Shenzhen attracts venture capitalists
(Shenzhen Daily)
Updated: 2004-04-05 10:51

When Huang Jingsheng, managing director of private-equity fund Softbank Asia Infrastructure Fund's China branch, decided to inject US$8 million in venture capital into Versa Technology Inc, last month, he had made three deals to provide financing for Shenzhen startups over the past two years.

Only eight Chinese mainland companies have landed venture capital funds from Softbank Asia, a US$1.05 billion joint venture between Japan's Softbank Corp. and Cisco Systems of the United States.

Huang is only one of a long list of domestic and international venture capitalists who have set their sights on Shenzhen.

"Shenzhen will develop into the most promising area for venture capital in China," said Cheng Siwei, vice chairman of the Standing Committee of the Chinese National People's Congress, at the China Venture Capital Forum 2004 in Shenzhen.

US-educated Cheng, often referred to as the "father of China's venture capital," also predicted sizzling growth for Shenzhen's venture capital in the coming years.

The two-day forum, which closed Saturday, attracted more than 700 government officials, scholars and venture capitalists from home and abroad.

Israeli Science Minister Eliezer Sandberg and Jean-Bernard Schmidt, chairman of the Association of Venture Investment in Europe, delivered important speeches concerning the growth of venture capital in Europe and Israel.

It is the first time the forum had been held outside Beijing. The forum was initiated by Cheng in Beijing in 1998.

Shenzhen Vice Mayor Liu Yingli said that holding the forum in Shenzhen indicated that venture capitalists had focused their attention on Shenzhen, a city which has seen double-digit economic growth and strong venture capital growth over the past few years.

Venture capital in Shenzhen has seen strong growth over the past three years despite an industry-wide slump.

Liu said the number of venture capital companies in the city was 187 at the end of last year, a whopping increase of 410 percent from three years earlier and accounting for one third of the country's total.

Venture capital funds totaled 12.5 billion yuan (US$1.51 billion), a jump of 223 percent compared with three years ago.

The timing of the forum in Shenzhen was also widely associated with an imminent launch of a Nasdaq-style second board catering to China's high-technology small and medium enterprises.

There has been wide market speculation that the Shenzhen Stock Exchange -- which had new share listings suspended three and a half years ago -- may start listing the first batch of about 20 small and medium companies in May.

The delay of the second board had, to a certain degree, slowed the growth of China's venture capital industry as venture capitalists had to turn to overseas stock listings to cash out their investments, some industry executives have said.

Venture capital investments bounced back strongly in China last year after the bursting of a worldwide high-tech bubble in late 2000 hit the industry hard.

China attracted US$1.57 billion in venture capital last year, compared with US$325 million the year before. This year, US$150 million has already been raised, according to the Asian Venture Capital Journal, ranking the country fourth in the region behind Japan, South Korea and Australia.

Improved stock market conditions worldwide, China's strong economy which grew at 9.1 percent last year and increasing investor enthusiasm for China-related stocks have fuelled the industry's strong growth, analysts say.

Also helping are an increase in successful exits from Chinese investments by venture capitalists through a rash of initial public offerings by Chinese mainland companies on some overseas stock markets, mergers and takeovers, analysts say.

With its stellar economic growth and sound investment environment, Shenzhen has remained a magnet for venture capital funds.

Statistics released by the Shenzhen Venture Capital Association have shown that about 85 percent -- 10.63 billion yuan -- of the 12.5 billion yuan in venture capital funds have been invested in information technology, new materials, computer network and biopharmacy.

High-tech startups and private companies, which have difficulty obtaining loans or raising capital because of their small size but have great potential for rapid growth, are most likely to be on the radar screen of venture capitalists, industry executives say.

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