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Domestic venture capital (VC) firms still has a long way to go to catch up with their foreign counterparts, although they currently outnumber the latter.
These were the findings of the annual report by Zero2ipo.com Ltd, a major researcher in this area in China.
"In spite of the number of projects that have received investment from domestic VCs, they are still quite weak compared with foreign firms," said Kevin Ni, president of Zero2ipo.com.
According to the report, which was based on a survey by the company and China Venture Capital Association among 325 VC businesses in China in November, domestic companies invested US$198 million in 168 start-ups this year. Foreign counterparts poured US$209 million into 43 projects.
The capital that domestic VCs used was also less than foreign firms: 269 domestic companies controlling US$4.1 billion capital, while 38 foreign venture capitalists have invested US$5.9 billion on the Chinese mainland.
Due to limits of capital scale and a lack of management expertise, many domestic firms have chosen to invest in partnership with foreign counterparts. One of the most high profile was Legend venture capital's link up with US firm Warden International, said Kevin Ni.
"Foreign investment firms also showed strong interest in working with local businesses to share risks and networks," Ni added.
Following the depression in the high-tech sector worldwide, venture capitalists have become quite conservative, Ni stated.
Zero2ipo said there were only 34 firms that increased their capital in China by US$1.3 billion, including nine new venture capital companies.
The information technology sector, including telecommunications and semiconductors, continued to be the most heavily invested area, attracting US$239 million capital, about half of the total investment in the year.
But traditional sectors like medicine and manufacturing were also winning the hearts of venture capitalists, with US$40 million and US$25.5 million in investment respectively.
(China Daily December 18, 2002)
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