal size across all industries in Q1 14. The TMT industry performed very well in H1 14, however, which sector was most favoured by investors? Investment statistics show that in H1 14, the biggest single deal occurred in the Technology sector. However, single deals exceeding US$1 million in size mainly took place in the Internet sector (E-commerce) and the Telecommunications sector (Mobile). Although the Internet sector did not perform as outstandingly well as the Technology and Telecommunications sectors, there were strong overall investments in this sector as well. Only the Entertainment and Media sector was relatively weak. Although that sector s total deal volume increased marginally, its single deal size was down. To analyse investments from all perspectives, it is necessary to take a close look at investments at various stages of development. Overall deal size saw a significant growth in the early stage. In the expansion stage, deal value hit a historical high in Q. PIPE deal size also witnessed an unprecedented growth. However, the late stage was the weakest performer. Exit strategy is another crucial aspect for investments. Investment statistics clearly showed that in H1 14, IPOs were very attractive to private companies. If conditions allow, IPO is seen to be the primary exit method. Secondly, statistics also indicate that the number of Chinese TMT companies listed in the US hit a peak. However, for Chinese TMT companies, mainland Chinese capital markets were actually equally attractive compared to overseas ones. With this very strong investment data, we can t help asking: Is this a rational return to fund raising or a short-term frenzy of investment? Is this the rise of single deal sizes or a wave of large investments in individual deals? Should investors continue as normal or make a big bet now? Is the success of an investment embodied by a successful partnership with a company or in a fruitful exit? All these questions will be answered in this report by interpreting three categories of data in H1 14: Overall PE/VC investments and exits, the TMT industry and its three sectors. If you would like to discuss the findings and how they may impact your business, please contact us. Marcel Fenez Global Leader Entertainment and Media PwC China TMT Leader Jianbin Gao PwC China Technology Industry Leader MoneyTree TM China TMT Report Q1/Q 14 3

4 . PE/VC investments in the TMT industry TMT industry investments compared to all industries In Q1, overall investment saw a small decline while the TMT industry was intact In H 13, China s PE/VC field performed well. Investment volume and value returned to near peak levels since 1. However, figures didn t follow the upward trend in Q1 14. In part because of the long Chinese New Year holiday, total deal volume and value fell as expected in Q1 14 compared to Q4 13. Although overall investment saw a brief fall, PE/VC investment in the TMT industry was not greatly affected. The investment total in the TMT industry accounted for 73% of the total figure for the quarter, its highest figure since 1. In Q, the total deal value made an unprecedented leap In Q 14, PE/VC deal volume rose only 3% QoQ. However, the investment value made an unprecedented leap; it was 19% higher than the total deal value for H 13 and up % QoQ. The average amount for a single investment reached as high as US$43 million, hitting a record high for three years. Although the TMT industry performed well in Q, compared to total PE/VC investment it was relatively low. In summary, in H1 14, PE/VC investment started slowly but then surged ahead, marking a good start for overall trends in 14. The big leap in total investments in Q 14 was mainly attributed to the three following reasons: PwC Viewpoints First, the resumption of A share IPOs expanded exit channels for private investment. The valuation of Chinese enterprises in the A-share market was higher than those in overseas markets, which strengthened their determination to remain there. Smoother domestic exit channels also increased PE investors confidence. Second, the increase in deal value was not because of an increase in deal volume, but because of an increase in the single deal value, demonstrating an increase in buyout type of investments. Third is timeliness. Investments backlogged in Q1 due to the Spring Festival holidays took place in Q. Q s performance was truly representative of H MoneyTree TM China TMT Report Q1/Q 14

5 Figure 1: Comparison of PE/VC investments and TMT investments 1-14 ( value) US$m 18, 16, 14, 1, 1, 8, 6, 4,, $9,34 $97 $6,335 $1,578 $1,36 $3,448 $4,14 $1,81 $3,4 $1,167 $6,675 $75 $7,531 $1,98 $7,84 $3,449 $5,868 $,34 Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 PE/VC funding in all industries PE/VC funding in TMT industry PE/VC investments in TMT $17,61 $5,346 In Q1 14, there were 45 PE/VC transactions in the TMT industry, accounting for 73% of total volume. The total investment amount US$,34 million represented 39% of PE/VC deal value. In Q 14, the number of TMT investments reached 14, accounting for 5% of total PE/VC volume. Meanwhile, deal size was US$5,346 million comprising 3% of the total PE/VC deal size. Overall PE/VC investments In Q1 14, China saw a total of 336 PE/VC investments across all industries totalling US$5,868 million. This was an increase of 31% by volume and 81% by value compared to Q1 13. In Q 14, there were a total of 41 PE/VC investments, which represented a rise of 59% over the same period in 13. The deal value at US$17,61 million grew by a steep 164% over the previous year. The deal volume and the deal size in Q 14 increased by 3% and % respectively compared with the previous quarter. Figure : Comparison of PE/VC investments and TMT investments 1-14 ( volume) Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 PE/VC deal volume in all industries PE/VC deal volume in TMT industry MoneyTree TM China TMT Report Q1/Q 14 5

