PricewaterhouseCoopers Zhong Tian LLP MoneyTree TM China TMT Report Q1/Q2 217 Data source: Zero2IPO Research This MoneyTree TM China Telecommunications, Media and Technology (TMT) Report for Q1/Q2 217 includes information on private equity and venture capital (PE/VC) investment in the TMT industry for 217, 216, 215, and 214. www.pwccn.com www.pwc.com/globalmoneytree
Contents 1. Overview 1 2. PE/VC investments in the TMT industry 2 TMT industry investments compared with all industries 2 Investments by quarter 5 Investments by sub-sector 7 First-round funding compared with follow-on funding 11 Investments by stage of development 13 Investments by region 16 3. PE/VC exits in the TMT industry 17 Exits by quarter 17 Exits by type 18 Exits by sub-sector 2 4. Methodology and definitions 21 5. Contacts 24
1. Overview In the first half (H1) of 217, the China TMT industry experienced one high point after another with bicycle sharing becoming popular, social gaming continuing to expand, and short video gaining momentum. After the slight drop in the second half (H2) of 216, private equity and venture capital (PE/VC) investments in the TMT industry rebounded significantly in value and volume in H1 217. Significant financing transactions of Unicorn companies took place again in H1 of 217. In H1 217, the number of deals in the TMT industry hit a record six- month high since we began tracking the data in 214, validating investors belief that TMT is the most active among all sectors in China. The TMT industry accounted for more than half of overall industry investment value in H1 217. The total TMT deal value in H1 217 increased over H2 216, and was second only to the all-time high recorded in H1 216. By and large, first-round investments accounted for the majority of investments in the TMT industry in H1 217, with the average value of a single deal increasing slightly over H2 216. H1 217 witnessed 49 investments each valued at more than US$1 million, remaining at the high end since 214. The total amount of such investments in H1 217 rose approximately by 5% over H2 216 with the biggest investment in a Unicorn valuing US$5.5 billion, illustrating that leading enterprises with stable business performance in sub-sectors still attract great attention in the capital market. First-round investments in H1 217 represented more than 5% of the total with the deal value of first-round investments rising slightly over H2 216. From this we could say that the further promotion of the mass entrepreneurship and innovation fixes some investors eyes on innovation and entrepreneurship projects. Seen from historical data since 214, firstround investments almost bottomed in H1 217 in both number and value due to investors conservative attitude towards innovation and entrepreneurship projects featuring mediocre quality and high risk. On the one hand, great innovation and entrepreneurship projects are of only limited number; on the other hand, investors have become more prudent when assessing the prospects of innovation and entrepreneurship projects that have been sought after for quite a while before, and they now tend to invest in new promising projects or those that have cut a figure in the market. Internet and Mobile Internet remained the most attractive sub-sector in TMT. With sharing services penetrating into everyone s daily life and short videos and social platforms increasing in popularity, Internet and Mobile Internet attracted heavy investments. Entertainment and Media grew steadily. E-Sports, video production and some other sub-sectors attracted extensive attention due to the constant increasing entertainment spendings. In H1 217, the IPO remained the principal method of capital exit from the TMT industry due to the vibrant A-share market and a faster IPO review process. However, the proportion of exits through IPO in H1 217 was lower than in H2 216. Lots of enterprises with new business models emerge in the TMT industry in recent years. While, these new business models confront great challenges from the strict regulations in the domestic market and their own profitability issues, which increases the difficulty of IPO exits for the investments in such entities. Listing IPOs on Chinese exchanges continued as the most common approach in H1 217, especially on China Growth Enterprise Market because the review process is quite short. In H1 217, the TMT industry grew steadily while also struggling from fast changing market and customer requirements. The need for larger amounts of capital also raised investment risks. This report brings you the details of the PE/VC investments and exits in the TMT industry and its four major sub-sectors for H1 217, serving as an update on the key trends and trajectories shaping TMT industry investments. We welcome the opportunity to discuss the implications of this report with you, and encourage you to contact us with any queries. Wilson Chow PwC Global TMT Leader Jianbin Gao PwC China TMT Leader 1 MoneyTree TM China TMT Report
