Venture Capital Report China 4Q 2018
The following report presents Dow Jones VentureSource s quarterly findings for Chinese venture capital fundraising, investment, valuation, and liquidity. The included charts and graphs offer a comprehensive view of the trends currently affecting the venture capital market. Highlights for 4Q 2018 include: Equity investment retreated from the second quarter s high point, but 2018 ended with the greatest annual total seen in any country on record. While U.S. investment jumped ahead of China in 4Q, on an annual basis Chinese funding exceeded the U.S. for the third consecutive year. Median equity deal sizes in China hit a new record at $12.3 million. VC fundraising was a mixed picture activity surged from the previous quarter, but not enough to prevent a 13% year-over-year decline. Liquidity markets endured wild fluctuations, with both M&As and IPOs down sharply in 4Q. However, on an annual basis in terms of both capital collected and deal flow, M&As had their best year ever; and IPOs experienced the best since 2010 in terms of amount raised. VC investment remained tightly concentrated in Beijing (38.8%) and Shanghai (17.4%) in amount raised. 2
EQUITY FINANCING IN CHINA DIPS IN 4Q, BUT ENDS 2018 WITH RECORD-BREAKING HAUL FINANCING Equity investment in 4Q retreated significantly from the record-breaking second quarter, but still contributed to a year that ended as the best ever for Chinese companies. In fact, the $139.72 billion raised across 3,725 deals in 2018 ranks as the largest annual total seen in any country, exceeding U.S. investment for the third consecutive year. Equity Financings into China-Based, VC-Backed Companies (2015 2018) Median round amounts set a new record in 4Q, hitting $12.3 million. This is nearly four times the annual median from 2016, indicating that the surge of investment is broad-based. The top deal of the quarter was a $3 billion round for Beijing-based Bytedance, the owner of Jinri Toutiao and Tik Tok, is currently valued at $78 billion. 3
VC DEAL FLOW IN CHINA-BASED, VC-BACKED COMPANIES, BY ROUND CLASS (2015 2018] FINANCING Number of Deals 4
VC INVESTMENT IN CHINA-BASED, VC-BACKED COMPANIES, BY ROUND CLASS (2015 2018) FINANCING Amount Raised ($B) 5
MEDIAN DEAL SIZE FOR CHINESE COMPANIES HITS NEW RECORD IN 4Q FINANCING Median Equity Deal Size ($M) 6
MAJOR SHIFT TOWARD BUSINESS & FINANCIAL SERVICES; HEALTHCARE SPARKS NEW INTEREST FINANCING Companies in the Business and Financial Services sector grabbed the largest share of funding in 4Q, confirming a major shift in industry focus in 2018. With 44% for the quarter and 41% for the year, it was the first time this group took first place since 2012. The top deal of the quarter in this space was a $1.44 billion growth equity round for Nanjing-based Financesn, a payment/transactional processing company. 4Q 2018 Industry Breakdown By Number of Deals Consumer Services came in second place in 4Q in terms of funding, but took the premier spot for deal flow. Bytedance had the largest round of the quarter in this sector (and the top deal for Chinese companies overall). Perhaps the most intriguing industry to watch is Healthcare, which soared 109% in funding and 33% in deal flow during 2018 compared to the previous year. While companies in this space still comprise a relatively small portion of overall VC activity, at 8.5%, there is a clear trend beginning in 3Q 2017 of heightened investor interest. 4Q 2018 Industry Breakdown By Amount Raised 7