6 Investments by quarter In the first quarter of 14, there were 45 deals in the TMT sector, an increase of 56% over the same period in 13. Meanwhile, deal value amounted to US$,34 million, an increase of 97% year-onyear. In the second quarter of 14, there were 14 deals, an increase of 13% over the same period in 13. The rise in value was even more significant, with deals totaling US$5,346 million, up 611% YoY. The second quarter of 14 saw a 13% decrease in deal volume and a 13% increase in deal size, in comparison to the previous quarter. In Q, deal value reached a historical high volume in the TMT industry of H1 14 continued an upward trend that started in H 13. The overall deal size for Q 14 reached a two and half year high, equal to the total investment figure for the TMT industry in H1 13, and equivalent to the overall PE/VC deal value. In Q, the average single deal size leapt ahead to double the previous historical high The average deal size for Q1 14 was US$11.41 million. The average deal size of US$8.9 million for Q 14 reached a historic high; it also saw an increase of 153% compared to the previous quarter and a YoY increase of 477% compared to the average deal size of US$5.1 million in Q3 13. In Q1, there were six deals with a deal size over US$1 million. There were 11 in Q, of which the top single deal value was US$1,793 million, which broke the record for the largest single deal size since 1. PwC Viewpoints Figure 3: Investments by quarter 1-14 ( volume/ value) US$m 6, 3 5, 4, 3,, 1, $97 $1,578 $3,448 $1,81 $1,167 $75 $1,98 $3,449 $,34 $5,346 Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 value 19 volume The biggest single investment took place in the Technology sector in H1 14. However, single investments exceeding US$1 million mainly occurred in the E-commerce and Mobile sectors. Typical of an emerging economy, China saw a rapid development in its E-commerce sector, and, at present, China has about 6 million netizens and 3 million online shoppers. Based on China s population, E-commerce still has lot of scope for development. The Mobile sector also saw more investment in H1 14, a change from the previous trend of high deal volumes with low figures for single investments. 6 MoneyTree TM China TMT Report Q1/Q 14

7 Investments by TMT sector In Q1 14, the Telecommunications sector saw a rapid growth in deal size with the figure growing 546% from Q1 13. size in the Technology sector maintained its growth, with the single deal value rising. size in the Entertainment and Media sector fell, far more than the deal volume figure, indicating a sharp decrease in the single investment figure. Although deal volume in the Internet sector rose significantly, the single investment figure fell year on year. In Q 14, the deal value of four sectors saw a sharp increase compared with the same period in 13. The Technology sector performed outstandingly, with year-on-year growth reaching 1,13%. However, it was the only sector in which deal volume fell, indicating a huge single investment figure. In Q 14, deal value in the Technology sector rose 1,19% from the previous quarter, and deal volume decreased 17% QoQ. The Telecommunications sector performed well, with deal value climbing 7%, breaking the trend of small investments. Figure 4: value comparison in TMT sectors 1-14 US$m 6, 5, 4, 3,, 1, $97 $1,578 $3,448 $1,81 $1,167 $75 $1,98 $3,449 $,34 $5,346 Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 Entertainment and Media Telecommunications Internet Technology value for the Telecommunications sector rose rapidly QoQ, but deal volume was flat. The single investment amount for the sector continued to rise. QoQ growth for the Internet sector was lower than that of the Telecommunications sector, but with a similar pattern. In Q1 14, among the six deals in which the amount exceeded US$1 million, the Internet and Telecommunications sectors accounted for 67% and 33% of the total respectively. In Q 14, among the 11 deals in which the amount exceeded US$1 million, the Internet sector accounted for 46%, the Telecommunications sector took up 36% and the Technology sector accounted for 18%. PwC Viewpoints Figure 5: volume comparison in TMT sectors Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 Internet Technology Telecommunications Entertainment and Media In short, in H1 14, the success of the Technology sector attracted large-scale investment, and the Telecommunications sector also saw a breakthrough in financing. Although the Internet sector did not perform as outstandingly well as the Technology and Telecommunications sectors, it performed well overall. Only the Entertainment and Media sector was relatively weak. Although that sector s total deal volume increased, the single investment amount was down. MoneyTree TM China TMT Report Q1/Q 14 7

8 Q1 14 Total deal volume for the TMT industry reached 45 deals with a total value of US$,34 million. volume by sector Internet: 11 deals, 46% of the Telecommunications: 76 deals, 31% of Technology: 48 deals, % of the Entertainment and Media: 9 deals, 3% of value by sector Internet: US$1,468 million, 64% of Telecommunications: US$478 million, 1% of Technology: US$18 million, 9% of Entertainment and Media: US$14 million, 6% of Figure 6: volume in TMT sectors Q1 14 Figure 7: value in TMT sectors Q1 14 (US$m) 11 46% $848 44% 9 3% 48 % 76 31% $61 14% $95 16% $54 6% Internet Telecommunications Technology Entertainment and Media Internet Telecommunications Technology Entertainment and Media YoY comparison for Q1 14 volume value Telecommunications 1% 546% Entertainment and Media 4% 8% Technology 33% 7% Internet 67% 65% 8 MoneyTree TM China TMT Report Q1/Q 14

9 Q 14 Total deal volume for the TMT industry was 14 deals, with a total deal value of US$5,346 million. volume by sector Internet: 87 deals, 41% of Telecommunications: 75 deals, 35% of Technology: 4 deals, 19% of the Entertainment and Media: 1 deals, 5% of Figure 8: volume in TMT sectors Q % 87 41% 1 5% 75 35% Internet Telecommunications Technology Entertainment and Media value by sector Technology: US$,813 million, 53% of Internet: US$1,587 million, 3% of Telecommunications: US$864 million, 16% of Entertainment and Media: US$8 million, 1% of Figure 9: value in TMT sectors Q 14 (US$m) $,813 53% $8 1% $864 16% $1,587 3% Technology Internet Telecommunications Entertainment and Media YoY comparison for Q 14 volume value Telecommunications 3% 7% Entertainment and Media 8% 149% Technology 11% 1,13% Internet 16% 317% QoQ comparison between Q 14 and Q1 14 volume value Telecommunications 1% 81% Entertainment and Media 33% 41% Technology 17% 1,19% Internet % 8% MoneyTree TM China TMT Report Q1/Q 14 9