2. PE/VC investments in the TMT industry TMT industry investments compared with all industries PwC Viewpoints In H1 217, the total value of all industry investment rose from H2 216, with deal value rebounding to its second highest level since we began tracking the data in 214. The highest on record was in H1 216. The first half of each year has always been higher than the second half and H1 217 kept this trend. In H1 217, there were over 4,3 deals - was less than H2 216, but still kept at a high level. TMT accounted for 54% of total deal value and 36% of total deal volume for overall industry investments. By quarter: After a decrease in Q4 216, total TMT deal value in Q1 217 nearly doubled over Q4 216, to US$ 15.37 billion, 49% of overall industry investment. In Q2 217, total TMT deal value remained stable at US$15.38 billion, accounting for 6% of overall industry investment. Total TMT deal volume rebounded to the high level in Q1 217, accounting for 45% of overall industry investment, but fell back in Q2 217, accounting for 27% of overall industry investment. Overall PE/VC investments in China picked up significantly in H1 217 over H2 216. Total deal value in Q1 217 amounted to US$ 31.33 billion, second only to Q2 216 since we began tracking in 214. Investors were more prudent in Q2 217 than in Q1 217, but their confidence in the TMT industry remained high. The TMT deal value in a single quarter accounted for more than half of overall industry investment. TMT deal value in Q2 217 equaled Q1 217 and remained at a histrocial high level, which accounted for 6% of overall industry investment. The largest single value of any deal in H1 217 was US$5.5 billion, a record high. Leading enterprises with stable business performance in sub-sectors still attract great attention in the capital market. MoneyTree TM China TMT Report 2
Overall PE/VC investments In Q1 217, there were 2,91 PE/ VC investments with total value of US$31.33 billion. Compared to Q4 216, total deal volume fell 44% and total deal value increased 13% in Q1 217. In Q2 217, there were 2,32 PE/VC Investments with total value of US$ 25.55 billion. Compared to Q1 217, total deal volume rose 1% and total deal value decreased 18% in Q2 217. Figure 1: Comparison of total PE/VC investments and TMT investments - Q3 214 - Q2 217 (Deal value) US$m 5, 4, $41,25 Overall PE/VC investments US$ billion Q1 17 Q2 17 $31,328 3, $27,742 $24,176 $25,632 $25,551 $21,14 $18,584 $2,51 $2,366 2, $16,84 $15,325 $17,19 $15,383 $13,289 $13,936 $15,371 $11,23 1, $8,577 $8,957 $7,913 $5,137 $5,723 $3,865 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 PE/VC funding in all industries PE/VC funding in TMT industry PE/VC funding in all industries 31.33 217Q1 vs216q4 13% 25.55 Q2vsQ1-18% Q1 17 Q2 17 PE/VC deal volume in all industries 2,91 217Q1 vs216q4 Q2vsQ1-44% 2,32 1% 3 MoneyTree TM China TMT Report
PE/VC investments in the TMT industry In Q1 217, there were 951 PE/VC investments in TMT, accounting for 45% of PE/VC investments in all industries in the quarter, and up 73% from Q4 216. The Q1 217 deal value was US$ 15.37 billion, up 94% from Q4 216, and accounted for 49% of the Q1 overall PE/VC investments. In Q2 217, there were 631 PE/VC investments in TMT, accounting for 27% of PE/VC investments in all industries in the quarter, and down 34% from Q1 217. The Q2 217 deal value was US$15.38 billion, about the same as Q1, and 6% of the Q2 overall PE/VC investments. Figure 2: Comparison of total PE/VC investments and TMT investments - Q3 214-Q2 217 (Deal volume) 4, 3,5 3,721 3, 2,5 2, 1,814 2,486 2,379 2,75 1,927 2,91 2,32 PE/VC investments in the TMT industry US$ billion Q1 17 PE/VC funding Q2 17 15.37 15.38 217Q1 Q2vsQ1 vs216q4 1,5 1, 4 1,242 1,41 954 927 951 618 716 593 577 717 481 634 551 631 466 429 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 PE/VC deal volume in all industries PE/VC deal volume in the TMT industry PE/VC funding in all industries 94% Q1 49% % 6% Q2 Q1 17 Q2 17 PE/VC deal volume PE/VC deal volume in all industries 951 217Q1 Q2vsQ1 vs216q4 73% 631-34% 45% 27% Q1 Q2 MoneyTree TM China TMT Report 4
Investments by quarter Total deal value and deal volume rose in Q1 217 In Q1, TMT deal value and deal volume rose sharply over the previous quarter with the average single-deal value rising by 21% quarter over quarter. The number of investments valued at more than US$1 million reached 27, compared to 19 in Q4 216, and second only to Q3 216 (33), the highest since we began tracking this data in 214. The total value of investments valued at more than US$1 million each was US$11.2 billion in Q1, 73% of overall TMT investment. The highest single-deal value was US$ 1.78 billion. In Q2 217, deal volume declined, but the total deal value of investments valued at more than US$1 million each set a record In Q2, TMT deal volume declined by 34% from Q1, but deal value was almost unchanged, with the average deal value rising by 36% quarter over quarter. The number of investments valued at more than US$1 million was 22, and the total value of investments valued at more than US$1 million each was US$11.16 billion in Q2, 73% of overall TMT investment. A sharing commuting service company received US$5.5 billion, the highest single-deal value and a record since we began tracking this data in 214. 5 MoneyTree TM China TMT Report