TOP EQUITY DEALS FOR CHINA-BASED, VC-BACKED COMPANIES (4Q 2018) Company Formal Name Company Familiar Name Beijing Byte Dance Telecommunications Co. Bytedance Ltd. Suning Finance Service (Shanghai) Co. Ltd. Financesn Location Industry Code Industry Group Brief Description Close Date Beijing Nanjing General Media/Content Payment/Transacti onal Processing Consumer Services Business and Financial Services Provider of a personalized news aggregation and recommendation application. Provider of financial services. Round Type Raised ($M) 10/25/2018 VC 6 th $3,000.00 12/28/2018 Growth Equity $1,436.99 Round Investors (* denotes lead) Technology Crossover Ventures, Softbank Group Corp.*, Primavera Capital Group*, Kohlberg Kravis Roberts & Co. LP*, General Atlantic LLC* Zhongjin Zhida, Yunfeng Qitai, Suning Holdings Group Co. Ltd., Shenzhen Capital Group Co. Ltd., Qingdao Sishiren Investment Management LP, Qiaogeli Investment, Macrolink Group, Jiaxing Kunjia, Guangji Minghe, GP Capital Co. Ltd., Fujian Huaxing Venture Capital Shanghai Lujiazui International Financial Asset Exchange Co. Ltd. Lufax Shanghai Lending Business and Financial Services Provider of an online platform for financial asset exchange. 12/3/2018 VC 4 th $1,330.00 United Overseas Bank Ltd., UBS AG, SBI Holdings Inc., Qatar Investment Authority*, Primavera Capital Group*, Macquarie Group Ltd, LionRock Capital, JPMorgan Chase & Co., Hermitage Asia Capital Ltd., Hedosophia, Goldman Sachs Group Inc., All-Stars Investment Ltd. Beijing Yunshan Information Technology Co. Ltd. Meicai Beijing Business to Business Marketplaces Business and Financial Services Operator of an agricultural products business-to-business (B2B) e-commerce platform. 10/8/2018 VC 6 th $800.00 Tiger Global Management LLC*, Shunwei Capital Partners, Hillhouse Capital Management Ltd.* Hangzhou Netease Music Technology Co. Ltd. NetEase Cloud Music Hangzhou Movie/Music Producers and Distributors Consumer Services Provider of online digital music services. 10/12/2018 VC 2 nd $600.00 General Atlantic LLC, China Everbright Ltd., Boyu Capital Advisory Co. Ltd., Bertelsmann Asia Investment, Baidu Inc.* 8
MOST ACTIVE INVESTORS IN CHINA-BASED, VC-BACKED COMPANIES (4Q 2018) FINANCING Number of Deals 9
STRONG FINISH FOR CHINESE VC FUNDRAISING IN 4Q, BUT STILL DOWN FOR THE YEAR FUNDRAISING Chinese fundraising presented a mixed picture in 2018. After starting the year with the weakest quarter since 2Q 2013, VCs achieved a powerful finish in 4Q, raising $4.57 billion across 19 funds. Despite this, overall fundraising ended the year down 13% compared to 2017. Chinese VC Fundraising (2015 2018) Based on multiple closings Strikingly, 2018 saw a continuation of the trend toward dramatically larger average fund sizes. In 2011, the average fund was around $97 million; by 2018, that figure jumped to $240 million an increase of nearly 150% in just 7 years. The top fund of the quarter was Hong Kong-based DCP Capital Partners LP, securing $1.56 billion in its first close. 10
TOP CHINESE VC FUND CLOSINGS IN 4Q 2018 FUNDRAISING Firm Name Fund Name Amount ($M) Closed in 4Q Location Offering Status Fund Type Closing Type DCP Capital Partners LP DCP Capital Partners LP $1,557.05 Hong Kong Open Early-Stage Venture Capital First Morningside Group (Holdings) Ltd. Morningside USD Technology Fund $1,000.00 Hong Kong Closed Early-Stage Venture Capital Final Gaorong Capital Gaorong Partners Fund IV LP $500.00 Beijing Closed Multi-Stage Venture Capital Final Fortune Venture Capital Co. Ltd. Shenzhen Fortune Chuangtong Equity Investment $471.84 Shenzhen Closed Multi-Stage Venture Capital Final Legend Capital Co. Ltd. Legend Information Technology Fund $256.64 Beijing Open Multi-Stage Venture Capital First 11
M&A MARKET PLUNGES IN 4Q, BUT 2018 OVERALL SETS ALL-TIME RECORDS LIQUIDITY China VC-Backed M&A Activity (2015-2018) Following the overheated second and third quarters, M&A activity swiftly fell back to earth in 4Q with $3.44 billion paid in 18 deals. While the amount was 26% below the 5-year quarterly average, the number of transactions was still quite high by historical standards the third-largest on record, in fact. Despite the wild quarterly gyrations, 2018 as a whole set new records for both the number of M&A s and the total amount paid on an annual basis. 12