10 First-time funding compared with followon funding Q1 14 There were 18 TMT enterprises engaged in first-time funding, making up 44% of the total number of deals, a slight increase compared to the previous year. The total investment figure for first-time funding reached US$465 million, representing % of the total deal size, up 13% YoY. Figure 1: TMT follow-on compared with initial investments % 9% 8% 7% 6% 5% 4% 3% % 1% % 65% 67% 61% 65% 51% 53% 53% 55% 44% 45% Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 Initial investments Follow-on investments Q 14 In this quarter, 96 TMT enterprises successfully received first-time funding, accounting for 45% of the total deal volume. The percentage was only one point lower than the previous quarter, but a noticeable drop of points compared to the same period in 13. The total investment figure for first-time funding was US$646 million, representing 1% of the total deal size, down 8% from the previous quarter. 1 MoneyTree TM China TMT Report Q1/Q 14

11 Q1 14 Q 14 Enterprises engaged in first-time funding by sector: Enterprises engaged in first-time funding by sector: Internet: 48 enterprises, funding total of US$69 million. Technology: 8 enterprises, funding total of US$49 million. Telecommunications: 7 enterprises, funding total of US$6 million. Internet: 4 enterprises, funding total of US$3 million. Telecommunications: 35 enterprises, funding total of US$3 million. Technology: 13 enterprises, funding total of US$15 million Entertainment and Media: 5 enterprises, funding total of US$87 million. For first-time funding, 64 enterprises belonged to the early stage, accounting for 59%; 36 were at the expansion stage, accounting for 33% and 8 were at the late stage, accounting for 8%. Entertainment and Media: 8 enterprises, funding total of US$38 million. For first-time funding, 57 enterprises were at the early stage, accounting for 6%; 3 were at the expansion stage, accounting for 33% and 7 were at the late stage, accounting for 7%. Q1 14 First-time funding sum (US$) Number of enterprises <= 1m 4 1m-5m 36 >5m-1m 6 >1m 6 N/A PwC Viewpoints Q 14 First-time funding sum (US$) Number of enterprises <= 1m 18 1m-5m 34 >5m-1m 1 >1m 15 N/A 17 Comparing first-time funding in the TMT industry with follow-on funding, we found that: 1. In general, average investment in first-time funding rose. In Q 14, deal volume for first-time funding dropped QoQ while deal value climbed 39% QoQ.. Among the sectors that engaged in first-time funding, the Internet was the most preferred. No matter the deal volume or deal value, it ranked first compared to the other three sectors. 3. Most enterprises, around 6%, engaging in first-time funding were still at the early stage. 4. 7%-8% of TMT enterprises engaged in first-time funding of less than US$5 million. 5. Although the volume of first-time funding was not impacted too much, investment in this industry became more prudent, with more money flowing into follow-on investment projects. MoneyTree TM China TMT Report Q1/Q 14 11

12 Investments by stage of development Overall deal value climbed in early-stage investments During the four stages of investment, early-stage investments remained the most popular, with around 6% of Moreover, overall deal value has climbed in 14, with the percentage of the total also increasing significantly. For example, the deal value of early-stage investments in Q1 this year reached 9% of the total compared to only 9% in Q4 13. Data showed that deal value grew more significantly in the early stage. In Q deal value reached a new high in the expansion stage TMT enterprises at the expansion stage were the apple in the eye of investors. In Q 14, investment at this stage reached US$1,7 millon, a record since 1. 1 MoneyTree TM China TMT Report Q1/Q 14 Figure 11: TMT investments by stage of development 1-14 ( value) US$m 6, 5, 4, 3,, 1, $97 Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 PIPE $1,578 $3,448 Late stage Figure 1: TMT investments by stage of development 1-14 ( volume) PIPE 145 $1,81 $1, Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 Expansion stage Early stage Late stage 13 $75 Expansion stage $1,98 $3,449 Early stage Late-stage performance disappoints $,34 $5,344 Enterprises at the late stage could be expected to be the most popular since they are closest to an exit. However, investment at this stage has always been lower than at the expansion stage. Due to limited deal volume, deal value was even smaller than that of the early stage. Investors have a better idea of the prospects for TMT companies at this stage, so their investment decisions are more considered. In Q 14, deal value saw unprecedented growth in the PIPE stage PIPE-stage deal volume saw little change with 1 deals in Q, which was flat compared with Q 1 and ranked third since 1. Yet deal value in Q this year reached US$,9 million, nearly 1 times that of Q 1. This was because of transparency in the market and available exit channels for PIPE. In recent years, the Internet and Mobile Internet sectors have developed quickly, with increasing investment. The top two deals in terms of size in Q 14, occurred at the PIPE stage.