Figure 3: TMT investments by quarter - Q3 214 - Q2 217 US$m Deal volume 25, 954 927 951 1, 2, 15, 716 $13,289 $2,51 $17,19 $13,936 717 $15,371 $15,383 8 1, $8,577 $8,957 634 577 $5,137 $5,723 5, $3,865 481 466 429 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 $7,913 631 551 Q4 16 Q1 17 Q2 17 6 4 Deal value Deal volume Figure 4: Volume of TMT investments with single value over US$1 million - Q3 214-Q2 217 35 33 3 27 25 2 19 2 21 22 23 19 22 15 1 7 9 11 5 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 PwC Viewpoints After the capital winter in H2 216, deal value and volume in the TMT industry rebounded in H1 217 with deal volume rising to 1,582, a new half-year record. Clearly, investors continue to place their confidence in the TMT industry. The total value of single investments valued at more than US$1 million each in H1 217 rose 5% over H2 216, 7% of overall TMT investment, and the highest single-deal value since 214 occurred in the period. All these lead to one conclusion: Unicorns with stable business performance in sub-sectors are quite attractive to the market and will have their business and value promoted with the constant inflow of capital. There were 1,5 individual investments valued at less than US$1 million each in H1 217 with the total deal value of these investments more than US$ 4. billion for each of the quarters. Investors are still seeking the next Unicorn and the polarization of market investment will remain for quite a while. MoneyTree TM China TMT Report 6
Investments by sub-sector The TMT sub-sectors are Technology, Internet and Mobile Internet, Telecommunications, and Entertainment and Media. Mobile Internet has been included in Internet since 217 as Internet and Mobile Internet. We updated investment data by sector in 216 based on this new classification. Internet and Mobile Internet: Internet and Mobile Internet was the hottest investment sector in the TMT industry in H1 217. Deal value totaled US$ 21.31 billion, up 11% over H2 216. Deal volume declined by 21% from H2 216, but single-deal value rose compared to H2 216. H1 217 saw 33 investments valued at more than US$1 million each, including 3 valued at more than US$ 1 billion each. Investment in a sharing commuting service platform marked the highest single-deal value at US$ 5.5 billion. Technology: Deal value and volume in Technology were second only to Internet and Mobile Internet. In H1 217, deal volume and deal value increased by 52% and 56% respectively over H2 216. Deal volume was 346 and deal value was US$ 4.7 billion in Q1 217, both historical highs for the sub-sector since 214. Deal value fell to US$ 2.6 Figure 5: Deal value comparison in TMT sub-sectors - Q3 214-Q2 217 US$m 25, billion in Q2 217, but deal volume stood still at a high level of 227 deals. H1 217 had 12 investments valued at more than US$1 million each, with the highest single-deal value at US$ 1.78 billion. Telecommunications: In H1 217, deal value rose sharply by 411% over H2 216 to US$ 942 million, and deal volume increased by 139% over H2 216. The single- deal value increased by 2% over H2 216 with the highest amounting to US$ 68 million. Entertainment and Media: Deal value amounted to US$ 1.83 billion in H1 217, a 4% increase over H2 216. Deal volume in H1 217 grew to 237, a 45% increase over H2 216. Volume in Q1 stood at 146, the highest since 214. As there was no significant investment in H1 217, average-singledeal value in both Q1 and Q2 remained stable. H1 217 had only three investments valued at more than US$1 million each, ranging in value from US$ 1 million to US$ 16 million. Among the 27 investments valued at more than US$1 million each in Q1 217, 67% were in Internet and Mobile Internet, 22% were in Technology, 7% were in Entertainment and Media, and 4% were in Telecommunications. Among the 22 investments valued at more than US$1 million each in Q2 217, 68% were in Internet and Mobile Internet, 27% were in Technology, and 5% were in Entertainment and Media. 2, 15, $13,288 $13,936 $2,51 $17,19 $15,371 $15,383 1, 5, $3,865 $5,137 $8,577 $8,957 $5,718 $7,913 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Technology Telecommunic- ations Internet and Mobile Internet Entertainment and Media 7 MoneyTree TM China TMT Report
