Deals

China rising: Venture investments increase 47 percent in third quarter

Updated

The U.S. venture capital industry is seeing a slow and steady recovery.

China, however, is roaring like a dragon. Venture capital investments in mainland China companies rose 47 percent in the quarter, compared to the same quarter last year — and total investments for the year should shatter last year’s levels.

Venture capitalists pumped $361.1 million into 54 companies during the quarter, according to Ernst & Young and Dow Jones VentureOne.

Through the first three quarters of the year, investors have committed $1.18 billion to 145 deals, almost matching the entire year of 2005, which saw $1.2 billion invested in 151 deals.

The median round size reached $5 million, the highest on record.

There’s more action to come. Seed and first-round deals made up the majority (70 percent) of the quarter’s deal flow, suggesting that these companies will grow into larger companies and get more cash.

And venture-backed companies are comparatively more mature than U.S companies, the survey found. For example, 69 percent of the companies funded in the third quarter in mainland China are already shipping product, compared to 56 percent in the U.S., and 22 percent of the Chinese companies are already profitable compared to 7 percent in the U.S.

By industry, information technology investments remain dominant in China, and within that area, Internet services saw the most action — with 22 deals and $136.2 million invested.

Update: We should note that investment levels will most likely not break 2003′s record level of $2.4 billion. As a reader points out below, many of these investments aren’t into high-tech companies, and are being made in older industries. On the other hand, the investments are still being made at much lower valuations than in the U.S., so there’s more activity going on than you might think based merely on the dollar levels. Finally, it is not clear how accurate these statistics are. Presumably, as more money is invested by local investors, these deals will not be tracked as easily (VentureOne gets much of its data — though not all of it — from ties with U.S.-based venture firms).

Update II: The biggest players are IDG Ventures China, which made 17 investments during the quarter, and Sequoia, which made 13 investments, according to the DowJones data.