13 Q1 14 Q1 14 saw a total volume of 45 deals in the TMT industry, with a total deal value of US$,34 million. The top two investments with the highest single deal value were at the expansion stage of the E-commerce subsector, of which the values were both over US$ million. The third largest investment was at the late stage in the Mobile subsector. volume by stage of development Early stage: 145 deals, 59% of the Expansion stage: 75 deals, 31% of Late stage: deals, 9% of PIPE: 3 deals, 1% of Figure 13: volume in TMT industry by stage of development Q1 14 value by stage of development Expansion stage: US$1,68 millon, 46% of Early stage: US$668 million, 9% of Late stage: US$51 million, 3% of PIPE: US$47 million, % of the Figure 14: value in TMT industry by stage of development Q1 14 (US$m) % $1,68 46% 3 1% $47 % 9% 75 31% $51 3% $668 9% Early stage Expansion stage Late stage PIPE Expansion stage Early stage Late stage PIPE YoY comparison for Q1 14 volume value Early stage 14% 443% Expansion stage 34% 4% Late stage 15% 31% PIPE 15% MoneyTree TM China TMT Report Q1/Q 14 13

14 Q 14 There was a total volume of 14 deals in the TMT industry, with a total deal value of US$5,346 millon. The highest single deal value was in the PIPE stage, which was US$1,793 millon. (One deal did not disclose its investment stage.) volume by stage of development Early stage: 13 deals, 6% of the Expansion stage: 56 deals, 6% of Late stage: 15 deals, 7% of PIPE: 1 deals, 5% of Figure 15: volume in TMT industry by stage of development Q % 13 6% 1 5% 56 6% Early stage Expansion stage Late stage PIPE value by stage of development PIPE: US$,9 million, 55% of the Expansion stage: US$1,7 million, 4% of Early stage: US$916 million, 17% of Late stage: US$36 million, 4% of Figure 16: value in TMT industry by stage of development Q 14 (US$m) $916 17% $,9 55% $36 4% $1,7 4% PIPE Expansion stage Early stage Late stage YoY comparison for Q 14 volume value Early stage 6% 657% Expansion stage 9% Late stage 9% 143% PIPE 5% 1,34% QoQ comparison between Q 14 and Q1 14 volume value Early stage 9% 37% Expansion stage 5% 19% Late stage 3% 55% PIPE 33% 6,113% 14 MoneyTree TM China TMT Report Q1/Q 14

15 Investments by region In Q1 and Q 14, 35 deals gave details on the regions where the investment took place. The top five investment regions in China in the TMT industry were, in deal volume order, Beijing with 17 (accounting for 53% of the total deal volume), Shanghai with a modest 49, Shenzhen with 31, Jiangsu Province with and Zhejiang Province with 19. The total deal volume for the top five regions was 91, accounting for 9% of Total deal value disclosed by region was US$7,15 millon. The top five regions had an aggregated deal volume of US$6,55 millon, accounting for 85% of the total deal size. Beijing took the top spot with an impressive sum of US$4,358 millon, followed by Shanghai with a much smaller US$637 million. The combined total of the remaining three regions, Shenzhen, Jiangsu Province and Zhejiang Province was US$1,6 millon. Figure 17: The top five regions for TMT investments in Q1/Q 14 ( volume/ value) volume US$m 1,, 3, 4, 5, Beijing 17 $4,358 Shanghai 49 $637 Shenzhen 31 $181 Zhejiang Province Jiangsu Province 19 $579 $3 PwC Viewpoints Beijing remains the centre of the Chinese TMT industry, with 61% of deals taking place in the region in H1 14. The Beijing local government initiated policies that would relieve the tax burden, provide project guidance and encourage innovation to technology companies. Meanwhile, universities in Beijing, such as Tsinghua, and large corporations have set up joint enterprises to promote innovation. It should be noted that in 14, Jiangsu Province leapt into the top five for the first time. volume was flat, similar to Zhejiang Province, however, deal value surpassed Shenzhen. IT enterprises are developing rapidly in the Yangtze Delta area. As Shenzhen remains a hotbed for IT enterprises, we separated the city from Guangdong Province in our statistics. As a result, in 14, Guangdong slipped out of the top five for the first time. MoneyTree TM China TMT Report Q1/Q 14 15

16 3. PE/VC exits in the TMT industry Exits by quarter TMT exit volume hit a record high in Q In Q1 14, there were 16 exits. One quarter later, the number shot up to 3, a peak since 1. This figure was also four times greater than Q1 13. In addition, exits in the first half of 14 increased by 44% compared to the second half of 13. Figure 18: Exit volume in the TMT industry Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 PwC Viewpoints In January 14, the Chinese A-share IPO market reopened. Twenty-one Chinese TMT enterprises listed in H1. In Q1 14, 63% of TMT company exits occurred through IPO, compared to 48% in Q. As most PE/VCs held minority stakes and did not have an influence on exit strategy, IPOs remained the first choice for enterprises to exit. Secondary sales between PE funds were not as popular as expected. 16 MoneyTree TM China TMT Report Q1/Q 14

17 Exits by type Irresistible IPOs In Q1 14, due to the reopening of the A-share market in China, IPOs made up 63% of all exits, a new high since H 1. With IPO the dominant exit strategy for TMT companies in Q1, M&A took second place, with a quarter of the In Q 14, exit volume including IPOs, continued to grow. There were 11 IPOs, an increase of 1% QoQ. Exit by IPO reached 48% of Figure 19: TMT exit trends by type Compared to IPO, M&A, the leading exit strategy in advanced economies, lagged well behind in the Chinese market. Management buy-out and secondary sale only took a small percentage of the total, around 1%-15% Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q IPO Strategic sale Management buy-out Secondary sale MoneyTree TM China TMT Report Q1/Q 14 17