PwC Viewpoints A great number of Unicorns received financing in H1 217, arousing enthusiasm in investors and increasing both deal value and deal volume. Internet and Mobile Internet remained the most attractive sub-sector in TMT, driven by trends in sharing services penetrating everyone s daily lives, and short videos and social platforms increasingly popular. Entertainment and Media growth was steady. As video production enterprises attracted extensive investments with continued growth in consumption in entertainment. E- sports also became popular, and with the rapid development of games on mobile devices, investors were also draw to companies undertaking game live, game related products, etc. Figure 6: Deal volume comparison of TMT sectors - Q3 214-Q2 217 6 5 4 3 2 1 585 487 57 435 316 37 335 245 269 228 27 239 224 152 154 153 125 136 112 113 15 117 18 94 119 61 78 15 1 15 1 2 31 45 5 55 26 67 24 8 434 295 346 227 146 91 25 18 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Internet and Mobile Internet Telecommunications Technology Entertainment and Media MoneyTree TM China TMT Report 8
Q1 217 Total deal volume in the TMT industry reached 951 deals, with a total investment value of US$ 15.37 billion. Deal volume by sub-sectors Internet and Mobile Internet: 434 deals, 46% of the total Technology: 346 deals, 36% of the total Entertainment and Media: 146 deals, 15% of the total Telecommunications: 25 deals, 3% of the total Figure 7: Deal volume in TMT sectors - Q1 217 146 15% 346 36% 25 3% 434 46% Deal value by sub-sectors Internet and Mobile Internet: US$ 9.57 billion, 62% of the total Technology: US$ 4.7 billion, 26% of the total Entertainment and Media: US$ 1.3 billion, 7% of the total Telecommunications: US$.69 billion, 5% of the total QoQ comparison between Q1 217 and Q4 216 Deal volume Deal value Technology 126% 275% Internet and Mobile Internet 3% 51% Telecommunications 213% 65% Entertainment and Media 165% 159% Internet and Mobile Internet Technology Entertainment and Media Telecommunications Figure 8: Deal value in TMT sectors - Q1 217 (US$m) $1,34 7% $4,74 26% $689 5% $9,574 62% Internet and Mobile Internet Technology Entertainment and Media Telecommunications 9 MoneyTree TM China TMT Report
Q2 217 Total deal volume for the TMT industry reached 631 deals, with a total investment value of US$ 15.38 billion. Deal volume by sub-sectors Internet and Mobile Internet: 295 deals, 47% of the total Technology: 227 deals, 36% of the total Entertainment and Media: 91 deals, 14% of the total Telecommunications: 18 deals, 3% of the total Figure 9: Deal volume in TMT sectors - Q2 217 91 14% 227 36% 18 3% 295 47% Deal value by sub-sectors Internet and Mobile Internet: US$ 11.73 billion, 76% of the total Technology: US$ 2.6 billion, 17% of the total Entertainment and Media: US$.8 billion, 5% of the total Telecommunications: US$.25 billion, 2% of the total Internet and Mobile Internet Technology Entertainment and Media Telecommunications Figure 1: Deal value in TMT sectors - Q2 217 (US$m) $798 5% $2,599 17% $253 2% QoQ comparison between Q2 217 and Q1 217 Deal volume Deal value Technology -34% -36% Internet and Mobile Internet -32% 23% Telecommunications -28% -63% $11,733 76% Entertainment and Media -38% -23% Internet and Mobile Internet Technology Entertainment and Media Telecommunications MoneyTree TM China TMT Report 1
First-round funding compared with follow-on funding Q1 217 A total of 481 enterprises in the TMT industry received first-round funding, 52% of disclosed investment volume in the TMT industry in Q1 217, up 6 percentage points over Q4 216. Deal value of first-round funding was US$2.4 billion, 16% of the total deal value in TMT and up 3 percentage points over Q4 216. Q2 217 A total of 352 enterprises in the TMT industry received first-round funding, 56% of disclosed investment volume in the TMT industry in Q2 217, up 4 percentage points over Q1 217. Deal value of first-round funding was US$2.31 billion, 15% of the total deal value in TMT and down 1 percentage point from Q1 217. Figure 11: TMT follow-on funding compared with first-round funding Q3 214-Q2 217 1% 9% 8% 7% 6% 5% 67% 63% 61% 58% 78% 73% 65% 6% 62% 46% 52% 56% PE/VC investments in the TMT industry 4% 3% 2% 1% Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 First-round funding Follow-on funding US$ billion Deal value (The number of rounds disclosed) Q1 17 First-round funding 2.4 Total deal value 12.79 16% Q2 17 First-round funding 2.31 Total deal value 15.37 15% Deal volume (The number of rounds disclosed) Q1 17 First-round funding 481 Total deal value 919 52% Q2 17 First-round funding 352 Total deal value 626 56% 11 MoneyTree TM China TMT Report
