With all the talk of Facebook's IPO, it's easy to miss some interesting news -- namely, that China has become a global center for startups, especially startups in the Internet and IT sectors. (See: The Facebook IPO: An Executive Take.)
But that's just what Dow Jones VentureSource reported today. "Thanks to a growing economy and strong exit environment, venture capitalists have shown significant interest in funding Chinese companies," said Guido Schenk, sales director, Dow Jones VentureSource, in a statement.
According to the research firm, Chinese IT firms garnered US$849 million in VC funding in 2011, up 35 percent year-on-year.
Within China's IT industry, software firms led the charge: VCs completed 36 deals worth a total of $636 million, up 24 percent over 2010 in terms of deals done and more than double the dollar amount raised in that year.
Dow Jones VentureSource reports that in 2011, Chinese firms overall garnered $6 billion in VC funding, surpassing only the US in equity recipients last year. VCs finalized 332 VC financing rounds, compared to 274 for former second-placer the UK. The US continued to lead in 2011 with 3,209 deals.
The size of individual VC deals in China was larger than that in other countries. The median size of a VC deal in China last year was $12.4 million, compared to the median deal size in Europe of $2.7 million and $5 million in the USA.
According to a Dow Jones VentureSource spokesperson, the largest deal in 2011 for a China-based IT company was $250 million in a round raised by online video company Synacast Corp.
The news comes amid ongoing woes in the European markets and slowdowns in equity worldwide. There also has been concern in China that foreign investment may undermine domestic corporate control.
The picture, though, isn't all rosy. Despite the fact that Chinese software startups were strongly funded, just seven deals were done in the electronics and computer hardware sector -- a 65 percent decline from the previous year. Further, investment in hardware was down by half to $82 million in 2011.
Further, only a small number of deals -- five, to be exact -- accounted for just over half of all VC funding in IT.
And the exit strategy for IT startups isn't all that great. Indeed, overall the IPO situation in China worsened last year. According to a separate report from China's Zero2IPO Research Center, the total number of IPOs by Chinese companies in 2011 was down nearly one third to 324.
Still, IT startups in China continue to be the focus of worldwide attention, given the country's voracious appetite for the Internet and technology in general. (See: The Titans of Silicon Valley: Words of Wisdom From Real World Venture Capitalists.) And it's clear from recent research that what unfolds in the People’s Republic could affect the state of IT innovations worldwide.
— Mary Jander , Managing Editor, Internet Evolution