18 IPOs in mainland China still attractive to local TMT companies Looking at the capital markets, 9% of TMT companies listed domestically, 1% in Hong Kong and none in the US in Q1 14. However, in Q, 64% listed on Nasdaq and the New York Stock Exchange (NYSE), with only 9% listed in mainland China and 7% in Hong Kong. The US markets are not necessarily a long-term choice, however, when the situation for domestic markets improves, TMT companies may prefer to list at home. Most Chinese TMT companies listing domestically listed on the ChiNext board in Shenzhen. In Q1 14, 8% of listings were on the ChiNext and only one of the ten listed in Shanghai. Figure : Comparison of TMT exits in mainland China, Hong Kong and US capital markets % 84% Q1 1 Q 1 Q3 1 Q4 1 Q1 13 1% 1% 1% Q 13 5% Q3 13 5% Q4 13 Q1 14 Q 14 1% 8% Record number of Chinese TMT enterprises list in the US 43% The pattern for companies listing in the US mirrored China, with the Nasdaq similar to Chinese small- and medium-sized boards and the NYSE similar to China s main board. In Q 14, among the Chinese TMT companies that listed in the US, four listed on Nasdaq, three listed on the NYSE. 57% 9% 1% 9% % 64% 7% Mainland China Hong Kong US One IPO occurred on the Frankfurt Stock Exchange, accounting for 8% of the total In summary, since 1 there has been a trend for Chinese TMT companies to list in the US. Due to transparency, size and reasonable valuations, listings on both Nasdaq and the NYSE reached a peak in Q this year. In Q1 14, there were 16 exits in IPO: 1 exits, 63% of Strategic sale: 4 exits, 5% of Management buy-out: 1 exit, 6% of Secondary sale: 1 exit, 6% of Figure 1: Exit types in the TMT industry Q % In Q 14, there were 3 exits in IPO: 11 exits, 48% of Strategic sale: 8 exits, 34% of Management buy-out: exits, 9% of Secondary sale: exits, 9% of Figure : Exit types in the TMT industry Q % 1 6% 1 6% 4 5% 9% 9% 8 34% IPO Strategic sale Management buy-out Secondary sale IPO Strategic sale Management buy-out Secondary sale 18 MoneyTree TM China TMT Report Q1/Q 14

19 Exits by sector Q1 14 Technology: 13 exits, 81% of Internet: exits, 13% of Entertainment and Media: 1 exit, 6% of Telecommunications: No exits. The Telecommunications sector saw big investment but few exits The Telecommunications sector, including the Mobile subsector, saw an increase in investment, with deal volume ranking in the top two in Q1 and Q. However, there were no exits in Q1 and only one exit in Q. Q 14 Internet: 1 exits, 53% of Technology: 9 exits, 39% of Telecommunications: 1 exit, 4% of the Entertainment and Media: 1 exit, 4% of IPO dominates exits In Q1, the Technology sector had the most exits, with 9 out of 13 exiting through IPO. The Internet sector had the most exits in Q, with 1, 7 through IPO. Figure 3: IPO exits in the TMT industry Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 7 Technology Internet Telecommunications Entertainment and Media MoneyTree TM China TMT Report Q1/Q 14 19

20 4. Sector focus: Technology, Internet, Telecommunications Investments in Technology The Technology sector includes IT Services, Hardware, Software, Electronics & Optoelectronics and Semiconductor. IT Services subsector deal value increased rapidly in Q to hit a historical high The IT Services subsector was flat in Q1 in terms of deal value, yet surged forward in Q. value increased 119% QoQ, continuing the upward trend from H 13. Investment in the Hardware subsector was not positive, with deal value bottoming out in Q volume for the Hardware subsector remained at one-to-three deals and deal value lagged behind the four other subsegments. In Q, the Hardware sector had a deal value of US$4 million, only slightly higher than the lowest value of US$.39 million in Q1 13. Figure 4: value in the Technology sector 1-14 US$m 3, $,813,5, $1,568 1,5 1, $84 $51 5 $383 $485 $39 $3 $18 $18 Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 Hardware Semiconductor IT Services Software Electronics & Optoelectronics Devices Figure 5: volume in the Technology sector Q Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 Electronics & Optoelectronics Devices IT Services Hardware Software Semiconductor A single PIPE investment lifted the total In Q, the rise in deal value was not replicated in deal volume. The main reason was that a listed Electronics & Optoelectronics Devices supplier obtained a PIPE investment worth US$1,8 million and a Semiconductor producer secured a PIPE investment of nearly US$7 million, enhancing overall deal value. MoneyTree TM China TMT Report Q1/Q 14

21 volume and value Q1 14 There were 48 deals in total in the Technology sector, with a total value of US$18 million. Software: 1 deals, 44% of the total; deal value of US$53 million, 4% of Electronics & Optoelectronics Devices: 13 deals, 7% of the total; deal value of US$3 million, 11% of the IT Services: 9 deals, 19% of the total; deal value of US$98 million, 45% of Semiconductor: 3 deals, 6% of the total; deal value of US$15 million, 7% of Hardware: deals, 4% of the total, deal value of US$ 9 million, 13% of Figure 6: volume by Technology subsector Q1 14 Figure 7: value by Technology subsector Q1 14 (US$m) 1 44% $98 45% 4% 3 6% 9 19% 13 7% $3 11% $15 7% $9 13% $53 4% Software Electronics & Optoelectronics Devices IT Services Semiconductor Hardware IT Services Software Hardware Electronics & Optoelectronics Devices Semiconductor YoY comparison for Q1 14 Electronics & Optoelectronics Devices volume value 8% 74% Software % 16% IT Services %,834% Semiconductor 4% 16% Hardware 111% MoneyTree TM China TMT Report Q1/Q 14 1