Q1 217 Enterprises receiving first-round funding, by sub-sector: Internet and Mobile Internet: 227 enterprises, with US$ 1.8 billion in total funding; Technology: 169 enterprises, with US$.76 billion in total funding; Entertainment and Media: 84 enterprises, with US$.19 billion in total funding; Telecommunications: 1 enterprise, with US$.4 billion in total funding; For first-round funding, 32 enterprises were at the early stage, accounting for 63%; 19 enterprises were at the expansion stage, accounting for 23%, and 7 enterprises were at the late stage, accounting for 14%. Q1 217 193 16 2 51 First-round funding (US$) Number of enterprises <= 1M 185 1M-5M 224 >5M-1M 43 >1M 29 Q2 217 Enterprises receiving first-round funding by sector: Internet and Mobile Internet: 193 enterprises, with US$ 1.12 billion in total funding; Technology: 16 enterprises, with US$.79 billion in total funding; Entertainment and Media: 51 enterprises, with US$.4 billion in total funding; Telecommunications: 2 enterprises, with US$.3 billion in total funding; For first-round funding, 245 enterprises were at the early stage, accounting for 7%; 87 enterprises were at the expansion stage, accounting for 25%, and 2 enterprises were at the late stage, accounting for 5%. Q2 217 169 227 First-round funding (US$) Number of enterprises <= 1M 14 1M-5M 183 >5M-1M 27 >1M 38 1 84 PwC Viewpoints After hitting bottom in Q4 216, first-round funding rebounded in H1 217 to represent more than 5% of the total with deal value rising slightly over H2 216. With the further developement of the government policy on mass entrepreneurship and innovation, new innovation and entrepreneurship projects attract attention of certain investors. While, telling from the historical data since 214, first-round investments were at a low level in 217 in terms of both volume and value due to investors conservative attitude towards such projects considering their low project quality and high risk of investment failure. On the one hand, the number of good innovation and entrepreneurship projects is limited; on the other hand, investors are more prudent when assessing the prospects of such projects after the great attention on such kind of projects a while ago. They now tend to invest in the new projects with promising future that can be expected and the ones that proved to be successful in the market. Internet is the main battle field of the Chinese entrepreneurs. In H1 217, Internet and Mobile Internet took the lead in both deal value and volume of first round funding in all sub-sectors. For the other subsectors, Technology soared a lot and Entertainment and Media also began to take off. As the increase in subscriber number slows down, investors are now seeking the next potential high growth sub-sector in the TMT industry. MoneyTree TM China TMT Report 12
Investments by stage of development Early stage - both deal value and volume declined in H1 217 Among the four investment stages, the deal volume for early-stage accounted for less than 5% of the total, down 17% from H2 216. Deal value also declined dramatically by 49% over H2 216. H1 217 had one investment valued at more than US$5 million. Specifically, US$6 million to a bicycle sharing company. Expansion stage - deal value for maintained at a high level in H1, and six-month deal volume set a new record Deal value for expansion-stage investments hit a historic high in H1 217 due to one Unicorn investment valued at US$5.5 billion in Q2. H1 217 saw 542 investments, accounting for more than 3% of the total, the highest level since 214. Figure 12: TMT investments by stage of development - Q3 214-Q2 217 (Deal value) 百万美元 25, 2, 15, 1, 5, $3,865 $5,137 $8,577 $8,957 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Early stage $13,289 $5,723 $13,936 Expansion stage $2,51 $17,19 Late stage $7,913 $15,371 $15,383 Q4 16 Q1 17 Q2 17 PIPE Figure 13: TMT investments by stage of development - Q3 214-Q2 217 (Deal volume) 8 7 6 5 4 3 2 1 314 312 544 367 63 272 232 231 193 213 181 187 149 122 129 133 92 19 119 99 62 65 75 57 62 73 21 17 29 6 5 4 12 1 25 16 25 36 5 15 7 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 477 371 598 28 Early stage Expansion stage Late stage PIPE 417 329 311 Late stage - deal value and volume shot up in H1 217 Deal value in H1 217 rose 16% over H2 216, when a renowned online-tooffline (O2O) e-commerce platform attracted US$1.1 billion in Q1. In H1 217, deal volume of late stage investments rose by 112% over H2 216. Q1 217 alone had 187 investments, 2% of the total and a historic high since 214. PIPE - investments in PIPE maintained at a high level in Q1 but slumped in Q2 Deal value and volume remained at high levels in Q1, but fell sharply in Q2. Q1 217 saw 15 investments in PIPE with total deal value reaching about US$4 billion, boosted by 5 investments valued at more than US$1 million each, including an investment of US$ 1.78 billion in a technology-oriented auto company. 13 MoneyTree TM China TMT Report
