China sees decline in first quarter VC funding | KPMG | CN

China sees decline in first quarter VC funding, finds KPMG analysis

China sees decline in first quarter VC funding

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Investment and deals into venture capital (VC)-backed companies declined further in the first three months of 2016, due to market uncertainties and slowing VC activities in China, finds a recent report on global investment trends.

Global economy concerns and a decline in global valuations have seen investors take a cautious, selective approach. Q1 2016 saw USD25.5 billion invested across 1,829 deals, down from USD 27.7 billion and 1,907 deals in Q4 2015, according to Venture Pulse, the quarterly global report on VC trends published jointly by KPMG International and CB Insights.

Q1 2016 was also challenging for the China market. Although deal volumes increased slightly to 85 from 78 in the previous quarter, investment declined 45 percent to USD4 billion, around 40 percent of its USD10.2 billion record set in Q3 2015.

Irene Chu, Partner and Head of the High Growth Technology and Innovation Group, KPMG China, says: “The decline in China VC activities in Q1 was driven by a more cautious investment climate, decrease in mega-deals and average deal size.  Meanwhile Chinese VCs are starting to go out and invest overseas. There has been a much stronger push from the central government for Chinese investors, especially large corporate investors, to look internationally for opportunities to help strengthen ecosystem.”

The report highlights that M&A is becoming an increasingly attractive exit strategy as IPO exits in China remain difficult for both investors and founders. Chinese companies are also pursuing M&A and other investment opportunities in the United States. International VC investors accounted for 27 percent of investment in US based companies, in Q1 2016, compare to 17 percent in Q4 2015. Of these international participants, China-based VC investors came second only to those from the UK.

Meanwhile, investment activities in digital health bucked the broader market trend, with a 49 percent increase in investment to USD1.7 billion, the report notes. The US topped the chart in this sector - USD1.4 billion in 84 deals, followed by China - where 10 deals were concluded with total investments of USD121.6 million.

As a number of countries strive to improve the quality and reach of their healthcare systems, digital health sector remains attractive to investors, also due to diversified acquisition and exit routes. Lyndon Fung, Partner, U.S. Capital Markets Group, KPMG China, concludes: “In the future, we expect to see more buyout activities and consolidation in China. We also expect to see a lot more corporates setting up VC arms to make venture type investments in order to get in the game.”

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About KPMG

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have more than 174,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies. 

Today, KPMG China has around 10,000 professionals working in 17 offices: Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.

Venture Pulse Q1 2016

Venture Pulse Q1 2016

This edition of the quarterly series provides in-depth analysis on venture capital investments across North America, EMA and ASPAC and covers ...

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