22 Q 14 There were 4 deals in total in the Technology sector, with a total value of US$,813 million. Software: 15 deals, 38% of the total; deal value of US$91 million, 3% of the Electronics & Optoelectronics Devices: 13 deals, 3% of the total; deal value of US$1,894 millon, 67% of IT Services: 7 deals, 18% of the total; deal value of US$81 million, 3% of the Hardware: 3 deals, 7% of the total; deal value of US$ 4 million, 1% of the Semiconductor: deals, 5% of the total; deal value of US$743 million, 6% of Figure 8: volume by Technology subsector Q % 15 38% 5 % 3 7% YoY comparison for Q 14 Electronics & Optoelectronics Devices 13 3% Software Electronics & Optoelectronics Devices IT Services Hardware Semiconductor volume value 4% 1,7% Software 15% 356% IT Services 36% 135% Semiconductor 1% 45,764% Hardware % 38% Figure 9: value by Technology subsector Q 14 (US$m) $91 3% $1,894 64% $4 1% $81 3% $743 6% Electronics & Optoelectronics Devices Semiconductor IT Services Software Hardware QoQ comparison between Q 14 and Q1 14 Electronics & Optoelectronics volume value 8,135% Software 9% 7% IT Services % 17% Semiconductor 33% 4,853% Hardware 5% 86% MoneyTree TM China TMT Report Q1/Q 14

23 volume bottomed out at both expansion stage and late stage in Q Surprisingly, the Technology sector was not favoured by investors at the expansion stage and late stage. Investors were more prudent about investing in Technology companies at these two stages. Early stage does not always equal low deal value In Q1 and Q, besides the top two PIPE deals, the top single investments were three US$5 million deals. Two of these were early-stage investments. PIPE investment heats up with record new deal value in Q The Electronics & Optoelectronics Devices and Semiconductor subsectors increased a massive 8,135% and 4,853% QoQ in terms of deal value due to two huge PIPE deals. Since Q4 13, PIPE investments have seen solid growth in terms of deal value. In 14, the growth continued. Figure 3: value by stage of development in the Technology sector 1-14 US$m 3,5 3,,5, 1,5 1, 5 $314 $38 $56 $485 $15 $848 $1,583 $3 $18 $,813 Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 PIPE Late stage Expansion stage Early stage Figure 31: volume by stage of development in the Technology sector Q Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q Expansion stage Early stage Late stage PIPE Expansion and late stages Enterprises at the late stage already have a three-to-five-year track record for investors to review. Funding at this stage would be focused on improving the financial structure and management, and preparing for IPO or M&A. Financial data should provide the possibility and return from an exit. Therefore, investors might be wiser about the investment at this stage and activity could be lowered accordingly. Early stage An enterprise with an excellent outlook, profitable model and trustworthy management can obtain considerable investment at this stage. PIPE We expect that PIPE deal volume will not change too much in the future, however, the single investment size could spring a few surprises. MoneyTree TM China TMT Report Q1/Q 14 3

24 Investments by stage of development Q1 14 Expansion stage: 1 deals, 44% of the total; deal value of US$5 million, 4% of Early stage: 14 deals, 9% of the total; deal value of US$8 million, 38% of Late stage: 1 deals, 1% of the total; deal value of US$37 million, 17% of PIPE: 3 deals, 6% of the total; deal value of US$47 million, 1% of the Q 14 Early stage: deals, 5% of the total; deal value of US$111 million, 4% of the Expansion stage: 1 deals, 5% of the total; deal value of US$71 million, 3% of PIPE: 6 deals, 15% of the total; deal value of US$,561 million, 91% of the Late stage: 4 deals, 1% of the total; deal value of US$7 million, % of the Figure 3: volume by stage of development in the Technology sector Q % 1 44% 3 6% Expansion stage Late stage 14 9% Early stage PIPE Figure 34: volume by stage of development in the Technology sector Q 14 5% 4 1% 1 6 5% 15% Early stage PIPE Expansion stage Late stage Figure 33: value by stage of development in the Technology sector Q1 14 (US$m) $37 17% $8 38% $47 1% Early stage PIPE $5 4% Expansion stage Late stage Figure 35: value by stage of development in the Technology sector Q 14 (US$m) $,561 91% $71 4% QoQ comparison between Q 14 and Q1 14 volume value Early stage 43% 35% Expansion stage 5% 37% Late stage 6% 89% PIPE 1% 5,349% $7 % PIPE Expansion stage $11 4% Early stage Late stage 4 MoneyTree TM China TMT Report Q1/Q 14

25 Investments by region Jiangsu Province makes an appearance for the first time and ranks among the top three During Q1 and Q 14, the top three regions with the highest deal volume and greatest deal size in the Technology sector were, in descending order, Beijing, Shenzhen and Jiangsu Province. Beijing took the top spot, with a deal volume of 8, totaling US$1,919 millon. Shenzhen had eight deals totalling US$85.79 million. Jiangsu Province had seven deals totalling US$83.47 million. Jiangsu s software sector has emerged Among the seven deals involved, five were Software companies. One IT services company, at the early stage, obtained a US$5 million investment, becoming the biggest single investment in the province at this time. Beijing continues to lead the way Beijing s deal volume equaled to the sum of the other four regions, and its deal value was eight times that of the other four regions combined. Investment in Beijing focused on the Software subsector, which accounted for 43% of One PIPE investment in Beijing in the Electronics & Optoelectronics Devices subsector that was mentioned earlier received an US$1.8 billion investment and lifted the overall deal value in the region. Figure 36: The top five regions for Technology investments Q1/Q 14 ( volume/ value) volume US$m 5 1, 1,5,,5 Beijing Shenzhen Jiangsu Province Shanghai Zhejiang Province 8 $1,919 8 $86 7 $83 6 $6 5 $1 MoneyTree TM China TMT Report Q1/Q 14 5