Q1 217 Total deal volume in the TMT industry was 951 deals, with a total deal value of US$ 15.37 billion. Deal volume by stage of development: Early stage: 417 deals, 44% of the total Expansion stage: 329 deals, 35% of the total Late stage: 187 deals, 2% of the total PIPE: 15 deals, 1% of the total Deal value by stage of development: Early stage: US$ 2.8 billion, 18% of the total Expansion stage: US$ 5.89 billion, 38% of the total Late stage: US$ 2.87 billion, 19% of the total PIPE: US$ 3.81 billion, 25% of the total Figure 14: Deal volume in TMT industry by stage of development - Q1 217 Figure 15: Deal value in TMT industry by stage of development - Q1 217 (US$m) 187 2% 15 1% 2,796 18% 417 44% 5,891 38% 2,87 19% 329 35% Early stage Expansion stage Late stage PIPE 3,86 25% Early stage Expansion stage Late stage PIPE QoQ comparison between Q1 217 and Q4 216 Early stage Expansion stage Deal volume Deal value 49% -9% 7% 17% Late stage 156% 135% PIPE 2% 44% MoneyTree TM China TMT Report 14
Q2 217 Total deal volume in the TMT industry was 631 deals, with a total deal value of US$ 15.38 billion. Deal volume by stage of development: Early stage: 311 deals, 49% of the total Expansion stage: 213 deals, 34% of the total Late stage: 99 deals, 16% of the total PIPE: 7 deals, 1% of the total Deal value by stage of development: Early stage: US$ 3.43 billion, 22% of the total Expansion stage: US$ 9.55 billion, 62% of the total Late stage: US$ 1.97 billion, 13% of the total PIPE: US$.43 billion, 3% of the total Figure 16: Deal volume in TMT industry by stage of development - Q2 217 7 1% Figure 17: Deal value in TMT industry by stage of development - Q2 217 (US$m) $428 3% 99 16% $1,969 13% $3,434 22% 213 34% 311 49% $9,551 62% Early stage Expansion stage Late stage PIPE Early stage Expansion stage Late stage PIPE PwC Viewpoints Deal value of investments in enterprises at expansion stage and late stage returned to peak level in H1 217, especially when a significant investment was made in Q2 into a leading enterprise at its late stage. Investors are clearly interested in investing in enterprises that survive market challenges and price competition. However, the risk of significant investments in these enterprises should never be ignored because it is not rare that some went bankruptcy before generating a return on the investment. As for the biggest investments the Unicorns it is important to remember they are under considerable impact from the regional business cycle because they primarily provide services to customers in China. As well, the laws and regulations in sectors where many Unicorn companies are doing business are not mature or completed, which puts these companies under potential risks. QoQ comparison between Q2 217 and Q1 217 Early stage Expansion stage Deal volume Deal value -25% 23% -35% 62% Late stage -47% -31% PIPE -53% -89% 15 MoneyTree TM China TMT Report
Investments by region Figure 18: The top five regions for TMT investments in Q1/Q2 217 (Deal volume/deal value) Deal volume 5, 1, 15, 2, 25, 3, Beijing 582 $18,72 Shanghai 25 $3,173 Shenzhen 169 $1,228 Zhejiang 128 Province Guangdong 8 Province (excluding Shenzhen) $688 $2,539 PwC Viewpoints Looking at investments by region, deal volume and deal value in Beijing were both far above other areas in H1 217. Beijing remained the core area for the Chinese TMT industry, and chances for other regions to overtake Beijing are slim in the short run. Judged by deal volume, Shanghai secured the second spot, followed by Shenzhen. Shanghai and Zhejiang ranked second and third respectively in deal value, which was mainly attributable to more high value single deals. MoneyTree TM China TMT Report 16
3. PE/VC exits in the TMT industry Exits by quarter Q1 and Q2 217 recorded 35 and 15 exits respectively. As such, H1 217 with 5 exists total saw a 25% decline in exits from 67 exits in H2 216. Figure 19: Exit volume in the TMT industry - Q3 214-Q2 217 8 7 69 6 53 5 46 46 47 4 35 3 2 17 2 23 26 2 15 1 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 PwC Viewpoints Exit volume in H1 217 declined from H2 216. In H1 217, IPOs remained the principal way of capital exits due to the vibrant A share market and a faster IPO review process. However, the proportion of IPO exits to the total dropped in H1 217 from that in H2 216. Lots of enterprises with new business models emerge in the TMT industry in recent years. While, these new business models confront great challenges from the strict regulations in the domestic market and their own profitability issues, which increases the difficulty of IPO exits for the investments in such entities. Analysed by sector, exits from Technology and Telecommunications were primarily done through IPOs while fewer IPO exits were seen from Internet and Mobile Internet. Chinese stock markets remained the main choice for listings in H1 217, especially the ChiNext of Shenzhen Stock Exchange in Q1 due to its faster review process. 17 MoneyTree TM China TMT Report