TOP CHINA M&As (4Q 2018) LIQUIDITY Company Name Location Brief Description Industry Code Industry Segment Industry Group Acquirer Close Date Round Type Amount Paid ($M) Beijing InMyShow Technology Co. Ltd. Beijing Operator of a new media platform. General Media / Content Media and Content Consumer Services Guangxi Fortune Technology Co. Ltd. 12/3/2018 Reverse Merger $653.61 Inner Mongolia Mining Asset Management Co. Ltd. Hohhot Provider of a mineral resources exploration and development platform for non-ferrous metals. Mining (Non-Energy) Materials and Chemicals Industrial Goods and Materials Zhongjin Gold Co. Ltd. 11/23/2018 Acquisition $653.04 1More Acoustics Technology Co. Ltd. Shenzhen Manufacturer of accessories for digital equipment. Electronic Components / Devices Electronics and Computer Hardware Information Technology Gettop Acoustic Co. Ltd. 12/4/2018 Acquisition $488.58 13
VOLATILE IPO MARKET SWINGS BACK DOWN IN 4Q, BUT STILL ACHIEVES BEST YEAR SINCE 2010 LIQUIDITY Chinese VC-Backed IPO Activity (2015-2018) After vaulting into the stratosphere the previous quarter, the Chinese IPO market fell hard in 4Q, raising just $2.97 billion across 21 offerings. While this was the lowest quarterly amount raised in almost two years, on an annual basis it was the most raised for VC-backed companies since 2010, with a total of $26.74 billion. On the flip side, the number of IPOs completed in 2018 was the lowest figure in five years. Shenzhen Mindray Bio-Medical Electronics (dba Mairui Biomedical) had 4Q s top IPO, raising $863.91 million with a valuation of $8.64 billion. 14
TOP CHINA IPOs (4Q 2018) LIQUIDITY Company Name Location Brief Description Industry Code Industry Segment Industry Group Close Date Raised through IPO ($M) Exchange Shenzhen Mindray Bio-Medical Electronics Co. Ltd. (dba Mairui Biomedical) Shenzhen Provider of medical instruments. Surgical Devices Medical Devices and Equipment Healthcare 10/16/2018 $863.91 SZSE: 300760 Innovent Biologics Inc. Suzhou Provider of monoclonal antibodies. Biotechnology Therapeutics Biopharmaceuticals Healthcare 10/30/2018 $421.82 HKEX: 1801 China Great Wall Securities Co. Ltd. Shenzhen Provider of security brokerage, trading, and financial advisory services. Retail Investment Services / Brokerages Financial Institutions and Services Business and Financial Services 10/26/2018 $285.09 SZSE: 002939 15
ABOUT US Dow Jones VentureSource helps venture capitalists, corporate development executives, investment bankers and service providers find deal and partnership opportunities, perform comprehensive due diligence and examine trends in venture capital investment, fund-raising and liquidity. It provides accurate, comprehensive data on venture-backed companies including their investors and executives in every region, industry and stage of development throughout the world. The investment figures included in this release are based on aggregate findings of Dow Jones' proprietary research and are contained in VentureSource. This data was collected through surveys of professional firms, interviews with company executives, and from secondary sources. These venture capital statistics cover equity investments into early stage, innovative companies, and do not include companies receiving funding solely from corporate, individual, and/or government investors. Figures contained throughout the report current at time of editorial but are subject to change without notice. No statement herein is to be construed as a recommendation to buy or sell securities or to provide investment advice. 16
ABOUT DOW JONES Dow Jones is a global provider of news and business information, delivering content to consumers and organizations around the world across multiple formats, including print, digital, mobile and live events. Dow Jones has produced unrivaled quality content for more than 125 years and today has one of the world s largest newsgathering operations globally. It produces leading publications and products including the flagship Wall Street Journal, America s largest newspaper by paid circulation; Factiva, Barron s, MarketWatch, Financial News, DJX, Dow Jones Risk & Compliance, Dow Jones Newswires, and Dow Jones VentureSource. MEDIA CONTACT: Toby Doman + 852 2831 2583 toby.doman@dowjones.com 17