26 Investments in Internet The Internet sector includes E-commerce, Online Education, Internet Services, Online Entertainment, Social Media, Internet Marketing and Internet Finance. The E-commerce subsector took the lead in terms of deal value in H1 14, surpassing the total for the whole of 13 Among the Internet sector, investors pursued the E-commerce subsector with deals totaling 47, only two less than the peak of Q1 1. In the first two quarters of 14, deal value remained at about US$1 billion each quarter, US$1,973 million in total, US$6 million more than for the full year of 13. There were seven deals in the E-commerce subsector exceeding US$1 million. The biggest deal was US$3 million Among the seven enterprises, six were well established Internet E-commerce players. Nearly half of them were preparing to list and were seeking a last round of funding before their IPO. In Q1, deal value in Online Entertainment was over US$ million, setting a new record Online Entertainment mainly consisted of Online Gaming and Online Video. The former had deals, accounting for 81% of the total in Online Entertainment subsector. A well-known listed company with a core business in online video had a PIPE investment of US$1 million, which became the largest single investment in this subsector. Figure 37: value in the Internet sector 1-14 US$m,5, 1,5 1, 5 $35 $56 $,3 $185 $888 Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 Internet Finance Internet Marketing Social Media Online Entertainment Internet Services Online Education E-commerce $38 $54 $65 $1,468 $1,587 Figure 38: volume in the Internet Sector Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 E-commerce Online Education Internet Services Online Entertainment Social Media Internet Marketing Internet Finance 6 MoneyTree TM China TMT Report Q1/Q 14 value for the Internet Services, Internet Marketing and Online Education subsectors reached a new high, yet the total deal volume remained low Internet Services hit a record high in Q1 14, with a US$18 million investment, 4% for the online travel services subsegment. Yet only one deal surpassed US$1 million Internet Marketing registered a record deal value of US$9 million in Q1, yet single deal value was still low, with the biggest one at less than US$5 million. Online Education hit a historical high of US$83 million in deal value in Q. The main reason for this was that one Online Education website secured a single investment of US$8 million.

27 Q1 14 There were 11 deals in total in the Internet sector, with a total value of US$1,468 million. E-commerce: 47 deals, 4% of the total; deal value of US$966 million, 66% of Internet Services: 3 deals, % of the total; deal value of US$18 million, 1% of Online Entertainment: 18 deals, 16% of the total, deal value of US$5 million, 16% of Online Education: 1 deals, 9% of the total; deal value of US$ million, 1% of Internet Marketing: 7 deals, 6% of the total; deal value of US$65 million, 4% of Social Media: 4 deals, 4% of the total; deal value of US$ million,.1% of the Internet Finance: 3 deals, 3% of the total; deal value of US$1 million,.9% of Figure 39: volume by Internet subsector Q % 7 6% 47 4% 3 3% 4 4% 18 16% E-commerce Internet Services Online Entertainment Online Education Internet Marketing Social Media Internet Finance 3 % Figure 4: value by Internet subsector Q1 14 (US$m) $ 1% $996 66% $.1% $1 $18 1% $65 4%.9% $5 16% E-commerce Online Entertainment Internet Services Internet Marketing Online Education Internet Finance Social Media YoY comparison for Q1 14 volume value E-commerce 135% 34% Internet Services 15% 76% Internet Marketing 36% 39% Social Media 39% Online Education 9% 1,4% Online Entertainment 5% 1,918% Internet Finance % 186% MoneyTree TM China TMT Report Q1/Q 14 7

28 Q 14 There were 87 deals in total in the Internet sector, with a total value of US$1,587 millon. E-commerce: 39 deals, 45% of the total; deal value of US$1,7 millon, 64% of Internet Services: 17 deals, % of the total; deal value of US$17 million, 8% of Internet Marketing: 1 deals, 11% of the total; deal value of US$9 million, 6% of Online Entertainment: 9 deals, 1% of the total, deal value of US$187 million 1% of Social Media: 7 deals, 8% of the total; deal value of US$36 million, % of the Online Education: 4 deals, 5% of the total; deal value of US$83 million, 5% of Internet Finance: 1 deal, 1% of the total; deal value of US$55 million, 3% of Figure 41: volume by Internet subsector Q % 9 1% 39 45% 1 1% 4 5% 1 11% YoY comparison for Q 14 volume value E-commerce 34% 96% Internet Services 6% 439% Internet Marketing 17% 68% Social Media 13% 48% Online Education 33% 158% Online Entertainment 17 % E-commerce Internet Services Internet Marketing Online Entertainment Social Media Online Education Internet Finance 15% 3,31% Internet Finance Figure 4: value by Internet subsector Q 14 (US$m) $83 5% $1,7 64% $36 % $55 3% $9 6% $17 8% $187 1% E-commerce Online Entertainment Internet Services Internet Marketing Online Education Internet Finance Social Media QoQ comparison between Q 14 and Q1 14 volume value E-commerce 17% 4% Internet Services 6% 9% Internet Marketing 43% 4% Social Media 75% 1,7% Online Education 6% 315% Online Entertainment 5% 17% Internet Finance 67% 45% 8 MoneyTree TM China TMT Report Q1/Q 14

29 Early-stage investment ranked first, with deal volume amounting to half of the total and deal value reaching a peak in Q1 Among the Internet sector, demand for funding from early-stage enterprises was strong, but generally on a small scale. However, these enterprises boast innovative products and strong business and profitability models. This brings a huge opportunity for returns. Therefore, investment at this stage was large in volume though with a low single value. Figure 43: value by stage of development in the Internet sector 1-14 US$m,5, 1,5 1, 5 $35 $56 $,151 $189 $888 $381 $51 $679 $1,468 $1,587 Q1 1 Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 PIPE Late stage Expansion stage Early stage value at the expansion stage exceeded half the total with Q, seeing a peak of US$1 billion There were five companies in the expansion stage that obtained more than US$1 million in investment and all of them were in the E-commerce subsector. Due to a large amount of funding in the biggest E-commerce players, overall deal value was up at this stage. PIPE deal value hits a record There were only two PIPE investments, and deal value hit a record high as two Online Video companies each received an investment that surpassed US$1 million. Figure 44: volume by stage of development in the Internet sector Q Q 1 Q3 1 Q4 1 Q1 13 Q 13 Q3 13 Q4 13 Q1 14 Q 14 Early stage Expansion stage Late stage PIPE MoneyTree TM China TMT Report Q1/Q 14 9