Exits by type Figure 2: TMT exit trends by type - Q3 214 - Q2 217 8 7 6 5 4 3 2 7 14 2 32 25 8 2 29 28 1 2 19 1 11 4 1 6 5 5 1 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 IPO Strategic sales Management buy-outs (repurchase included) 1 19 8 15 13 3 12 2 18 31 16 Secondary sales 16 9 6 1 7 Q4 16 Q1 17 Q2 17 2 IPO remained the principal method of capital exit from the TMT industry with 44% of all exists in H1 217. In Q1 217, 46% of exits were via IPO, also first, but in Q2 217, the IPO fell to second place at 4%. In Q2, strategic sales edged out the IPO as the most common method of capital exit with 47% of the total. For H1 217, strategic sales accounted for 34% of exists, second overall. In H1 217, secondary sales came back in the picture with 22% of exits from the TMT industry. There were no management buy-outs in H1 217. Deal volume IPO 217Q1 16 46% 217Q2 6 4% Strategic sales 1 29% 7 47% Management buy-outs (repurchase included) Secondary sales 9 2 25% 13% MoneyTree TM China TMT Report 18
Listed company Deal volume Shanghai Stock Exchange ChiNext of Shenzhen Stock Exchange SME Board of Shenzhen Stock Exchange NYSE Q1 217 4 11 1 Q2 217 3 1 2 Figure 21: Comparison of TMT IPOs in Mainland China, Hong Kong and US capital markets - Q3 214-Q2 217 25% 25% 5% 14% 29% 57% 14% 86% 1% 1% 8% 1% 9% 29% 71% Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 5% 8% 5% 3% 6% 1% 33% 1% 92% 67% 89% 87% 94% Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Mainland China Hong Kong The United States Impacted by the rise in the rejection of the IPO applications by the regulator, fewer exits were completed by IPO in H1 217, 56% less than in H2 216. Most Chinese companies were listed on domestic stock exchanges in H1 217, primarily ChiNext of Shenzhen Stock Exchange and Shanghai Stock Exchange. New York Stock Exchange was the only overseas stock exchange where some Chinese companies were listed in H1 217. 19 MoneyTree TM China TMT Report 35 exits in Q1 217 IPO: 16 deals, 46% of the total Strategic sales: 1 deals, 29% of the total Secondary sales: 9 deals, 25% of the total Figure 22: Exit types in the TMT industry - Q1 217 1 29% 9 25% 16 46% IPO Strategic sales Secondary sales 15 exits in Q2 217 Strategic sales: 7 deals, 47% of the total IPO: 6 deals, 4% of the total Secondary sales: 2 deals, 13% of the total Figure 23: Exit types in the TMT industry - Q2 217 2 13% 6 4% IPO Strategic sales Secondary sales 7 47%
Exits by sub-sector Q1 217 Exits by sector in the TMT industry: Internet and Mobile Internet: 15 deals, 43% of the total Technology: 11 deals, 31% of the total Entertainment and Media: 6 deals, 17% of the total Telecommunications: 3 deals, 9% of the total 15 11 3 6 6 2 7 Q2 217 Exits by sector in the TMT industry: Technology: 7 deals, 47% of the total Internet and Mobile Internet: 6 deals, 4% of the total Telecommunications: 2 deals, 13% of the total Figure 24: Exit volume in the TMT industry by quarter - Q3 214-Q2 217 35 3 25 2 17 15 11 1 7 7 7 7 5 4 4 6 4 2 2 3 35 26 27 22 22 16 15 15 16 14 12 1 9 11 9 9 6 8 8 5 4 3 3 2 2 3 3 1 2 3 7 6 2 More exits from Internet and Mobile Internet were seen in H1 217, reaching a historic high. Exits from Technology and Entertainment and Media decreased somewhat to the level of H2 214. Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Telecommunications Technology Internet and Mobile Internet Entertainment and Media MoneyTree TM China TMT Report 2
4. Methodology and definitions TMT is an acronym for Telecommunications, Media and Technology. In this report, we analyse the four most active TMT sub-sectors: Technology, Internet and Mobile Internet, Telecommunications and Entertainment and Media. In recent years, with the rapid migration of Internet users from PCs to mobile devices, more companies providing services to Internet users over the Internet and the mobile Internet. The boundary between Internet companies and mobile Internet companies is fading. Thus, we have classified Internet and Mobile Internet as one sub-sector since 217. This report covers Q1 and Q2 217. However, to show trends and make comparisons, we have included data from H2 214 to 216, and have updated figures on investments and exits by sub-sector based on the new classification. In this report, only deals disclosing specific investment data were included. Deals that did not disclose the specific investment period, deal value or investment stage were excluded to maintain the accuracy of the analysis and this report. All data in this report was provided by Zero2IPO Research. Definitions Technology sub- sector Hardware: Computer hardware, computer peripherals, network equipment, etc. Software: Basic software, software applications, etc. IT Services: IT consultation, software outsourcing, hosting services, computer and network security, etc. Electronics & Optoelectronics Devices: Optoelectronic components, optoelectronics, electronics, power supply, etc. Semiconductor: IC design, IC testing and packaging, IC equipment manufacturing, etc. Internet and Mobile Internet E-commerce: B2C, B2B, C2C, etc. Internet Marketing: Information portal, search engine, advertising agency and Internet marketing services Internet Services: Online travel services, online recruitment services, online housekeeping services, etc. Online Education: E-learning, online classroom, etc. Online Entertainment: Online gaming, online video and online music Social Media: Bulletin board/forum, online networking, etc. Internet Finance: I-finance, E-payment, etc. 21 MoneyTree TM China TMT Report
