China VCs double web 2.0 investment

Venture capitalists invested more than US$200m in growing internet and information services firms in China during the second quarter of this year, a newly-released report has found.

A wave of web 2.0 start-ups were among the stars of a new boom in Chinese technology investment by venture capital companies, according to research carried out by international services firm Ernst & Young.

The size of investments is growing as China's internet and technology markets mature, the report found.

"The median amount of capital put to work in IT deals in mainland China now stands at US$6.2m, the highest on record and up from the median of $5m seen in 2006," said Bob Partridge, of Ernst and Young's transaction advisory services department in China.

"As investors move to monetise China's internet, we have seen a consistent increase in the amount of capital invested in IT deals."

Firms in China's information services sector attracted a total of US$209m in VC investment in the second quarter, more than any other sector.

The investment, in 22 separate deals, was more than double the amount seen in the first quarter, with an average deal size of more than US$9m.

Companies receiving funding included blogs, social networks, wikis and other web 2.0 companies, according to the report.

"Reflecting the quick development of web 2.0 products and services, 50 of mainland China's 55 total deals were for companies in advanced stages of development," the report stated.

"Of these, eight deals were for companies already turning a profit and 42 had fully developed product offerings."

Total venture capital investments in China's IT and internet firms rose 82 per cent quarter-on-quarter to reach US$347m, the highest quarterly figure for almost four years.