30 Investments by stage of development Q1 14 There were 11 deals in total in the Internet sector, with a total value of US$1,468 million. Early stage: 64 deals, 57% of the total; deal value of US$77 million, 19% of Expansion stage: 39 deals, 35% of the total; deal value of US$76 million, 5% of Late stage: 9 deals, 8% of the total; deal value of US$431 million, 9% of Figure 45: volume by stage of development in the Internet sector Q % 64 57% Early stage Late stage 39 35% Expansion stage Figure 46: value by stage of development in the Internet sector Q1 14 (US$m) $77 19% $76 5% $431 9% Q 14 There were 87 deals in total in the Internet sector, with a total value of US$1,587 millon. (There was one deal with value of US$ million that did not reveal its investment stage.) Early stage: 48 deals, 55% of the total; deal value of US$57 million, 16% of Expansion stage: 3 deals, 35% of the total; deal value of US$1,31 millon, 65% of Late stage: 6 deals, 7% of the total; deal value of US$15 million, 1% of PIPE: deals, % of the total; deal value of US$145 million, 9% of the Figure 47: volume by stage of development in the Internet sector Q % % Early stage Late stage 6 7% 3 35% Expansion stage PIPE Expansion stage Early stage Late stage Figure 48: value by stage of development in the Internet sector Q 14 (US$m) $1,31 65% $145 9% $15 1% $57 16% Expansion stage Late stage Early stage PIPE QoQ comparison between Q and Q1 14 volume value Early stage 5% 7% Expansion stage 3% 36% Late stage 33% 65% 3 MoneyTree TM China TMT Report Q1/Q 14

31 Investments by region During Q1 and Q 14, the top five regions by deal volume were, in descending order, Beijing, 8 deals with a deal value of US$1,549 million; Shanghai, deals with a total investment sum of US$498 million; and Shenzhen, 14 deals, ranking third in terms of deal volume. In terms of deal value, Zhejiang Province came third with US$45 million. Shenzhen was ranked fifth with US$87.79 million, nearly 1/ of Beijing s Jiangsu Province was listed as the fifth in terms of deal volume, with seven deals; and its deal value was ranked fourth, with US$ million among the top five cities. Figure 49: The top five regions for Internet sector investments in Q1/Q 14 ( volume/ value) Beijing volume Shanghai Shenzhen Zhejiang Province Jiangsu Province US$m 4 8 1, 1,6, 8 $1,549 $ $88 8 $45 7 $1 Beijing was the focus for E-commerce players PwC Viewpoints Beijing s deal volume was nearly four times that of Shanghai in second place. Beijing s deal value was even more than that of the other four regions combined among the top five. The main reason for this was that most major E-commerce companies are concentrated in Beijing with six receiving investments surpassing US$1 million. The company with the highest single investment of US$3 million was also located in Beijing. Shenzhen was listed third in terms of deal volume, yet fifth for deal value Among the 14 investment deals, all of them were relatively unknown E-commerce players. The single deal value was low. Jiangsu Province became a stronghold for Internet Services Following the dominance of E-commerce in other areas, Internet Services (particularly the online travel services subsegment) became the main investment destination in this province. volume accounted for 57% of the total and deal value 73%. MoneyTree TM China TMT Report Q1/Q 14 31

32 Investments in Telecommunications volume and value Q1 14 There were a total of 76 deals in the Telecommunications sector, with a total value of US$478 million. Mobile: 74 deals, 97% of the total; deal value of US$448 million, 94% of the Telecom Equipment and Terminals: deals, 3% of the total; deal value of US$3 million, 6% of Other Telecommunications Subsectors: No deals. Figure 5: volume by subsector in the Telecommunications sector Q % 3% Mobile, the pillar of the Telecommunications sector, saw unprecedented investment in Q 14 It s forecast that smartphones will account for 6% of the global market in 14. Therefore, investment in the Mobile subsector will continue to rise. Mobile deal volume remained flat in the first two quarters, but reached a peak in deal value with Q hitting an unprecedented US$861 million. The single investment figure for Mobile was still at a low level, with 7% of deals valued at less than US$3 million In H 14, there were 14 deals in this sector, with 87 (7% of the total) at less than US$3 million, 1 (8%) at US$3-1 million, (17%) at US$1-55 million and six (5%) above US$1 million. For the first time since 1, no transactions occurred in the Other Telecommunications Subsectors The deal volume for this subsector is usually a single digit figure with a relatively low value. The deal size of US$7 million in Q4 1, as small as it may seem, was a record high for the past two and a half years. However, H1 14 was the first time no transactions took place in these subsectors. Mobile Telecom Equipment and Terminals Figure 51: value by subsector in the Telecommunications sector Q1 14(US$m) $448 94% $ 6% Mobile Telecom Equipment and Terminals YoY comparison for Q1 14 volume value Mobile 118% 556% Telecom Equipment and Terminals Other Telecommunications Subsectors 1% 1,471% N/A N/A 3 MoneyTree TM China TMT Report Q1/Q 14