Mobile: Mobile entertainment, Mobile advertising, Mobile shopping, Mobile healthcare, Mobile technology, Mobile education, Mobile services, Mobile social media, and Mobile messaging Telecommunications Telecom Equipment and Terminals: Telecommunications and mobile equipment, telecommunications and mobile terminals, telecommunications and mobile software, etc. Other Telecommunications Subsectors: Mobile operators, fixedline operators, virtual network operator (VNO) and others Entertainment and Media Traditional Media: Newspaper, magazines, publishing, etc. Outdoor Media: Outdoor print ads, outdoor LED TV, mobile TV, building TV, etc. Video Production and Distribution: Film and television production and distribution, film projection, etc. Advertising Creation/Agency: Ad creation, media buying, ad agency, etc. Cultural Transmission: Culture brokerage and agency, etc. Entertainment and Leisure: Animation and other industries Stage of development Early stage: This stage varies from one to five years while the product or concept is under development and not yet in mass and commercial production. During this stage, funds are mainly used for acquiring production equipment and developing products as well as marketing and setting up management systems. Expansion stage: The investment period at this stage usually lasts about two or three years. The products or services have been recognised by the market. The company generally needs more funds to further develop the product, and to expand facilities and production. Inventory planning and marketing efforts are also ramped up. Late stage: During this stage, the company has grown its operating revenue, and is more likely to be, but not necessarily, profitable. The company may have plans to go public. The main purpose of financing is to seek capital to grow capacity, and to introduce shareholders with industry experience and influence, thereby increasing corporate recognition and attracting shareholders. The company will aim to improve its financial structure and management system in preparation for listing. At this stage, the investment risk is the lowest, but the chance of high returns on investment is also lower. PIPE (private investment in public equity): PE investments in publicly listed companies via preferential allotments or private placements, and the acquisition of shares by PE firms via the secondary market. Exits IPO: IPO stands for initial public offering. IPO refers to listing on the stock markets in Shanghai, Shenzhen, Hong Kong and overseas to begin selling and trading shares. Strategic sale: This includes the sale of the PE or VC investors equity stakes (or the entire investee company itself) to a third-party company. Management buy-out: The purchase of a company by its management through either debt- credit finance or stock transaction, resulting in changes in corporate ownership, control, residual claim and assets to alter the structure of corporate proprietary rights. Through a management buy-out, the company s operators become its owners. Secondary sale: Any purchase of the PE or VC investors equity stakes by another PE or VC investors constitutes secondary sale. MoneyTree TM China TMT Report 22
23 MoneyTree TM China TMT Report
5. Contacts If you d like to discuss PE/VC investments in TMT market in China or how PwC might be able to help your company meet its challenges, please reach out to one of the TMT industry leaders listed here. MoneyTreeTM China TMT Report Editorial Team: Frank Lin Partner, TMT +86 (21) 2323 2955 frank.lin@cn.pwc.com Brian B Yan Senior Manager, TMT +86 (21) 2323 3591 brian.b.yan@cn.pwc.com Lina Miao Marketing & Communications Manager, Private Equity & TMT +86 (21) 2323 3228 lina.miao@cn.pwc.com Layla Peng Coachee on PwC YouPlus Wilson Chow PwC Global TMT Leader +86 (755) 8261 8886 wilson.wy.chow@cn.pwc.com Jianbin Gao PwC China TMT Leader +86 (21) 2323 3362 gao.jianbin@cn.pwc.com Beijing Amanda Zhang +86 (1) 6533 298 amanda.zhang@cn.pwc.com Shanghai Jianbin Gao +86 (21) 2323 3362 gao.jianbin@cn.pwc.com Shenzhen Wilson Chow +86 (755) 8261 8886 wilson.wy.chow@cn.pwc.com Vincent Cheuk +86 (755) 8261 8871 vincent.cheuk@cn.pwc.com Hong Kong Cecilia Yau +852 2289 1385 cecilia.yau@hk.pwc.com MoneyTree TM China TMT Report 24
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